Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

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, 2024 and December 31, 2023 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, 2024, as compared to the fiscal year ended December 31, 2023. This discussion should be read in conjunction with our consolidated financial statements for the fiscal years ended December 31, 2024 and December 31, 2023 and related notes included elsewhere in this 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 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 (UK), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, Pasithea Clinics Inc., Alpha-5 Integrin, LLC, AlloMek Therapeutics, LLC and Pasithea MacroMEK Pty Ltd. Pasithea Therapeutics Limited (UK) is a private limited Company, registered in the United Kingdom (UK). Pasithea Clinics Inc. is incorporated in Delaware, Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, a private limited Company, registered in Portugal, and Alpha-5 Integrin, LLC and AlloMek Therapeutics, LLC, are both Delaware limited liability companies. Pasithea MacroMEK Pty Ltd is registered in Australia.

Overview

We are a clinical-stage biotechnology company focused on the discovery, research and development of innovative treatments for central nervous system (CNS) disorders and other diseases, including RASopathies.

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 Dose Escalation Study"). We are currently conducting the FIH Phase 1 Dose Escalation Study at four clinical sites in the United States and three additional sites in Eastern Europe. Our clinical development plan for PAS-004 is to advance PAS-004 into a Phase 1/1b clinical trial in adult NF1-PN patients followed by pediatric NF1-PN patients and ultimately complete registrational clinical trials in these patient populations, which are the initial indications that the Company plans to seek marketing approval of PAS-004 for.

Additionally, we have two programs that are in the discovery stage, which we believe address limitations in the treatment paradigm of the indications we plan 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, 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.

During the year ended December 31, 2023, we also 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"), AlloMek Therapeutics, LLC ("AlloMek") 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 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. 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.

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 2025, we expect inflation to continue to have a negative impact throughout 2025, 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 Amended and Restated Certificate of Incorporation reflecting a one-for-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 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. 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 data herein that relates to our Common Stock prior to the effective date has been retroactively restated to reflect the Reverse Stock Split.

Results of Operations

Years Ended December 31, 2024 and 2023

Our financial results for the years ended December 31, 2024 and 2023 are summarized as follows:

		For the Years Ended December 31,
		2024				2023				Change				% Change
Selling, general and administrative		$	7,051,468			$	7,878,596			$	(827,128	)			(10.5	)
Research and development			7,198,494				8,100,765				(902,271	)			(11.1	)
Loss from operations			(14,249,962	)			(15,979,361	)			1,729,399				(10.8	)
Other income, net			345,378				471,613				(126,235	)			(26.8	)
Net loss from continuing operations			(13,904,584	)			(15,507,748	)			1,603,164				(10.3	)
Net loss from discontinued operations, net of tax			-				(453,910	)			453,910				(100.0	)
Net loss		$	(13,904,584	)		$	(15,961,658	)		$	2,057,074				(12.9	)

General and Administrative

General and administrative expenses decreased by approximately $827,000, or 10.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily driven by (i) a decrease of $530,000 in professional fees, of which approximately $271,000 was related to public company and corporate communications expenses, approximately $127,000 was related to business development, and approximately $132,000 was related to personnel, office expenses or other professional fees (ii) a decrease in legal fees of approximately $461,000, (iii) a decrease in accounting fees of approximately $57,000, offset by (iv) an increase of approximately $147,000 in stock compensation expenses, and (v) an increase of approximately $74,000 in consulting fees.

We expect general and administrative expenses to decrease slightly in fiscal year 2025 as compared to fiscal year 2024 primarily due to reduced legal and public company and corporate communications expenses.

Research and Development

Research and development expenses for the years ended December 31, 2024 and 2023 relates to activities primarily focused on the development of PAS-004, PAS-003 and PAS-001.

