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Item 1. Financial Statements

2022-05-16 compared with 2021-11-18 · 547 added, 399 removed, 189 unchanged (83% of the section changed)

Financial Statements

PASITHEA THERAPEUTICS

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,

March 31, 2022

December 31, 2021

Current assets:

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Total current liabilities

Non-current liabilities

Warrant liabilities

Total non-current liabilities

Total liabilities

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Common stock, par value $ 0.0001 , 495,000,000 shares authorized;

13,208,371 and 7,469,125 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively

23,008,371 shares issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated deficit

( 3,788,745 )

( 2,214,505 )

Total stockholders’ equity

Total liabilities and stockholders’

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Inception) to

September 30,

Total liabilities and stockholders’ equity

The accompanying notes are in integral part of these

unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

For the Three Months Ended

Cost of services

Operating expenses:

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( 2,404,537 )

( 2,551,156 )

Other income (expense)

Other income:

Change in fair value of warrant liabilities

Interest (expense)

Other income (expense)

Income (loss) before income taxes

( 1,526,108 )

Gain on forgiveness of accounts payable

Loss before income taxes

( 1,574,240 )

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Foreign currency translation

Comprehensive

Comprehensive loss

$ ( 1,578,753 )

$ ( 549,609 )

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

Balance at May 12, 2020 (Inception)

Balance at June 30, 2020

Issuance of common stock

Issuance of common stock for cash

Balance at September 30, 2020

The accompanying notes are in integral part of these

unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN

STOCKHOLDERS’ EQUITY

Comprehensive

Stockholders’

at January 1, 2021

Balance at December 31, 2020

Issuance of common stock for cash

Balance at March 31, 2021

Stock-based compensation

Share adjustment (Note 5)

Foreign currency translation

Balance at June 30, 2021

$ ( 590,593 )

Stock-based compensation

Shares issued for services

Sale of 4,800,000 Units, net of underwriting discounts and offering costs

Issuance of 4,800,000 Public Warrants

( 3,600,000 )

Balance at December 31, 2021

$ ( 2,214,505 )

Issuance of 240,000 Representatives’ Warrants

Stock-based compensation expense

Foreign currency translation

1 unchanged sentence

( 1,574,240 )

Balance at September 30, 2021

Balance at March 31, 2022

$ ( 3,788,745 )

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS

The accompanying notes are in integral part of these

unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Inception) to

September 30,

For the Three Months Ended

March 31, 2022

March 31, 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

$ ( 1,574,240 )

Adjustments to reconcile net loss to

net cash used in operating activities:

$ ( 549,609 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

Value of shares issued for services

Change in fair value of warrant liabilities

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Changes in prepaid expenses

Changes in accounts

payable and accrued liabilities

Net cash used

in operating activities

Changes in accounts payable and accrued

Net cash used in operating activities

( 2,527,478 )

CASH FLOWS FROM INVESTING ACTIVITIES:

property and equipment

Net cash used

in investing activities

Purchase of property and equipment

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash proceeds from sale of Units

Cash proceeds from issuance of common

Payment of offering

Cash proceeds from issuance of common stock

Net cash provided by financing activities

Effect of foreign currency translation on cash

NET CHANGE IN CASH

( 2,645,500 )

Net cash provided

by financing activities

Effect of foreign currency translation

NET CHANGE IN CASH AND CASH EQUIVALENTS

Cash and cash equivalents - Beginning

Cash and cash equivalents - End

The accompanying notes are an integral part of

these unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS

Cash - Beginning of period

Cash - End of period

The accompanying notes are in integral part of these

unaudited condensed consolidated financial statements.

PASITHEA THERAPEUTICS CORP.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL

NOTE 1 – NATURE OF THE ORGANIZATION

FOR THE THREE MONTHS ENDED MARCH 31, 2022 AND 2021

NOTE 1 – NATURE OF THE ORGANIZATION AND BUSINESS

Pasithea Therapeutics Corp.

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The Company’s primary

biotech operations will focus on developing drugs that target the pathophysiology underlying such disorders rather than symptomatic treatments,

biotech 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.

The Company’s secondary operations are

focused on providing business support services to anti-depression clinics in the UK and in the United States.

Its operations in the UK

will involve providing business support services to registered healthcare providers who will assess patients and, if appropriate, administer

intravenous infusions of ketamine.

Its operations in the United States will 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 UK through partnerships with healthcare companies.

The Company is located in Miami Beach, Florida

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.

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

through partnerships with healthcare companies.

The Company is located in Miami Beach, Florida, USA.

On September 17, 2021, the Company sold 4,800,000

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and its subsidiaries, Pasithea

Therapeutics Limited (UK) and Pasithea Clinics Inc.

Pasithea Therapeutics Limited (UK) is a private limited Company, registered in the

United Kingdom (UK).

Pasithea Clinics Inc.

Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda and Pasithea Clinics Corp.

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.

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.

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.

The results of operations for the three months ended March 31, 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

COVID-19 Pandemic

In March 2020, the World Health Organization

(the “WHO”) characterized the outbreak of the novel strain of coronavirus, specifically identified as COVID-19, as a global

In March 2020, the World Health Organization (the

“WHO”) characterized the outbreak of the novel strain of coronavirus, specifically identified as COVID-19, as a global pandemic.

