Pasithea Therapeutics Corp

Previous wording

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC.** **

Current wording

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. You should refer to the “Risk Factors” section of this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. We operate in an evolving environment and new risk factors and uncertainties may emerge from time to time. It is not possible for management to predict all risk factors and uncertainties. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether because of any new information, future events, changed circumstances or otherwise. You should review the factors and risks and other information we describe in the reports we will file from time to time with the SEC.** **

Previous wording

Our primary operations, the Therapeutics segment, are focused on developing our lead therapeutic candidate, PAS-004, a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that we believe may address the limitations and liabilities associated with existing drugs with a similar mechanism of action. PAS-004 is a small molecule allosteric inhibitor of MEK 1 and MEK 2 for potential use in the treatment of a range of RASopathies, including neurofibromatosis type 1 (“NF1”)- associated neurofibromas and a number of oncology indications, among others that we acquired from AlloMek Therapeutics, LLC in October 2022. In December 2023, the FDA cleared our IND for PAS-004 and the Company received a study may proceed letter from the FDA for the Company’s Phase 1 multicenter, open-label, dose escalation trial of PAS-004 in patients with MAPK pathway-driven advanced tumors with a documented RAS, NF1 or RAF mutation or patients who have failed BRAF/MEK inhibition. The Company is currently conducting the Phase 1 clinical trial at four clinical sites in the United States and plans to open an additional three sites in Eastern Europe in the third quarter of 2024. The Company’s clinical development plan for PAS-004 is to begin a Phase 1 clinical trial in adult and pediatric NF1-associated plexiform and/or cutaneous neurofibroma and ultimately seek FDA marketing approval in these patient populations.

Current wording

Our primary operations, the Therapeutics segment, are focused on developing our lead therapeutic candidate, PAS-004, a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that we believe may address the limitations and liabilities associated with existing drugs with a similar mechanism of action. PAS-004 is a small molecule allosteric inhibitor of MEK 1 and MEK 2 for potential use in the treatment of a range of RASopathies, including neurofibromatosis type 1 (“NF1”)- associated neurofibromas and a number of oncology indications, among others that we acquired from AlloMek Therapeutics, LLC in October 2022. In December 2023, the FDA cleared our IND for PAS-004 and 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.

Previous wording

Additionally, the Company has two programs that are in the discovery stage, which the Company believes address limitations in the treatment paradigm of the indications the Company plans to address with these programs, which are currently ALS for PAS-003 and schizophrenia for PAS-001. During the year ended December 31, 2023, we determined to cease further development of our PAS-002 program for multiple sclerosis due to several factors including the significant capital, resources and time required to develop the program, and the current and projected availability of effective treatment options for MS patients, among others.

Current wording

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 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.

Previous wording

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 as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

Current wording

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.

Previous wording

On December 28, 2023, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation reflecting a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Common Stock which became effective at 12:01 a.m. Eastern Time on January 2, 2024. As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock, with a corresponding reduction in the number of authorized shares of Common Stock from 495,000,000 to 100,000,000. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in the Company’s equity, except to the extent that the Reverse Stock Split resulted in some stockholders owning a fractional share. No fractional shares were issued in connection with the Reverse Stock Split. 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.

Current wording

On December 28, 2023, we filed a Certificate of Amendment to our Second Amended and Restated Certificate of Incorporation reflecting a one-for-20 reverse stock split (the “Reverse Stock Split”) of our issued and outstanding shares of Common Stock which became effective at 12:01 a.m. Eastern Time on January 2, 2024. As a result of the Reverse Stock Split, every 20 shares of Common Stock issued and outstanding were converted into one share of Common Stock, with a corresponding reduction in the number of authorized shares of Common Stock from 495,000,000 to 100,000,000. The Reverse Stock Split affected all stockholders uniformly and did not alter any stockholder’s percentage interest in our 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 a 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.

Previous wording

Comparison of the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Comparison of the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

Our financial results for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

Current wording

Our financial results for the three and nine months ended September 30, 2024 and 2023 are summarized as follows:

Previous wording

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expenses also include corporate facility costs not otherwise included in research and development expense, including rent, utilities, depreciation, amortization, and maintenance, as well as legal fees related to intellectual property and corporate matters, fees for accounting and consulting services and other expenses, including insurance, public company and corporate communications, information technology, and board fees.

Current wording

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance and accounting, legal, operations support, information technology and human resource functions. General and administrative expenses also include corporate facility costs not otherwise included in research and development expenses, including rent, utilities, depreciation, amortization, and maintenance, as well as legal fees related to intellectual property and corporate matters, fees for accounting and consulting services and other expenses, including insurance, public company and corporate communications, information technology, and board fees.

