UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM
For
the Quarterly Period Ended
OR
For the transition period from _______ to ________.
Commission
file number:
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| Warrants, exercisable for one share of Common Stock | KTTAW | The Nasdaq Capital Market |
Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. ☒
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||
| ☒ | Smaller Reporting Company | |||||
| Emerging Growth Company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes
As
of November 14, 2022, there were
PASITHEA THERAPEUTICS CORP.
FORM 10-Q
For the Quarter ended September 30, 2022
i
PART I – FINANCIAL INFORMATION
Item 1. Financial StatemeNTS
PASITHEA THERAPEUTICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment | ||||||||
| Right of use asset- operating lease | ||||||||
| Intangibles | - | |||||||
| Goodwill | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Lease liability- short term portion | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Lease liability | ||||||||
| Warrant liabilities | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 4) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, par value $ | ||||||||
| Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are in integral part of these unaudited condensed consolidated financial statements.
1
PASITHEA THERAPEUTICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of services | ||||||||||||||||
| Gross margin | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and Development | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain on forgiveness of accounts payable | - | - | ||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are in integral part of these 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 December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Issuance of common stock for cash | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Share adjustment | ||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Sale of | ||||||||||||||||||||||||
| Issuance of | - | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of | - | ( | ) | ( | ) | |||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Shares issued for services | ||||||||||||||||||||||||
| Warrants issued for acquisition | - | |||||||||||||||||||||||
| Common share issued for acquisition | ||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation expense | - | |||||||||||||||||||||||
| Shares issued for services | - | - | ||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | ( | ) | ( | ) | ||||||||||||||||||
The accompanying notes are in integral part of these unaudited condensed consolidated financial statements.
3
PASITHEA THERAPEUTICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months Ended | ||||||||
| September 30, 2022 | September 30, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Stock-based compensation | ||||||||
| Value of shares issued for services | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Changes in prepaid expenses | ( | ) | ( | ) | ||||
| Changes in other assets | ( | ) | ||||||
| Changes in accounts payable and accrued liabilities | ||||||||
| Changes in lease liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Acquisition of business, net of cash acquired | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash proceeds from sale of Units | - | |||||||
| Cash proceeds from issuance of common stock | ||||||||
| Payment of offering costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign currency translation on cash | ( | ) | ( | ) | ||||
| NET CHANGE IN CASH | $ | ( | ) | $ | ||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
The accompanying notes are in integral part of these unaudited condensed consolidated financial statements.
4
PASITHEA THERAPEUTICS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
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. The Company is a biotechnology company focused on the discovery research and development of innovative treatments for central nervous system (CNS) disorders. The Company’s primary operations focus on developing drugs that target the pathophysiology underlying such disorders rather than symptomatic treatments, with the goal of developing new pharmacological agents that display significant advantages over conventional therapies with respect to efficacy and tolerability.
On
September 17, 2021, the Company sold
The Company’s secondary operations are focused on providing business support services to anti-depression clinics in the U.K. and in the United States. Its operations in the U.K. involve providing business support services to registered healthcare providers who assess patients and, if appropriate, administer intravenous infusions of ketamine. Its operations in the United States involve providing business support services to entities that furnish similar services to patients who personally pay for those services. Operations are expected to initially take place across the United States and the U.K. through partnerships with healthcare companies.
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 Corp, and Alpha 5 Integrin, LLC (See Note 7- Acquisition). Pasithea Therapeutics Limited (U.K.) is 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 Corp. is incorporated in Delaware. Alpha 5 Integrin, LLC is Delaware limited liability company.
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”) for interim financial information and are unaudited. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the Company’s financial position at such dates and the operating results and cash flows for such periods. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2021 was derived from our audited financial statements but does not include all disclosures required by U.S. GAAP. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its annual report on Form 10-K, as filed with the Securities and Exchange Commission on March 30, 2022. Certain prior period amounts have been reclassified for consistency with current period presentation. These reclassifications had no effect on the totals presented in the condensed consolidated statement of operations or cash flows. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any future period.