This has resulted in governments enacting emergency measures to combat the spread of the virus.

These measures, which include

the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to business,

resulting in a global economic slowdown.

Equity markets have experienced significant volatility and weakness and the governments and

central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions.

The current challenging economic climate may

lead to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on the Company’s

These measures, which include the implementation

of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to business, resulting in a global

economic slowdown.

Equity markets have experienced significant volatility and weakness and the governments and central banks have reacted

with significant monetary and fiscal interventions designed to stabilize economic conditions.

The current challenging economic climate may lead

to adverse changes in cash flows, working capital levels and/or debt balances, which may also have a direct impact on the Company’s

operating results and financial position in the future.

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Liquidity and Capital Resources

As of September 30, 2021, the Company had $ 20,565,319

in its operating bank account and working capital of $ 20,538,283 .

As of March 31, 2022, the Company had $ 50,321,206

in its operating bank accounts and working capital of $ 50,516,262 .

The Company’s liquidity needs prior to the consummation of the

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Subsequent to the

consummation of the Initial Public Offering, the Company’s liquidity will be satisfied through the net proceeds from the consummation

of the Initial Public Offering.

Based on the foregoing, management believes that the Company will have sufficient working capital to

meet its needs through twelve months from the date of these financial statements.

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING

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.

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, 2020 was derived from our audited financial statements but does not include all disclosures required

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 Form S-1 Registration Statement, as filed with the Securities

and Exchange Commission on April 13, 2021, as amended.

The results of operations for the three and nine months ended September 30, 2021

are not necessarily indicative of the results for the year ending December 31, 2021 or for any future period.

consummation of the Initial Public Offering and the November 2021 Private Placement (Note 5), the Company’s 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 the Company will have sufficient working capital to meet its needs through twelve months

from the issuance date of the financial statements included in this quarterly report.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Company evaluates the need to consolidate

affiliates based on standards set forth in ASC 810, “Consolidation,” (“ASC 810”).

The consolidated financial

statements include the accounts of the Company and its wholly owned subsidiaries, Pasithea Therapeutics Limited (UK) and Pasithea Clinics

All significant consolidated transactions and balances have been eliminated in consolidation.

These condensed consolidated financial statements

are presented in U.S.

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 unaudited 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.

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.) and Pasithea Clinics Corp.

(“Pasithea Clinics”).

All significant intercompany transactions and balances have

been eliminated in consolidation.

These condensed consolidated financial statements are presented in U.S.

Use of Estimates

The preparation of financial statement in conformity

The preparation of financial statements in conformity

GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and

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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 statement, which management considered in formulating its estimate, could change in the near

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 the fair value of the warrant liabilities.

Accordingly, the actual results could differ

significantly from those estimates.

financial statements is the determination of fair value of the warrant liabilities.

Accordingly, the actual results could differ significantly

from those estimates.

Cash and cash equivalents

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with an original maturity of three months or less when purchased to be cash equivalents.

The Company had no cash equivalents as of March

31, 2022 and December 31, 2021.

Property and Equipment

Property and equipment is recorded at cost.

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 March 31, 2022

and December 31, 2021, the Company had capitalized total property and equipment costs of $ 134,955 and $ 21,503 , respectively, with accumulated

depreciation of $ 6,336 and $ 1,379 , respectively.

Depreciation expense was $ 5,014 and $ 0 for the three months ended March 31, 2022 and

2021, respectively.

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 $ 3,445,200 , consisting of $ 2,137,800 of underwriting fees and expenses

and $ 1,307,400 of costs related to the Initial Public Offering.

Offering costs are allocated to the separable financial instruments

issued in the Initial Public Offering based on the relative fair value basis, compared to total proceeds received.

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.

2021, the Company recognized offering costs of $ 3,445,200 , consisting of $ 2,137,800 of underwriting fees and expenses and $ 1,307,400

of costs related to the Initial Public Offering.

Offering costs are allocated to the separable financial instruments issued in the Initial

Public Offering based on the relative fair value basis compared to total proceeds received.

Warrant Liability

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Warrants (each, the “Public Warrants” and “Representative Warrants” and, collectively, the “Warrants”)

in accordance with the guidance contained in ASC 815 under which the Warrants do not meet the criteria for equity treatment and must

be recorded as derivative liabilities.

Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts

the Warrants to fair value at each reporting period.

This liability is subject to re-measurement at each balance sheet date until the

Warrants are exercised or expire, and any change in fair value is recognized in the Company’s statement of operations.

value of the Public and Representative Warrants was initially and subsequently measured at the end of each reporting period, using a

Black-Scholes option pricing model.

in accordance with the guidance contained in ASC 815, “Derivatives and Hedging,” under which the Warrants do not meet the

criteria for equity treatment and must be recorded as derivative liabilities.

Accordingly, the Company classifies the Warrants as liabilities

at their fair value and adjusts the Warrants to fair value at each reporting period.

This liability is subject to re-measurement at each

balance sheet date until the 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.

At March 31, 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.

The Company follows the asset and liability method

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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.

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

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

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

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

For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

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There were no unrecognized

tax benefits and no amounts accrued for interest and penalties as of September 30, 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.

tax benefits and no amounts accrued for interest and penalties as of March 31, 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.

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

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 $ 250,000 .