Previous wording

General and administrative expenses decreased by approximately $38,000, or 1%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The decrease was primarily driven by decreases in (i) personnel costs of approximately $324,000, (ii) accounting and business development of approximately $95,000 and (iii) other expenses of approximately $104,000, offset by increases in (i) legal expenses of approximately $171,000, (ii) office expenses, including franchise taxes and insurance of approximately $145,000, (iii) public company and corporate communications expenses of approximately $80,000, (iv) non-cash amortization and depreciation and stock-based compensation of approximately $52,000 and (v) consulting costs of approximately $37,000.

Current wording

General and administrative expenses decreased by approximately $779,000, or 13%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The decrease was primarily driven by decreases in (i) personnel costs of approximately $326,000, (ii) legal expenses of approximately $322,000, (iii) accounting and business development of approximately $210,000, (iv) public company and corporate communications expenses of approximately $137,000, (v) other income of approximately $117,000, and (vi) gain on payable of $18,000, offset by an increases in (i) office expenses, including franchise taxes and insurance of approximately $152,000, (ii) consulting costs of approximately $114,000, (iii) non-cash amortization and depreciation, stock-based compensation of approximately $80,000, and (iv) other expense of approximately $5,000.

Previous wording

We expect general and administrative expenses to continue at lower levels in fiscal year 2024 as compared to fiscal year 2023 due to the non-recurring expenses that were incurred in 2023 related to the unsolicited, non-binding proposal to acquire all outstanding shares of the Company from a third party and the tender offer we completed in September 2023.

Current wording

We expect general and administrative expenses to continue at lower levels in fiscal year 2024 as compared to fiscal year 2023 due to the non-recurring expenses that were incurred in 2023 related to the unsolicited, non-binding proposal to acquire all our outstanding shares from a third party and the tender offer we completed in September 2023.

Previous wording

Research and development expenses relate to activities primarily focused on the development of PAS-004 for the three and six months ended June 30, 2024, and PAS-004, PAS-003, and PAS-001 for the three and six months ended June 30, 2023.

Current wording

Research and development expenses relate to activities primarily focused on the development of PAS-004 for the three and nine months ended September 30, 2024, and PAS-004, PAS-003, and PAS-001 for the three and nine months ended September 30, 2023.

Previous wording

Research and development expenses increased by approximately $307,000, or 15%, for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase was primarily driven by increases in (i) clinical trial costs of approximately $844,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) personnel expenses, including salaries, benefits and severance payments of approximately $279,000 related to the closure of our research laboratory and reduction in related workforce, and (iii) general expenses of approximately $74,000, offset by decreases in (i) manufacturing and CMC expenses of approximately $323,000, (ii) preclinical research and development expenses related to our discovery programs of approximately $ 460,000, (iii) consulting costs of approximately $53,000 and (iv) non-cash stock-based compensation of approximately $54,000.

Current wording

Research and development expenses decreased by approximately $44,000, or 3%, for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The decrease was primarily driven by decreases in (i) preclinical research and development expenses related to our discovery programs of approximately $403,000 and (ii) personnel expenses and stock compensation expense of approximately $137,000 related to the closure of our research laboratory and reduction in related workforce, offset by increases in (i) consulting expenses of approximately $35,000, (ii) general research and development expenses of approximately $181,000, (iii) manufacturing and CMC expenses of approximately $160,000 and (iv) clinical trial costs of approximately $120,000 related to the initiation of the Phase 1 clinical trial of PAS-004.

Previous wording

Research and development expenses increased by approximately $982,000, or 31%, for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The increase was primarily driven by increases in (i) clinical trial costs of approximately $1,527,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) personnel expenses, including salaries, benefits and severance payments of approximately $257,000 related to the closure of our research laboratory and reduction in related workforce, (iii) consulting costs of approximately $102,000, iv) general expenses of approximately $65,000 and (v) non-cash stock-based compensation of approximately $61,000, offset by decreases in (i) preclinical research and development expenses related to our discovery programs of approximately $893,000 and (ii) manufacturing and CMC expenses of approximately $137,000.

Current wording

Research and development expenses increased by approximately $939,000, or 20%, for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by increases in (i) clinical trial costs of approximately $1,647,000 related to the initiation of the Phase 1 clinical trial of PAS-004, (ii) general research and development expenses of approximately $246,000, (iii) consulting costs of approximately $137,000, (iv) stock compensation and personnel cost of approximately $182,000 and (v) manufacturing and CMC expenses of approximately $22,000 offset by (i) preclinical research and development related to our discovery programs of approximately $1,295,000.