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 (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) 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 which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
5
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS
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, Pasithea Therapeutics Limited (U.K.), Pasithea Clinics Corp. (“Pasithea Clinics”) Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda (“Pasithea Portugal”), and Alpha 5 Integrin, LLC. 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. One of the more significant accounting estimates included in these condensed consolidated financial statements is the determination of fair value of the warrant liabilities. Accordingly, the actual results could differ significantly from those estimates.
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 & patents. Research and development costs consist principally of compensation of employees and consultants that perform the Company’s research activities, payments to third parties for preclinical and non-clinical activities, costs to acquire drug product from contract development and manufacturing organizations and third-party contractors relating to chemistry, manufacturing and controls (“CMC”) efforts, the fees paid for and to maintain the Company’s intellectual property, 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.
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. The Company had no cash equivalents as of September 30, 2022 and December 31, 2021.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets. 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. As of September 30, 2022 and December 31, 2021, the Company had total fixed assets (property and equipment) of $
6
Offering Costs
Offering
costs consist of professional fees, filing, regulatory and other costs incurred through the balance sheet date that are directly related
to the Initial Public Offering. In September 2021, the Company recognized offering costs of $
Warrant Liability
The Company accounts for its Public and Representative Warrants (each, the “Public Warrants” and “Representative Warrants” and, collectively, 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 Public and Representative Warrants was initially measured at the end of each reporting period, using a Black-Scholes option pricing model. As of September 30, 2022, the fair value of the Public Warrants was measured using quoted market prices, and the fair value of the Representative Warrants was based on an estimate of the relative fair value to the Public Warrants, accounting for a small difference in the exercise price.
Income Taxes
The
Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax
assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be
realized. As of September 30, 2022, the Company had deferred tax assets related to certain net operating losses. A valuation allowance
was established against these deferred tax assets at their full amount, resulting in a
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
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 $
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 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: | ||||||||||||||||
| Description | Fair Value | Quoted prices in active markets for identical liabilities (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||||
| Liabilities: | ||||||||||||||||
| Public Warrant liabilities, September 30, 2022 | $ | $ | $ | $ | ||||||||||||
| Representative Warrant liabilities, September 30, 2022 | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Public Warrant liabilities, December 31, 2021 | $ | $ | $ | $ | ||||||||||||
| Representative Warrant liabilities, December 31, 2021 | $ | $ | $ | $ | ||||||||||||
The fair value of the liability associated with the Public Warrants as of September 30, 2022 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 September 30, 2022 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. The change of the Public Warrant liability from Level 3 to Level 1 was the only change between levels of the fair value hierarchy from December 31, 2021 to September 30, 2022.
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.
8
Revenue
The Company accounts for revenue in accordance with ASC Topic 606, “Revenue from Contracts with Customers.”
The
Company currently derives all its revenue from its operations providing business support services to registered healthcare providers
who assess patients, and if appropriate, administer intravenous infusions of ketamine. Under the business support services agreements,
the Company, among other things, markets the treatments to the extent permitted under law, arranges and pays for the fit-out of the consulting
room, provides equipment necessary for the treatments, develops, operates and maintains a booking website for the treatments, makes bookings
and takes payments, and employs or engages customer service advisers to liaise with clinical staff and pay certain staff costs. The price
of the treatments are fixed amounts jointly established by the Company and the healthcare providers. The Company collects
The Company also may arrange psychotherapy sessions with independent therapy professionals for patients. In such cases, the Company acts as a principal and recognizes the gross amount of revenue earned from such sessions, with the cost paid to the independent therapy professionals recognized in cost of services in the unaudited condensed consolidated statement of operations and comprehensive loss.
The Company’s performance obligation is satisfied when the services are rendered to the customer. There were no contract assets or liabilities as of September 30, 2022 or December 31, 2021. All sales have fixed pricing and there are currently no variable components included in the Company’s revenue.
Net Loss Per Share
Net
loss per share is computed by dividing net loss by the weighted average number of shares of common stock par value $
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Restricted stock units | ||||||||
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. |
9
Exchange differences arising on 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.
The relevant translation rates are as follows:
2022 | 2021 | |||||||
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 September 30, 2022 and December 31, 2021, the Company had no items impacting other comprehensive income (loss) except for the foreign currency translation adjustment.