As of September 30, 2021, the Company has not experienced losses on this account and management

As of March 31, 2022, the Company has not experienced losses on this account and management

believes the Company is not exposed to significant risks on such account.

Fair Value of Financial Instruments

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 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.

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

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

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).

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;

● 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 assets that are measured at fair value on a recurring basis at September 30, 2021 and indicates the fair value hierarchy

of the valuation inputs the Company utilized to determine such fair value:

● 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;

● 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 assets and 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

Quoted prices

active markets

for identical

Cash and cash equivalents, September

Warrant liabilities, September 30, 2021

identical liabilities

Cash and cash equivalents, March 31, 2022

Public Warrant liabilities, March 31, 2022

Representative Warrant liabilities, March 31, 2022

Cash and cash equivalents, December 31, 2021

Public Warrant liabilities, December 31, 2021

Representative Warrant liabilities, December 31, 2021

The fair value of the liability associated with the

Public Warrants at March 31, 2022 was based on the quoted closing price on The Nasdaq Capital Market and is classified as Level 1.

fair value of the liability associated with the Representative Warrants at March 31, 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 March 31, 2022.

In some circumstances, the inputs used to measure

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categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

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 in the U.K., 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 100 % of the payment in advance from the

patients, who personally pay for the services.

The Company retains 30 % of revenues from ketamine infusion treatments, less certain clinical

staff costs which result from the provision of the treatments.

The Company has determined that it acts as an agent under the business

support services agreements, and recognizes the net revenues retained from ketamine infusion treatments in the unaudited condensed consolidated

statement of operations and comprehensive loss.

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 at March 31, 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 common shares outstanding during the reporting period.

Diluted earnings per share is computed

similar to basic earnings per share, except the weighted average number of common shares outstanding are increased to include additional

shares from the assumed exercise of share options, if dilutive.

There are no outstanding dilutive or potentially dilutive instruments.

Net loss per share is computed by dividing net loss

by the weighted average number of common shares outstanding during the reporting period.

Diluted earnings per share is computed similar

to basic earnings per share, except the weighted average number of common shares outstanding are increased to include additional shares

from the assumed exercise of share options, if dilutive.

The following outstanding shares issuable upon exercise of stock options and

warrants and vesting of restricted stock units were excluded from the computation of diluted net loss per share for the periods presented

because including them would have had an anti-dilutive effect:

Three months ended

Stock options

Restricted stock units

Foreign Currency Translations

The Company’s functional and reporting

currency is the U.S.

The Company’s functional and reporting currency

All transactions initiated in other currencies are translated into U.S.

dollars using the exchange rate

prevailing on the date of transaction.

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.

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

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

● income and expenses are translated at average

exchange rates for the period.

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;

● income and expenses are translated at average exchange rates

for the period.

Exchange differences arising on translation of

foreign operations are transferred directly to the Company’s accumulated other comprehensive loss in the consolidated financial

Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a currency other than

the functional currency are included in the consolidated statements of operations.

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:

Closing rate, British Pound (GBP) to US$ as of September 30, 2021

Average rate, GBP to US$ for the period ended September 30, 2021

Closing rate, British Pound (GBP) to US$ at period end

Average rate, GBP to US$ for the period ended

Closing rate, Euro (EUR) to US$ at period end

Average rate, EUR to US$ for the period ended

Comprehensive Income (Loss)

FASB Topic No.

220, “Comprehensive Income,”

establishes standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial

As of September 30, 2021, the Company had no material items of other comprehensive income except for the foreign currency

translation adjustment.

“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 March 31, 2022 and December 31, 2021, the Company had no material items

of other comprehensive income (loss) except for the foreign currency translation adjustment.

Recent Accounting Pronouncements

Management does not believe that any recently

issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial

NOTE 3 – INITIAL PUBLIC OFFERING

Pursuant to the Initial Public Offering, on September

17, 2021, the Company sold 4,800,000 Units at a price of $ 5.00 per Unit for a total of $ 24,000,000 .

The Company incurred offering costs

of $ 3,445,200 , consisting of $ 2,137,800 of underwriting fees and expenses and $ 1,307,400 of costs related to the Initial Public Offering.

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 warrant as a liability at its fair value and the 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 – COMMITMENTS AND CONTINGENCIES

Collaboration Agreement – Zen Baker

Street Clinic (UK)

On August 4, 2021, the Company entered into an

Amended and Restated Collaboration Agreement with Portman Health Ltd (“Portman”), whereby both parties have agreed to collaborate

does not believe that any 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

to the Initial Public Offering, on September 17, 2021, the Company sold 4,800,000 Units at a price of $ 5.00 per Unit for a total of $ 24,000,000 .

The Company incurred offering costs of $ 3,445,200 , consisting of $ 2,137,800 of underwriting fees and expenses and $ 1,307,400 of costs

related to the Initial Public Offering.

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 .

classifies each warrant as a liability at its fair value and the 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.

In connection

with the Initial Public Offering, the Company granted the underwriters an option for a period of 45 days to purchase up to an additional

720,000 shares of common stock and/or warrants to purchase up to 720,000 shares of common stock at $ 5.00 per unit less the underwriting

discounts and commissions.

On October 29, 2021, the underwriters’ option lapsed without exercise.