Previous wording

For the three months ended June 30, 2024, other income (expense), net decreased by approximately $152,000, or 66%, compared to the three months ended June 30, 2023. The decrease in other income (expense), net is due primarily to a decrease in the fair value of the Public Warrants and the Representative Warrants (as such terms are defined in “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) that occurred during the three months ended June 30, 2024, compared to a larger increase in the fair value of the Public Warrants and the Representative Warrants that occurred during the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, other income, net decreased by approximately $172,000, or 97%, compared to the three months ended September 30, 2023. The decrease in other income, net is due primarily to a decrease in the fair value of the Public Warrants and the Representative Warrants (as such terms are defined in “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q) that occurred during the three months ended September 30, 2024, compared to a larger increase in the fair value of the Public Warrants and the Representative Warrants that occurred during the three months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, other income (expense), net increased by approximately $81,000, or 46%, compared to the six months ended June 30, 2023. The increase in other income (expense), net is due primarily to dividend income of $268,000 during the six months ended June 30, 2024 compared to approximately $111,000 of dividend income during the six months ended June 30, 2023. This increase was partially offset related to the decrease in the fair value of warrant liabilities. See “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for more information on the accounting treatment of the Public Warrants and the Representative Warrants.

Current wording

For the nine months ended September 30, 2024, other income, net decreased by approximately $91,000, or 26%, compared to the nine months ended September 30, 2023. The increase in other income, net is due primarily to an increase in the fair value of warrant liabilities of approximately $191,000, offset by dividend income of $343,000 during the nine months ended September 30, 2024 compared to approximately $254,000 of dividend income during the nine months ended September 30, 2023. See “Note 2 – Summary of Significant Accounting Policies” in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for more information on the accounting treatment of the Public Warrants and the Representative Warrants.

Previous wording

Working capital decreased by approximately $6.8 million between December 31, 2023 and June 30, 2024 due primarily to cash used to fund operations for the six months ended June 30, 2024.

Current wording

Working capital decreased by approximately $5.0 million between December 31, 2023 and September 30, 2024 primarily due to cash used to fund operations for the nine months ended September 30, 2024.

Previous wording

Cash and cash equivalents decreased by approximately $8.4 million for the six months ended June 30, 2024, compared to a decrease of approximately $6.4 million for the six months ended June 30, 2023, which was primarily attributable to cash used to fund operations and an increase in prepaid expenses.

Current wording

Cash and cash equivalents decreased by approximately $7.0 million for the nine months ended September 30, 2024 compared to a decrease of approximately $13.5 million for the nine months ended September 30, 2023, which was primarily attributable to cash used to fund operations and an increase in prepaid expenses.

Previous wording

As of June 30, 2024, we had approximately $8.0 million in operating bank accounts and money market funds, with working capital of approximately $7.2 million. We have incurred significant operating losses and negative cash flows from operations. On June 30, 2024, we had an accumulated deficit of approximately $43.0 million. We have incurred recurring losses, have experienced recurring negative operating cash flows, and require significant cash resources to execute our business plans. Historically, our major sources of cash have been comprised of proceeds from various public and private offerings of our capital stock. We are dependent on obtaining additional working capital funding from the sale of equity and/or debt securities in order to continue to execute our development plans and continue operations. Subsequent to the consummation of the Initial Public Offering, our liquidity was and continues to be satisfied through the net proceeds from the Initial Public Offering, the private placement we consummated in November 2021 and the receipt of cash upon the prior exercise of our outstanding warrants. Based on the foregoing, management believes that we will not have sufficient working capital to meet our needs through twelve months from the issuance date of the condensed consolidated financial statements, without raising additional capital.

Current wording

As of September 30, 2024, we had approximately $9.4 million in operating bank accounts and money market funds, with working capital of approximately $9.1 million. We have incurred significant operating losses and negative cash flows from operations. On September 30, 2024, we had an accumulated deficit of approximately $46.4 million. We have incurred recurring losses, have experienced recurring negative operating cash flows, and require significant cash resources to execute our business plans. Historically, our major sources of cash have been comprised of proceeds from various public and private offerings of our capital stock. We received aggregate gross proceeds of approximately $4.5 million as a result of the September 2024 Offering. We are dependent on obtaining additional working capital funding from the sale of equity and/or debt securities to continue to execute our development plans and continue operations. 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 condensed consolidated financial statements, without raising additional capital.

Previous wording

Our critical accounting estimates, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2023, as filed on March 29, 2024. During the six months ended June 30, 2024, there were no material changes to our critical accounting policies and estimates from those described in our Form 10-K.

Current wording

Our critical accounting estimates, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the Notes to our Consolidated Financial Statements included in our Form 10-K for the fiscal year ended December 31, 2023, as filed on March 29, 2024. During the nine months ended September 30, 2024, there were no material changes to our critical accounting policies and estimates from those described in our Form 10-K.