Acquisitions, Intangible Assets and Goodwill
The condensed consolidated financial statements reflect the operations of an acquired business beginning as of the date of acquisition. Assets acquired and liabilities assumed are recorded at their fair values at the date of acquisition; goodwill is recorded for any excess of the purchase price over the fair values of the net assets acquired. Significant judgment is required to determine the fair value of certain tangible and intangible assets and in assigning their respective useful lives. Accordingly, we typically obtain the assistance of third-party valuation specialists for significant tangible and intangible assets. The fair values are based on available historical information and on future expectations and assumptions deemed reasonable by management but are inherently uncertain. The Company typically employs an income method to measure the fair value of intangible assets, which is based on forecasts of the expected future cash flows attributable to the respective assets. Significant estimates and assumptions inherent in the valuations reflect a consideration of other marketplace participants and include the amount and timing of future cash flows (including expected growth rates and profitability), the underlying product or technology life cycles, economic barriers to entry and the discount rate applied to the cash flows. Unanticipated market or macroeconomic events and circumstances could affect the accuracy or validity of the estimates and assumptions. Determining the useful life of an intangible asset also requires judgment. Intangible assets are amortized over their estimated lives. Any intangible assets associated with acquired in-process research and development activities (“IPR&D”) are not amortized until a product is available for sale.
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 represents the excess of the purchase price over the fair value of the identifiable net assets acquired in a business combination. 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.
10
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, adjust the ROU asset and liability accordingly.
Recent Accounting Pronouncements
In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-03, Fair Value Measurement (Topic 820) (“ASU 2022-03”). The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. The amendments in this Update also require additional disclosures for equity securities subject to contractual sale restrictions. The provisions in this Update are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not expect to early adopt this ASU. The Company is currently evaluating the impact of adopting this guidance on the consolidated balance sheets, results of operations and financial condition.
The Company does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
NOTE 3 – INITIAL PUBLIC OFFERING
Pursuant
to the Initial Public Offering, on September 17, 2021, the Company sold
Each Unit consisted of one share of Common Stock and one Public Warrant. Each redeemable Public Warrant entitles the holder to purchase one share of Common Stock at a price of $6.25 per share, will be exercisable upon issuance and will expire five years from issuance.
The Company classifies each Public Warrant as a liability at its fair value and the Public Warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value determined by the Black-Scholes model.
NOTE 4 – LEASES
Medical Office Lease – West Hollywood, California
In
March 2022, the Company entered into an agreement to lease a medical office in West Hollywood, California. The lease commenced on April
1, 2022.
This
lease was accounted for under ASC 842, Leases, which resulted in the recognition of a right of use asset (“ROU asset”) and
liability of $
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 has a gross monthly rent of $
11
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 $
NOTE 5 – STOCKHOLDERS’ EQUITY
The
Company is authorized to issue an aggregate of
Effective April 8, 2021, the Company amended its certificate of incorporation to effect a 1-for-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. All share information presented in these financial statements has been retroactively adjusted to reflect the reduced number of shares of Common Stock outstanding.
During
2021, the Company entered into various subscription agreements in connection with a private placement seeking to raise up to $
During
2021, the Company entered into various subscription agreements in connection with a second private placement seeking to raise up to $
November 2021 Private Placement
On
November 24, 2021, the Company entered into a purchase agreement (the “November 2021 Purchase Agreement”) with institutional
investors to issue
The
investors may exercise the PIPE Warrants on a cashless basis if the shares of Common Stock underlying the PIPE Warrants are not then
registered pursuant to an effective registration statement. The investors have contractually agreed to restrict their ability to exercise
the PIPE Warrants such that the number of shares of Common Stock held by the investors and any of their affiliates after such exercise
does not exceed either
In connection with the November 2021 Purchase Agreement, the Company entered into a registration rights agreement (the “November 2021 Registration Rights Agreement”) with the investors. Pursuant to the November 2021 Registration Rights Agreement, the Company is required to file a resale registration statement with the Securities and Exchange Commission (the “SEC”) to register for resale the shares and the warrant shares and to have such registration statement declared effective within 60 days after the date of the Purchase Agreement, or 90 days of the date of the November 2021 Purchase Agreement in the event the registration statement is subject to a “full review” by the SEC. The Company is obligated to pay certain cash liquidated damages to the investor if it fails to file the resale registration statement when required, fail to cause the registration statement to be declared effective by the SEC when required, or if it fails to maintain the effectiveness of the registration statement. The registration statement was declared effective by the SEC on December 16, 2021.