NOTE 4 – COMMITMENTS

AND CONTINGENCIES

Integrated Research and

Development Agreement – Aptuit (Verona) Srl, an Evotec Company

In February 2022, the Company entered into an

integrated research and development agreement with Aptuit (Verona) Srl, an Evotec Company (“Evotec”), with the goal of delivering

a treatment for schizophrenia.

Evotec will provide integrated drug discovery and development research services for the Company over a

period of approximately 39 months.

Under the agreement, the Company will incur full-time equivalent employee (FTE)-based costs at a rate

of $275,000 per FTE per annum for all services, excluding program specific materials which are estimated to be approximately an additional

10% of the total FTE-based price.

In addition to the FTE-based costs, the Company shall make milestone payments of up to $6.25 million

subject to the successful progression to the next stage of research as agreed to by a joint steering committee.

The dollar amounts in

the agreement are also subject to adjustment on an annual basis, starting January 1, 2023, for inflation based on a published consumer

Medical Office Lease – West Hollywood, California

On March 11, 2022, the Company entered into an agreement

to lease a medical office in West Hollywood, California.

The lease commencement date will be the later of (i) the first Monday after

the landlord completes the tentant improvements as specified in the agreement or (ii) April 1, 2022.

The lease has a 60-month term, and

the Company has an option to extend the term for one 5-year renewal period at the prevailing market rate that the landlord is then obtaining

from tenants for comparable space in the building.

The lease has a base monthly rent of $8,336 per month for the first 12 months, with

the base monthly rent increasing by 4% on the first anniversary of the lease commencement date and every 12 months thereafter.

to the base monthly rent, commencing on the first anniversary of the lease commencement date, the Company will pay its share of certain

direct operating and tax expenses incurred by the landlord in maintaining the building.

Consulting Agreement – Yassine Bendiabdallah

Effective November 1, 2021, the Company entered into

a Consulting Agreement with Yassine Bendiabdallah to act as the Head of Pasithea Therapeutic U.K., manage all Pasithea U.K.

The Consulting Agreement provides an annual salary of $ 120,000 to be paid on a monthly basis, includes three weeks

of vacation for each year and provides for reimbursement for all reasonable out-of-pocket expenses incurred in connection with the services

The Consulting Agreement continues indefinitely until either party decides to terminate the contract.

Service Agreement – The University of Texas at Austin

On September 21, 2021, the Company entered into a

Service Agreement with the University of Texas at Austin (“UTA”), a university of higher education in the State of Texas,

to act as the Chair of the Scientific Advisory Board, holding three scientific advisory board meetings per year and providing incidental

monthly consults.

The Company pays UTA $ 50,000 annually for services billed on a quarterly basis and any costs incurred by UTA are reimbursed

only after prior written consent of the Company.

The Service Agreement will terminate on September 21, 2024 unless terminated earlier

or extended by mutual agreement.

Collaboration Agreement – Zen Baker Street Clinic (U.K.)

On August 4, 2021, the Company entered into an Amended

and Restated Collaboration Agreement with Portman Health Ltd (“Portman”), whereby both parties have agreed to collaborate

on the provision of ketamine infusion treatments and any other treatments agreed to by the parties from time to time (the “Treatments”)

9 unchanged sentences

shall be allocated 30 % to the Company and 70 % to Portman.

Collaboration Agreement – Zen Knightsbridge

On August 4, 2021, the Company entered into an

Amended and Restated Collaboration Agreement with Purecare Limited (“Purecare”), whereby both parties have agreed to collaborate

Collaboration Agreement – Zen Knightsbridge Clinic (U.K.)

On August 4, 2021, the Company entered into an Amended

and Restated Collaboration Agreement with Purecare Limited (“Purecare”), whereby both parties have agreed to collaborate

on the provision of Treatments at Purecare’s London based clinic.

8 unchanged sentences

Treatments (less certain staff costs) shall be allocated 30 % to the Company and 70 % to Purecare.

Business Support Services Subcontract –

On April 9, 2021, Pasithea Clinics Corp.

Clinics”), an affiliate of the Company, entered into a Business Support Services Subcontract (the “Subcontract”) with

The IV Doc, pursuant to which The IV Doc will provide certain non-clinical administrative, back office, and other business support services

to one or more professional medical practices in the State of New York.

During the term of the Subcontract, which shall be effective

for 15 years from the effective date, Pasithea Clinics will pay The IV Doc monthly subcontract fees in consideration of the subcontract

services rendered by The IV Doc.

The subcontract fees, which are equal to $ 22,500 per month, will represent fair market value for the

subcontract services and are commensurate with the subcontract services to be provided, and will not constitute an illegal fee-splitting

or impermissible profit-sharing arrangement in violation of any applicable laws.

In addition to the subcontract fees, Pasithea Clinics

will reimburse The IV Doc for all reasonable expenses, including travel, meals and lodging expenses, incurred by The IV Doc in connection

with the provision of the subcontract services, provided that such expenses are otherwise commercially reasonable and necessary.

Business Support Services Subcontract – The IV Doc

On April 9, 2021, Pasithea Clinics, an affiliate

of the Company, entered into a Business Support Services Subcontract (the “Subcontract”) with The IV Doc, pursuant to which

The IV Doc provides certain non-clinical administrative, back office, and other business support services to one or more professional

medical practices in the State of New York.