Research and development expenses decreased by approximately $903,000, or 11.1%, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to (i) a decrease of approximately $2,019,000 of pre-clinical research related to our discovery programs, (ii) a decrease of approximately $1,141,000 in manufacturing costs related to PAS-004 due to the bulk manufacturing of GMP materials to support our clinical trials in fiscal year 2023, (iii) a decrease of approximately $167,000 in consulting fees, (iv) a decrease in compensation and stock compensation expenses of approximately $200,000 in connection with the reduction in workforce related to the closure of our research laboratory, offset by (v) an increase of approximately $2,624,000 in clinical research related to the ongoing FIH Phase 1 Dose Escalation Study.

We expect research and development expenses to increase in fiscal year 2025 as compared to fiscal year 2024 primarily due to (i) an increase in clinical research for PAS-004 related to the ongoing FIH Phase 1 Dose Escalation Study and the upcoming phase 1/1b clinical trial of PAS-004 in adult NF1-PN patients, and (ii) an increase in manufacturing costs related to the drug supply for our clinical trials, offset by decreases in pre-clinical research and the reduction in workforce related to the closure of our research laboratory.

Other Income, Net

For the year ended December 31, 2024, other income, net decreased by approximately $126,000, or 26.8%, as compared to the year ended December 31, 2023. The decrease was primarily driven by a $126,000 increase in the fair value of our warrant liabilities during the year ended December 31, 2024.

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, as of December 31, 2023, all activity related to our discontinued subsidiaries is included in Net loss from discontinued operations, net of tax in the statements of operations.

Working Capital

		As of December 31,
		2024				2023
Current assets		$	7,368,315			$	16,692,154
Current liabilities			1,119,871				2,634,040
Working capital		$	6,248,444			$	14,058,114

Working capital decreased by $7.8 million between December 31, 2024 and December 31, 2023 due primarily to cash used to fund operations for the year ended December 31, 2024.

Liquidity and Capital Resources

		Year Ended December 31,
		2024				2023
Net loss		$	(13,904,584	)		$	(15,961,658	)
Net cash used in operating activities		$	(13,923,438	)		$	(12,814,133	)
Net cash provided by investing activities			-				75,199
Net cash provided by (used in) financing activities			4,517,634				(3,726,416	)
Effect of foreign currency translation			(2,519	)			(3,991	)
Net cash used in discontinued operations			-				(287,471	)
Decrease in cash and cash equivalents		$	(9,408,323	)		$	(16,756,812	)

Cash and cash equivalents decreased by approximately $9.4 million for the year ended December 31, 2024 compared to a decrease of approximately $16.8 million for the year ended December 31, 2023, which was primarily attributable to cash used to fund operations, partially offset by an increase of approximately $4.5 million in net cash from financing activities from the private placement offering in September 2024.

Liquidity & Capital Resources Outlook

As of December 31, 2024, we had approximately $6.9 million in operating bank accounts and money market funds, with working capital of approximately $6.2 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 placements we consummated in November 2021 and September 2024 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.

In September 2024, we entered into a securities purchase agreement with an institutional investor for the issuance and sale in a private placement (the "September 2024 Private Placement") of (i) 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 Pre-Funded Warrant and accompanying September 2024 Warrants was $4.099. The net proceeds to us from the Private Placement were approximately $4.5 million, after deducting placement agent fees and estimated offering expenses.

We are able to sell securities on a shelf registration statement pursuant to the ATM Agreement with H.C. Wainwright & Co., LLC. Under current Securities and Exchange Commission regulations, if at any time our public float is less than $75.0 million, and for so long as our public float remains less than $75.0 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float, which is referred to as the baby shelf rules. As of December 31, 2024, our calculated public float is below $75.0 million and we will be restricted from selling more than an aggregate of one-third of our public float pursuant to a shelf registration statement in any twelve-month period, so long as the aggregate market value of our Common Stock held by non-affiliates is less than $75.0 million.

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.

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:

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the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

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the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;

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the extent to which we enter into collaborations or other arrangements with third parties in order to further develop our product candidates;

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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;

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expenses needed to attract and retain skilled personnel;

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the costs required to scale up our clinical, regulatory and manufacturing capabilities;

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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

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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

We will need significant additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development 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 Form 10-K for a summary of our contractual obligations.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Exchange Act.

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 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.

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:

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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.

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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.

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.