Pasithea Therapeutics Corp. — Q2 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2022. Pasithea is a biotechnology company developing treatments for psychiatric and neurological disorders; it also provides business-support services to ketamine-treatment clinics. On June 21, 2022, it acquired preclinical-stage Alpha-5 Integrin, which is developing an antibody for ALS and other neuroinflammatory disorders.
Financial highlights
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 | Comparison |
|---|---|---|---|
| Revenue | $13,581 | $27,239 | No revenue in the comparable 2021 periods |
| Cost of services / gross margin | $15,101 / $(1,520) | $28,038 / $(799) | No comparable 2021 costs or revenue |
| SG&A | $3.08 million | $5.48 million | 2021: $727,947 / $1.28 million |
| Operating loss | $(3.08) million | $(5.48) million | 2021: $(727,947) / $(1.28) million |
| Net loss | $(2.66) million | $(4.23) million | 2021: $(727,947) / $(1.28) million |
| Net loss per share | $(0.11) | $(0.18) | 2021: $(0.09) / $(0.16) |
Cash flow and liquidity. For the six months, operating cash use was $4.90 million, investing cash use was $75,117, and financing cash flow was zero. Cash declined $5.03 million to $47.94 million. At June 30, current assets were $48.61 million, current liabilities were $950,112, and working capital was $47.66 million, down from $52.85 million at year-end 2021. Management stated it expected working capital to meet liquidity needs for at least 12 months from issuance of the financial statements.
Debt and other obligations. The filing reports no borrowing debt. It records $459,663 in lease liabilities, including current and non-current portions, and $245,803 in warrant liabilities. The West Hollywood office lease has a 60-month term and base rent beginning at $8,336 monthly.
Equity and acquisition. The Alpha 5 acquisition consideration included 3,260,870 common shares and warrants for 1,000,000 shares; the reported preliminary purchase price was $3.64 million, including $3.83 million of goodwill. The seller group included Executive Chairman and co-founder Lawrence Steinman. A possible earnout is contingent on FDA approval and financial targets; its amount had not been determined at June 30. Common shares outstanding were 26,698,688 at June 30, versus 23,008,371 at December 31, 2021.
Material changes and unusual items
- Revenue began in 2022 but remained minimal and below cost of services.
- SG&A rose substantially year over year, which management attributed mainly to expansion following the 2021 IPO and private placement.
- Other income included a $421,700 quarterly and $1.21 million six-month gain from a decline in the fair value of warrant liabilities. The six-month figure also included a $45,000 gain from forgiveness of accounts payable. These items offset, but did not eliminate, operating losses.
- The company issued 429,447 shares to vendors for services during the quarter and recorded acquisition-related shares and warrants.
- Cash use increased from the prior-year six-month period, when operating cash use was $881,283 and financing provided $1.21 million.
Outlook, risks and controls
The filing gives no revenue, earnings, or clinical-development guidance. Management’s liquidity assessment is the principal stated outlook. Alpha 5 is preclinical, and any earnout depends on future FDA approval and specified financial targets. The company cautions that actual results may differ from estimates and identifies warrant, stock-option, acquired-asset, and earnout valuations as judgment-sensitive. It reported no material change to the risk factors in its 2021 Form 10-K, no material legal proceedings, and no material COVID-19 impact to date, while noting uncertainty about future effects. Management reported disclosure controls as effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Cash runway against the company’s operating and clinical-development plans, given $4.90 million of operating cash use in six months and minimal revenue.
- Whether clinic-support revenue can grow and achieve positive gross margins; current reported revenue was below cost of services.
- Alpha 5’s development progress, acquisition valuation and goodwill, related-party transaction terms, and any eventual earnout obligation.
- Potential dilution from outstanding warrants, options, restricted stock units, and shares issued for services or acquisitions.
- The effect of warrant remeasurement gains on reported net losses, since these gains are valuation-driven and do not represent operating revenue.