During the term of the Subcontract, which shall be effective for 15 years from the effective

date, Pasithea Clinics pays The IV Doc monthly subcontract fees in consideration of the subcontract services rendered by The IV Doc.

subcontract fees, which are equal to $ 22,500 per month, represents fair market value for the subcontract services and are commensurate

with the subcontract services to be provided, and does not constitute an illegal fee-splitting or impermissible profit-sharing arrangement

in violation of any applicable laws.

In addition to the subcontract fees, Pasithea Clinics reimburses The IV Doc for all reasonable expenses,

including travel, meals and lodging expenses, incurred by The IV Doc in connection with the provision of the subcontract services, provided

that such expenses are otherwise commercially reasonable and necessary.

On January 19, 2022, Pasithea Clinics entered into an Amended

Business Support Services Subcontract (the “Amended Subcontract”) with The IV Doc, pursuant to which The IV Doc will provide

certain non-clinical administrative, back office, and other business support services to one or more professional medical practices in

the State of New York.

The Amended Subcontract was modified with the start date effective January 1, 2022.

The fees for the first two

months of service were waived, resulting in a gain on forgiveness of accounts payable of $ 45,000 recorded in the unaudited condensed consolidated

statement of operations and comprehensive loss for the three months ended March 31, 2022.

Employment Agreement – Dr.

On July 13, 2020, we entered into an employment

agreement with Dr.

Tiago Reis Marques

On July 13, 2020, we entered into an employment agreement

Tiago Reis Marques to serve as our Chief Executive Officer.

The initial term of Dr.

Marques’ employment commenced

on the closing of our initial business combination and ends on the first anniversary of the commencement date.

After the initial term,

the employment agreement will automatically renew for additional one-year periods, unless the Company or Dr.

Marques provides the other

party with at least 60 days’ prior written notice of its desire not to renew.

The employment agreement shall automatically terminate

without any action on the part of any person and be void ab initio if a business combination agreement to be entered

into between us and a prospective target Agreement is terminated in accordance with its terms, and neither the Company nor any other

person shall have any liability to Dr.

Marques under the employment agreement if the closing does not occur.

Pursuant to the employment

agreement, we agreed to pay Dr.

Marques’ employment commenced on the

closing of our initial business combination and ended on the first anniversary of the commencement date.

After the initial term, the

employment agreement automatically renewed for additional one-year periods, unless the Company or Dr.

Marques provided the other party

with at least 60 days’ prior written notice of its desire not to renew.

Pursuant to the employment agreement, we agreed to pay

Marques an annual base salary of $ 120,000 .

Upon the completion of the next qualified financing of over

$ 5,000,000 , the terms of the employment agreement will be renegotiated.

Marques will also be eligible to receive equity awards, benefits

including but not limited to health insurance, retirement, and fringe benefits of the Company, and 20 vacation days per year.

also agreed to reimburse Dr.

Marques for all expenses associated with the Company’s business.

Upon the completion of the next qualified financing of over $ 5,000,000 , the terms of the

employment agreement was to be renegotiated.

Marques was also eligible to receive equity awards, benefits including but not limited

to health insurance, retirement, and fringe benefits of the Company, and 20 vacation days per year.

We also agreed to reimburse Dr.

for all expenses associated with the Company’s business.

In December 2021, we entered into a new executive

employment agreement (the “2021 Employment Agreement”) with Dr.

Marques to serve as our Chief Executive Officer, effective

January 1, 2022.

The agreement includes a base salary of $450,000 per year, Sign-on bonus of $100,000, paid in a lump sum after January

1, 2022, and eligibility for an annual discretionary bonus of up to 75% of the base salary.

The 2021 Employment Agreement also included

an option to purchase 200,000 shares of the Company’s common stock, subject to approval by the Board of Directors, which include

a three year vesting schedule, under which 33% of the total shares subject to the Option will vest 12 months after the vesting commencement

date (which will be grant date), and the remainder shall vest in equal tranches quarterly thereinafter until either the Option is fully

vested or Executive’s Continuous Service (as defined in the Plan) terminates, whichever occurs first.

Subject to the approval by the Board of Directors,

Marques was eligible to receive an equity grant of 200,000 Restricted Stock Units (the “RSU”s) of the Company, all in

accordance with the terms and conditions set forth in the Plan.

The RSU’s shall vest over 3 years with 33 and 1/3% vesting on the

employees first anniversary and then quarterly then after over the remaining vesting period.

The anticipated RSUs will be governed by

the terms and conditions of the Plan and Executive’s grant agreement (the “RSU Agreement”), and will include a three

year vesting schedule, under which 33% of the RSUs will vest 12 months after the vesting commencement date (which will be grant date),

and the remainder shall vest in equal tranches quarterly thereinafter until either the RSUs are fully vested or Executive’s Continuous

Service (as defined in the Plan) terminates, whichever occurs first.

On December 20, 2021, the Board of Directors approved

the stock option and RSU grants to Dr.

Marques as described above.

See Note 5 for further information about stock option and RSU awards.

NOTE 5 – STOCKHOLDERS’ EQUITY

The Company is authorized to issue an aggregate

of 500,000,000 shares.

The Company is authorized to issue an aggregate of 500,000,000 shares.