Pursuant
to a placement agent agreement (the “Placement Agent Agreement”), dated as of November 24, 2021, by and between us and EF
Hutton, division of Benchmark Investments, LLC (“EF Hutton”), the Company engaged EF Hutton to act as its exclusive placement
agent in connection with the November 2021 Private Placement. Pursuant to the Placement Agent Agreement, the Company paid EF Hutton a
cash fee of
On
November 29, 2021, the Company consummated the November 2021 Private Placement, pursuant to which it issued
12
A
total of
Stock Options
Stock option activity for the nine months ended September 30, 2022 was as follows:
| Weighted- average | ||||||||
| Number of | Exercise Price per | |||||||
| Options | Share | |||||||
| Outstanding, January 1, 2022 | $ | |||||||
| Granted | ||||||||
| Expired | ||||||||
| Exercised | ||||||||
| Outstanding, September 30, 2022 | $ | |||||||
| Exercisable, September 30, 2022 | $ | |||||||
These
options had a weighted average remaining life of
The
Company uses the Black-Scholes option pricing model to value their employee stock options. The weighted average grant date fair value
for those options granted during 2022 was $
Restricted Stock Units
Under
the terms of Dr. Marques’ 2021 Employment Agreement, Dr. Marques was granted
Restricted Stock
The Company recognized $
During the
three-month period ending September 30, 2022, the Company discovered shares issued for services were incorrectly accounted for during
the three-month period ending June 30, 2022. The error has been retrospectively corrected by reducing common shares outstanding by
Warrants
On June 21, 2022, the Company issued warrants
to purchase
This amount was included as part of the consideration paid for the Alpha 5 acquisition and included as part of the purchase price allocation accordingly.
NOTE 6 – WARRANT LIABILITIES
The Company evaluated the IPO Warrants as either equity-classified or liability-classified instruments based on an assessment of the IPO Warrants’ specific terms and applicable authoritative guidance in ASC 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether the IPO Warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the IPO Warrants meet all of the requirements for equity classification under ASC 815, including whether the IPO Warrants are indexed to the Company’s own common stock, among other conditions for equity classification. Pursuant to such evaluation, the Company further evaluated the IPO Warrants under ASC 815-40, Derivatives and Hedging — Contracts in Entity’s Own Equity, and concluded that the IPO Warrants do not meet the criteria to be classified in stockholders’ equity.
During
November 2021,
13
As
of September 30, 2022, the fair value of the Public Warrants was approximately $
As
of December 31, 2021, the fair value of the Public Warrants was approximately $
NOTE 7– BUSINESS COMBINATION
On
June 21, 2022, the Company entered into a membership purchase agreement (the “Alpha 5 Agreement”) with Alpha 5 to purchase
In addition, the Alpha 5 Agreement allows for an earnout to be paid as part of the consideration due to the sellers. As any future sales are predicated upon FDA approval, no amounts will be due the sellers in the absence of that approval. Should FDA approval be obtained the amount of the earnout payment is dependent on the attainment of certain financial targets. The terms of the earnout contain three performance target thresholds that trigger three different payout amounts depending on which of the three targets is achieved. Sales generated after the drug is no longer subject to any patent protection or regulatory exclusivity are excluded from the earnout calculation The earnout is deemed part of the consideration paid for the acquisition, in the form of contingent consideration. However, as of September 30, 2022, this amount has not yet been determined.
The Alpha 5 acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. The preliminary fair values of the acquired assets and liabilities as of the acquisition date were:
| Cash | $ | |||
| Prepaid assets | ||||
| Fixed assets | ||||
| Goodwill | ||||
| Total assets acquired | ||||
| Accounts payable & accrued expenses | ||||
| Total liabilities assumed | ||||
| Consideration | $ |
The preliminary purchase price allocation is based on estimates of the fair values of the tangible and intangible assets acquired and liabilities assumed. The Company will utilize recognized valuation techniques as part of its final valuation of the Alpha 5 acquisition. The above purchase price allocation is preliminary and subject to change as the Company may further refine the determination of certain assets during the measurement period of one year.