The authorized capital stock is divided into:

(i) 495,000,000 shares of common stock having a par value of $0.0001

per share and (ii) 5,000,000 shares of preferred stock having a par value of $0.0001 per share.

(i) 495,000,000 shares of common stock having a par

value of $0.0001 per share and (ii) 5,000,000 shares of preferred stock having a par value of $0.0001 per share.

Effective April 8, 2021, we amended our certificate

7 unchanged sentences

these financial statements has been retroactively adjusted to reflect the reduced number of shares outstanding.

inception, May 12, 2020, through December 31, 2020, the Company issued 7,300,000 shares of common stock at a price of $ 0.002 per share

for cash proceeds of $ 14,600 .

Additionally, the Company issued 156,250 shares of common stock at a price of $ 1.60 per share for cash

proceeds of approximately of $ 247,139 , net of share issuance costs of $ 2,861 , with gross proceeds of $ 33,000 received as of September

30, 2020 for an aggregate of 20,625 shares, and the remaining net proceeds of $ 214,139 received during the three months ended December

In 2020, several investors advanced funds totaling

approximately $ 20,600 to the Company with no specific terms of repayment, interest or maturity, subsequent to which the parties executed

conversion documents to convert the funds into common shares.

As the fair value of the equity instruments was equal to the funds advanced,

there was no gain or loss on the transaction when on December 30, 2020, the Company issued 12,875 shares of common stock at a price of

$ 0.08 per share to the respective investors.

During the first quarter of 2021, the Company

entered into various subscription agreements in connection with a private placement seeking to raise up to $ 1 million through the sale

of 625,000 shares of the Company’s common stock, at a price of $ 1.60 per share, with a closing date for accepted subscriptions

of January 31, 2021.

During the first quarter of 2021, the Company issued a total of 395,625 shares for aggregate proceeds received of

approximately $ 633,000 related to such private placement.

In 2021, the Company entered into various subscription

During 2021, the Company entered into various subscription

agreements in connection with a private placement seeking to raise up to $ 1 million through the sale of 625,000 shares of the Company’s

common stock, at a price of $ 1.60 per share, with a closing date for accepted subscriptions of January 31, 2021.

The Company issued a

total of 395,625 shares for aggregate proceeds received of approximately $ 633,000 related to such private placement.

During 2021, the Company entered into various subscription

agreements in connection with a second private placement seeking to raise up to $ 5 million through the sale of 2,083,333 shares of the

Company’s common stock, at a price of $ 2.40 per share, with a closing date for accepted subscriptions of March 31, 2021.

the first quarter of 2021, the Company issued a total of 239,969 shares for aggregate proceeds received of approximately $ 576,000 related

to such second private placement.

During the nine months ended September 30, 2021,

the Company issued an additional 153,652 shares of common stock to existing investors related to an administrative correction, with no

significant effect on the Company’s financial statements.

Brio Financial Group

On April 13, 2021, the Company entered into an

agreement with Brio Financial Group, LLC (“Brio”) pursuant to which Brio will provide Stanley M.

Gloss to serve as the Chief

Financial Officer of the Company and also provide certain other specified financial and accounting services typically provided by a Chief

Financial Officer (the “Brio Agreement”), which are described more fully in the Brio Agreement (the “CFO Services”).

The term of the Brio Agreement will run through March 31, 2022, unless terminated by either party upon 10 days prior written notice to

the other party, pursuant to the terms of the Brio Agreement.

The Company will pay a monthly fixed fee of $ 7,500 for the CFO Services

during the term of the Brio Agreement.

In addition, 25,000 restricted shares of the Company’s common stock were issued to Brio

fully vesting over the 1 year term of the Brio Agreement.

Furthermore, the Company issued Stanley M.

Gloss stock options to purchase

up to 100,000 shares of the Company’s Common Stock, which options vested fully upon execution of the Brio Agreement and shall be

exercisable at a price equal to the public price of the Company’s Common Stock sold in its Initial Public Offering.

The fair value of the 25,000 restricted shares

of common stock granted of approximately $ 60,000 is being amortized over the 1 year term of the Brio Agreement.

The total compensation

expense was $ 30,000 for the nine months ended September 30, 2021, with unamortized expense remaining of $ 30,000 as of September 30, 2021.

The fair value of the 100,000 fully-vested stock

options granted of approximately $ 284,665 was expensed in full during the nine months ended September 30, 2021.

The fair value of was

determined by the Black-Scholes Pricing Model with the following assumptions:

dividend yield of 0 %, term of 10 years, volatility of 47.07 %,

and risk-free rate of 1.29 %.

Services Agreement

On September 18, 2021, the Company entered into

a services agreement with TraDigital Marketing Group (“TraDigital”) pursuant to which TraDigital will provide consulting

services from September 18, 2021 through December 17, 2021 (the “Services Agreement”).

The Services Agreement includes a

prepaid cash consulting fee of $ 394,000 , payable and paid upon the agreement date, of which the Company expensed a total of $ 32,533 as

selling, general and administrative expense for the three and nine months ended September 30, 2021, with the remaining unamortized amount

of $ 361,467 included in prepaid expenses as of September 30, 2021.

The Services Agreement also includes 150,000

common shares of the Company due and earned upon the agreement date of September 18, 2021.

The aggregate fair value of the 150,000

common shares of $750,000 and was recorded as shares issued for services, which is included in selling, general and administrative

expense for the three and nine months ended September 30, 2021.

issued a total of 239,969 shares for aggregate proceeds received of approximately $ 576,000 related to such second private placement.

November 2021 Private Placement

On November 24, 2021, the Company entered into a

purchase agreement with institutional investors to issue 8,680,000 common shares (the “PIPE Shares”) and 8,680,000 warrants

to purchase up to 8,680,000 shares of common stock in a private placement (“November 2021 Private Placement”).

purchase price for one PIPE Share and warrant was $ 3.50 .

The warrants are immediately exercisable, expire five years from the date of

issuance and have an exercise price of $ 3.50 per share of common stock, subject to adjustment as set forth in the warrants.

The investors may exercise the warrants on a cashless

basis if the warrant shares are not then registered pursuant to an effective registration statement.

The investors have contractually

agreed to restrict their ability to exercise the 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 4.99 % or 9.99 % of the Company’s then issued and outstanding shares

of common stock, at the investor’s election.

In connection with the Purchase Agreement, the Company

entered into a registration rights agreement (the “Registration Rights Agreement”) with the investors.

Pursuant to the 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 Purchase Agreement in the event the Registration Statement is subject

to a “full review” by the SEC.

The Company is obligated to pay certain 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.

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 9.0 % of the gross proceeds raised in the November

2021 Private Placement, and a cash fee equal to 1.0 % of the gross proceeds raised in the November 2021 Private Placement for non-accountable

expenses, and also reimbursed EF Hutton $ 70,000 for accountable expenses, including “road show”, diligence, and reasonable

legal fees and disbursements for EF Hutton’s counsel.

Additionally, the Company granted EF Hutton a right of first refusal following

the closing of the November 2021 Private Placement, whereby EF Hutton shall have an irrevocable right of first refusal (the “Right

of First Refusal”) until November 29, 2022, to act as sole investment banker, sole book-runner,

and/or sole placement agent, at EF Hutton’s sole discretion, for each and every future public and private equity and debt offering,

including all equity linked financing.

On November 29, 2021, the Company consummated the

November 2021 Private Placement, pursuant to which it issued 8,680,000 PIPE Shares and 8,680,000 warrants to institutional investors.

The offering price per PIPE Share and accompanying warrant was $ 3.50 , resulting in aggregate gross proceeds of $ 30,380,000 and net proceeds

to the Company, net of underwriter discounts and fees, or approximately $ 27 million.

We bear all fees and expenses incidental to our

obligation to register the shares of common stock.

Brokerage fees, commissions and similar expenses, if any, attributable to the sale

of shares offered will be assumed by the selling stockholder.

The Company intends to use such proceeds from the November 2021 Private

Placement for general corporate and working capital purposes.

As of March 31, 2022, no warrants have been exercised.

A total of 8,680,000 warrants remain outstanding

as of March 31, 2022.

No liability accounting or valuation is deemed necessary for these warrants.

Stock Options

Stock option activity for the three months ended

March 31, 2022 was as follows:

Outstanding, January 1, 2022

Outstanding, March 31, 2022

Exercisable, March 31, 2022

These options had a weighted average remaining life

of 9.4 years and an aggregate intrinsic value of $ 0 as of March 31, 2022.

The Company recognized $ 96,630 and $ 0 of stock-based compensation

expense for stock options for the three months ended March 31, 2022 and 2021, respectively, and had unamortized stock option compensation

remaining of $ 581,534 as of March 31, 2022.

Under the terms of Dr.

Marques’ 2021 Employment

Agreement (Note 4), Dr.

Marques was granted 200,000 stock options on December 20, 2021.

The fair value of the stock options granted to

Marques was $ 0.70 per share.

The fair value was determined by the Black-Scholes Option Pricing Model with the following assumptions:

stock price of $ 1.44 , exercise price of $ 1.44 per share, dividend yield of 0 %, expected term of 6 years, volatility of 50.5 %, and risk-free

interest rate of 1.44 %.

Restricted Stock Units

Under the terms of Dr.

Marques’ 2021 Employment

Agreement (Note 4), Dr.

Marques was granted 200,000 RSUs on December 20, 2021 with a grant date fair value of $ 1.44 per share.

has no other RSU awards outstanding.

The Company recognized $ 24,000 and $ 0 of stock-based compensation expense for RSUs for the three

months ended March 31, 2022 and 2021, respectively, and had unamortized RSU compensation remaining of $ 264,000 as of March 31, 2022.

Restricted Stock

The Company recognized $ 15,000 and $ 0 of stock-based

compensation expense for restricted stock awards for the three months ended March 31, 2022 and 2021, respectively, and had no remaining

unamortized restricted stock compensation as of March 31, 2022.

NOTE 6 – WARRANT LIABILITIES

On September 17, 2021, the Company consummated

its Initial Public Offering of 4,800,000 Units at a price of $ 5.00 per Unit, generating gross proceeds of $ 24,000,000 , with each Unit

consisting of one share of common stock, $ 0.0001 par value, and one redeemable Public Warrant.

Each redeemable Public Warrant entitles

the holder to purchase one share of common stock, at a price of $ 6.25 per share, which will expire five years from issuance.