The goodwill recognized is largely attributable
to the potential leveraging of Alpha 5’s scientific expertise in the integrin space. The Company believes the acquisition of Alpha
5 will help in its efforts to move the treatment forward and increase its potential to have a positive impact on the treatment of ALS.
This goodwill is expected to be deductible for income tax purposes. Expenses incurred in relation to this acquisition totalled to $
Unaudited Pro forma Financial Information
The following pro forma financial information presents the combined results of operations for the Company and gives effect to the business combination discussed above as if it had occurred on January 1, 2022. The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the business combination had been completed on January 1, 2022, nor does it purport to project the results of operations of the combined company in future periods. The pro forma financial information does not give effect to any anticipated integration costs related to the acquired company.
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Pro Forma Condensed Consolidated Statement of Operations
For the Three and Six Months Ended June 30, 2022
(Unaudited)
| Three Months Ended June 30, 2022 | ||||||||||||
| PASITHEA THERAPEUTICS CORP. | ALPHA 5 INTEGRIN, LLC | PRO FROMA PASITHEA THERAPEUTICS CORP. | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of services | ||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income: | ||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||
| Foreign currency exchange gain/(loss) | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of accounts payable | ||||||||||||
| Other income | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | - | |||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted-average common shares outstanding, basic and diluted | ||||||||||||
| Basic and diluted net loss per common share | $ | ( | ) | |||||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| PASITHEA THERAPEUTICS CORP. | ALPHA 5 INTEGRIN, LLC | PRO FROMA PASITHEA THERAPEUTICS CORP. | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of services | ||||||||||||
| Gross margin | ( | ) | ( | ) | ||||||||
| Operating expenses: | ||||||||||||
| Selling, general and administrative | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ||||||
| Other income: | ||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||
| Interest expense | ||||||||||||
| Interest income | ||||||||||||
| Foreign currency exchange gain/(loss) | ( | ) | ( | ) | ||||||||
| Gain on forgiveness of accounts payable | ||||||||||||
| Other income | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ||||||
| Provision for income taxes | - | |||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Weighted-average common shares outstanding, basic and diluted | ||||||||||||
| Basic and diluted net loss per common share | $ | ( | ) | |||||||||
A pro forma balance sheet was excluded from this disclosure as the transaction is already reflected in the June 30, 2022 condensed consolidated balance sheets, given there were minimal adjustments to the June 20, 2022 Alpha 5 closing balance sheet.
15
NOTE 8 – SUBSEQUENT EVENTS
Acquisition of AlloMek Therapeutics, LLC
On
October 11, 2022, the Company entered into a Membership Interest Purchase Agreement, whereby it acquired
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of financial condition and operating results together with our financial statements and the related notes and other financial information included elsewhere in this quarterly report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our annual report on Form 10-K for the year ended December 31, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, such as those set forth in the section of this report captioned “Risk Factors” and elsewhere in this quarterly report on Form 10-Q as well as the risk factors set forth in the section titled “Risk Factors” included in our annual report on Form 10-K, our actual results may differ materially from those anticipated in these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below.
Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Pasithea Therapeutics Corp. and its subsidiaries, Pasithea Therapeutics Limited (UK), Pasithea Clinics Inc., and Alpha 5 Integrin, LLC. 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, is a Delaware limited liability company.
The full extent to which the COVID-19 pandemic may directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements, and although there is currently no major impact, there may be changes to those estimates in future periods. Actual results may differ from these estimates.
Company Summary
We are a biotechnology company focused on the discovery, research and development of innovative treatments for central nervous system (CNS) disorders. We are focused on developing our lead therapeutic candidate, PAS-004 (CIP-137401), a potential best-in-class macrocyclic mitogen-activated protein kinase kinase 1/2 (MEK) inhibitor for use in a range of CNS-related indications, including neurofibromatosis type 1 (NF1) and Noonan syndrome that we acquired from AlloMek Therapeutics, LLC (“AlloMek”) in October 2022. PAS-004 is an IND-ready asset and we are preparing to initiate cGMP manufacturing to support an Investigational New Drug (“IND”) application with the U.S. We are also focused on the development of our high potential discovery programs aimed at developing drug candidates based on novel targets, including PAS-003, a monoclonal antibody targeting a5b1 integrin for the treatment of ALS, PAS-002, a DNA vaccine targeting GlialCAM for the treatment of Multiple Sclerosis, and PAS-001, a small molecule targeting the compliment component 4 (C4) gene for the treatment of schizophrenia.
Our secondary operations are focused on providing business support services to anti-depression clinics. Our operations in the U.K. involve providing business support services to registered healthcare providers who assess patients, and if appropriate, administer intravenous infusions of ketamine, and our operations in the United States involve providing business support services to entities that furnish similar services to patients who personally pay for those services. Operations initially take place across the United States and the U.K. through partnerships with healthcare companies, including Zen Healthcare and The IV Doc. Our operations are limited to providing business support services to healthcare companies. In the United States, certain of these business support services will be subcontracted to through a Business Support Services subcontract. We do not provide professional medical services, establish or own anti-depression clinics, provide psychiatric assessments, or be responsible for the administration of intravenous infusions of ketamine in the United States. Furthermore, we do not obtain or administer ketamine, nor do we maintain any license or registration to own, maintain or dispense controlled substances in the U.K. or in the United States. We provide business support services to properly authorized companies that provide clinical services of the type described above to self-pay patients, and we subcontract certain of these business support services.
17
Results of Operations
Three and Nine Months Ended September 30, 2022 and 2021
Our financial results for the three and nine months ended September 30, 2022 and 2021 are summarized as follows:
| Three Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 218,608 | $ | - | ||||
| Cost of services | 86,465 | - | ||||||
| Selling, general and administrative | 3,223,955 | 1,273,600 | ||||||
| Research and development | 1,159,001 | - | ||||||
| Loss from operations | (4,250,813 | ) | (1,273,600 | ) | ||||
| Other income (expense), net | (335,317 | ) | (252,508 | ) | ||||
| Loss before income taxes | $ | (4,586,130 | ) | $ | (1,526,108 | ) | ||
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 245,847 | $ | - | ||||
| Cost of services | 114,503 | - | ||||||
| Selling, general and administrative | 8,587,866 | 2,551,156 | ||||||
| Research and development | 1,278,922 | - | ||||||
| Loss from operations | (9,735,444 | ) | (2,551,156 | ) | ||||
| Other income (expense), net | 916,680 | (252,508 | ) | |||||
| Loss before income taxes | $ | (8,818,764 | ) | $ | (2,803,664 | ) | ||
Revenues for the three and nine months ended September 30, 2022 relate to our operations providing business support services to registered healthcare providers who assess patients, and if appropriate, administering intravenous infusions of ketamine in the U.K. and the U.S. The increase in our loss before income taxes for the three and nine months ended September 30, 2022 compared to the same period of 2021 is mainly attributable to increased selling, general and administrative expenses as a result of further expansion of operations, non-recurring expenses in connection with the acquisition of Alpha 5 and AlloMek, ongoing legal and proxy expenses related to the dissident shareholder campaign, and research and development expenses related to the development of PAS-001, PAS-002 and PAS-003. These losses were partially offset by a decrease in the fair value of our warrant liabilities of $0.9 million for the nine months ending September 30, 2022.
Working Capital
| As of | ||||||||
| September 30, 2022 | December 31, 2021 | |||||||
| Current assets | $ | 44,469,392 | $ | 53,300,457 | ||||
| Current liabilities | 1,513,982 | 447,280 | ||||||
| Working capital | $ | 42,955,410 | $ | 52,853,177 | ||||
Working capital decreased by $10.0 million between December 31, 2021 and September 30, 2022 due primarily to cash used to fund our loss from operations for the period ended September 30, 2022.
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Liquidity and Financial Condition
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Net loss | $ | (8,818,764 | ) | $ | (2,803,664 | ) | ||
| Net cash (used in) operating activities | (10,143,230 | ) | (1,429,725 | ) | ||||
| Net cash (used in) investing activities | (305,546 | ) | (8,570 | ) | ||||
| Net cash provided by financing activities | - | 21,763,726 | ||||||
| Effect of foreign currency translation | (119,697 | ) | (3,762 | ) | ||||
| Increase (decrease) in cash and cash equivalents | $ | (10,568,473 | ) | $ | 20,321,669 | |||
The decrease in cash and cash equivalents was primarily attributable to cash used to fund our operations, research and development, and make equipment purchases during the period.
Liquidity & Capital Resources Outlook
As of September 30, 2022, we had $42,398,233 in our operating bank accounts and working capital of $42,955,410. Our liquidity needs prior to the consummation of our Initial Public Offering had been satisfied through proceeds from the issuance of shares of Common Stock in private placements. Subsequent to the consummation of the Initial Public Offering and the November 2021 Private Placement, our liquidity was and will continue to be satisfied through the net proceeds from the consummation of the Initial Public Offering and the November 2021 Private Placement. Based on the foregoing, management believes that we will have sufficient working capital to meet our liquidity needs through twelve months from the issuance date of the financial statements included in this quarterly report.
Contractual Obligations
See Note 4 – Commitments and Contingencies in the Notes to Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q 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.
19
Critical Accounting Policies and Estimates
Our critical accounting policies, which include (1) revenue recognition, (2) stock-based compensation and (3) fair value measurements, are more fully described in the notes to our financial statements included in our 10-K for the fiscal year ended December 31, 2021. 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 Warrants, which requires that we make certain assumptions involving assumptions similar to those described above, as well as to changes in relative fair value. |
| ● | Assumptions used in the valuing of our intangible assets related to our acquisition, and those used in the calculation of the potential earnout. |
For additional information on critical accounting policies and estimates, see Note 2 to the Financial Statements, “Summary of Significant Accounting Policies and New Accounting Standards,” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
New accounting standards
For discussion of new accounting standards, see Note 2 to the Financial Statements, “Summary of Significant Accounting Policies and New Accounting Standards,” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Item 3. 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 4. Controls and Procedures
The Company has established a Disclosure Controls Committee that assists the Chief Executive Officer and Chief Financial Officer in their evaluation of the Company’s disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation as of the end of the period covered by this report, that our disclosure controls and procedures, as defined in the Securities Exchange Act of 1934, as amended (the Exchange Act), Rule 13a-15(e), are effective to ensure that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (ii) is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On October 31, 2022, a civil action was commenced against the Company and its Board of Directors in the Court of Chancery for the State of Delaware captioned Concord IP2 Ltd., et al. v. Pasithea Therapeutics Corp., et al., C.A. No. 2022-0980-NAC. The action seeks, among other things, a judgment declaring that the director defendants breached their fiduciary duties in connection with two acquisitions made by the Company in 2022, as well as temporary, preliminary and permanent injunctive relief enjoining the Company from counting the shares issued in connection with those two acquisitions at an upcoming special meeting and the Company’s next annual meeting with respect to the election of directors. A hearing on Plaintiffs’ motion to expedite and motion for a temporary restraining order has been scheduled for November 16, 2022. The Company and the director defendants will vigorously contest this action.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in our annual report on Form 10-K for the year ended December 31, 2021. Our business involves significant risks. You should carefully consider the risks and uncertainties described in our Form 10-K, together with all of the other information in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On October 11, 2022, in connection with our acquisition of AlloMek we issued to the Sellers an aggregate of 2,700,000 shares of our Common Stock (the “AlloMek Shares”) and an aggregate of 1,000,000 warrants to purchase our Common Stock at an exercise price of $1.88 per share (the “AlloMek Warrants”). The AlloMek Warrants and AlloMek Shares were sold to the Sellers without registration under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws in a transaction not involving a public offering and the Sellers represented they are an accredited investor. We relied on the exclusion from the registration requirements of the Securities Act of 1933 afforded by Section 4(a)(2).
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
| Exhibit No. | Description | |
| 2.01 | ||
| 10.1* | Employment Agreement with Daniel Schneiderman | |
| 31.1* | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2* | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| ** | Furnished herewith. |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PASITHEA THERAPEUTICS CORP.
| By: | /s/ Tiago Reis Marques | |
| Tiago Reis Marques | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Date: November 14, 2022
| By: | /s/ Daniel Schneiderman | |
| Daniel Schneiderman | ||
|
Chief Financial Officer (Principal Financial Officer and |
Date: November 14, 2022
23