On September 17, 2021, the Company consummated its

Initial Public Offering of 4,800,000 Units at a price of $ 5.00 per Unit, generating gross proceeds of $ 24,000,000 , with each Unit consisting

of one share of common stock, $ 0.0001 par value, and one redeemable Public Warrant.

Each redeemable Public Warrant entitles the holder

to purchase one share of common stock at a price of $ 6.25 per share which will expire five years from issuance.

Simultaneously with the consummation of the closing

3 unchanged sentences

Warrants (collectively, the “Warrants”) as either equity-classified or liability-classified instruments based on an assessment

of the warrants’ specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”)

Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815,

Derivatives and Hedging (“ASC 815”).

The assessment considers whether the warrants are freestanding financial instruments

pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for

equity classification under ASC 815, including whether the 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 Warrants under ASC 815-40, Derivatives

and Hedging — Contracts in Entity’s Own Equity , and concluded that the Warrants do not meet the criteria to be classified

in stockholders’ equity.

Certain adjustments to the settlement amount

of the Warrants are based on a variable that is not an input to the fair value of an option as defined under ASC 815 — 40, and

thus the Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting.

The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon issuance of

the Warrants at the closing of the Initial Public Offering.

Accordingly, the Company classifies each Warrant as a liability at its fair

value, with subsequent changes in their respective fair values recognized in the statement of operations and comprehensive income (loss)

at each reporting date.

As of September 30, 2021, the fair value of the

Public Warrants was approximately $ 0.80 per Public Warrant which was determined using the Black-Scholes option pricing model with the

following assumptions:

of the 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 warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and

whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the 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 Warrants under ASC 815-40 , Derivatives and Hedging — Contracts in Entity’s Own Equity , and concluded

that the Warrants do not meet the criteria to be classified in stockholders’ equity.

Certain adjustments to the settlement amount of the

Warrants are based on a variable that is not an input to the fair value of an option as defined under ASC 815 — 40, and thus the

Warrants are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting.

accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon issuance of the

Warrants at the closing of the Initial Public Offering.

Accordingly, the Company classifies each Warrant as a liability at its fair value,

with subsequent changes in their respective fair values recognized in the statement of operations and comprehensive income (loss) at

each reporting date.

During November 2021, 1,120,000 public warrants were

exercised at a price of $ 6.25 per share for total proceeds of $ 7,000,000 .

As of March 31, 2022 and December 31, 2021, 3,680,000 Public

Warrants and 240,000 Representative Warrants remain outstanding.

As of March 31, 2022, the fair value of the Public

Warrants was approximately $ 0.17 per Public Warrant based on the closing price of the warrants on The Nasdaq Capital Market.

value of the Representative Warrants was approximately $ 0.175 per Representative Warrant which was based on the relative fair value to

the Public Warrants.

As of December 31, 2021, the fair value of the Public

Warrants was approximately $ 0.37 per Public Warrant which was determined using the Black-Scholes option pricing model with the following

exercise price of $ 6.25 , dividend yield of 0 %, term of 5 years, volatility of 61.1 %, and risk-free rate of 1.22 %.

The fair value of the Representatives’ Warrants was approximately $ 0.83 per Representative Warrant which was determined using the

Black-Scholes option pricing model with the following assumptions:

exercise price of $ 6.00 , dividend yield of 0 %, term of 5 years, volatility

of 52.6 %, and risk-free rate of 0.97 %.

value of the Representative Warrants was approximately $ 0.38 per Representative Warrant which was determined using the Black-Scholes

option pricing model with the following assumptions:

exercise price of $ 6.00 , dividend yield of 0 %, term of 5 years, volatility of 61.1 %,

and risk-free rate of 1.22 %.

NOTE 7 – SUBSEQUENT EVENTS

The Company has evaluated events and transactions

subsequent to September 30, 2021, through the date these condensed consolidated financial statements were included in this Quarterly

Report on Form 10-Q and filed with the SEC.

Other than the below, there are no subsequent events identified that would require disclosure

in these condensed consolidated financial statements.

connection with the Initial Public Offering, we granted the underwriters an option for a period of 45 days to purchase up to an additional

720,000 shares of Common Stock and/or Warrants to purchase up to 720,000 shares of Common Stock at $ 5.00 per Unit less the underwriting

discounts and commissions.

On October 29, 2021, the underwriters’ option lapsed without exercise.

subsequent to March 31, 2022, through the date these condensed consolidated financial statements were included in this Quarterly Report

on Form 10-Q and filed with the SEC.

Other than the below, there are no subsequent events identified that would require disclosure in

these condensed consolidated financial statements.

Restricted Stock Grants to Service Providers

On May 5, 2022, the Company’s Board of Directors

approved grants of restricted common stock pursuant to agreements with certain consultants and service providers.

An aggregate of 429,447

shares of restricted common stock was approved for grant.

Stock Option Grant to Consultant

On May 5, 2022, the Company’s Board of Directors approved a grant

to a consultant of 200,000 stock options, which have a 10-year term and will vest, subject to the consultant remaining employed and in

good standing, one-third after 12 months from the grant date, with the remainder vesting in equal tranches quarterly thereafter.

have an exercise price of $ 1.08 per share, based on the closing price of the Company’s common stock on the May 5, 2022 grant date.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements