Pasithea Therapeutics Corp. 10-Q

Item 1. Financial Statements PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, 2023 December 31, 2022 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 19,584,690 $ 33,087,864 Amount due from sale of assets 95,000 - Prepaid expenses 985,067 562,375 Other current assets 106,511 262,992 Current assets of discontinued operations - 163,462 Total current assets 20,771,268 34,076,693 Property and equipment, net 145,924 125,197 Right of use asset- operating lease 378,453 500,428 Intangibles, net 8,098,855 8,571,478 Goodwill 1,262,911 1,262,911 Non-current assets of discontinued operations - 643,382 Total assets $ 30,657,411 $ 45,180,089 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued liabilities $ 1,869,458 $ 1,481,393 Lease liability- short term portion 174,471 160,362 Current liabilities of discontinued operations - 235,879 Total current liabilities 2,043,929 1,877,634 Non-current liabilities Lease liability 210,817 344,021 Warrant liabilities 29,059 140,611 Non-current liabilities of discontinued operations - 319,575 Total non-current liabilities 239,876 804,207 Total liabilities 2,283,805 2,681,841 Stockholders’ equity: Preferred stock, par value $ 0.0001 , 5,000,000 shares authorized; 0 issued and outstanding - - Common stock, par value $ 0.0001 , 495,000,000 shares authorized; 20,836,623 and 26,043,406 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively 17,466 17,987 Additional paid-in capital 58,634,236 61,837,802 Accumulated other comprehensive loss ( 7,717 ) ( 661 ) Accumulated deficit ( 30,270,379 ) ( 19,356,880 ) Total stockholders’ equity 28,373,606 42,498,248 Total liabilities and stockholders’ equity $ 30,657,411 $ 45,180,089 See accompanying notes to the unaudited condensed consolidated financial statements. 1 PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2023 2022 2023 2022 Operating expenses: Selling, general and administrative $ 2,164,560 $ 2,576,802 $ 6,081,362 $ 7,267,239 Research and development 1,624,766 1,278,922 4,749,217 1,278,922 Loss from operations ( 3,789,326 ) ( 3,855,724 ) ( 10,830,579 ) ( 8,546,161 ) Other income (expense): Change in fair value of warrant liabilities 44,996 ( 335,317 ) 111,552 871,680 Interest and dividends, net 131,740 - 242,543 - Other income (expense), net 176,736 ( 335,317 ) 354,095 871,680 Loss before income taxes ( 3,612,590 ) ( 4,191,041 ) ( 10,476,484 ) ( 7,674,481 ) Provision for income taxes - - - - Net loss from continuing operations $ ( 3,612,590 ) $ ( 4,191,041 ) $ ( 10,476,484 ) $ ( 7,674,481 ) Net loss from discontinued operations, net of tax - ( 395,089 ) ( 437,015 ) ( 1,144,283 ) Net loss $ ( 3,612,590 ) $ ( 4,586,130 ) $ ( 10,913,499 ) $ ( 8,818,764 ) Weighted-average common shares outstanding, basic and diluted 25,160,994 26,548,688 25,784,010 24,415,888 Basic and diluted loss per share from continuing operations $ ( 0.14 ) $ ( 0.16 ) $ ( 0.41 ) $ ( 0.31 ) Basic and diluted loss per share from discontinuing operations $ - $ ( 0.01 ) $ ( 0.02 ) $ ( 0.05 ) Comprehensive loss: Net loss $ ( 3,612,590 ) $ ( 4,586,130 ) $ ( 10,913,499 ) $ ( 8,818,764 ) Foreign currency translation ( 4,256 ) ( 82,514 ) ( 7,056 ) ( 136,012 ) Comprehensive loss $ ( 3,616,846 ) $ ( 4,668,644 ) $ ( 10,920,555 ) $ ( 8,954,776 ) See accompanying notes to the 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 January 1, 2023 26,043,406 $ 17,987 $ 61,837,802 $ ( 661 ) $ ( 19,356,880 ) $ 42,498,248 Stock-based compensation: -restricted share units 83,334 8 23,641 - - 23,649 -options - - 153,372 - - 153,372 Foreign currency translation - - - ( 2,483 ) - ( 2,483 ) Net loss - - - - ( 3,537,679 ) ( 3,537,679 ) Balance at March 31, 2023 26,126,740 $ 17,995 $ 62,014,815 $ ( 3,144 ) $ ( 22,894,559 ) $ 39,135,107 Stock-based compensation: -restricted share units 16,667 2 23,910 - - 23,912 -options - - 194,722 - - 194,722 Foreign currency translation - - - ( 317 ) - ( 317 ) Net loss - - - - ( 3,763,230 ) ( 3,763,230 ) Balance at June 30, 2023 26,143,407 $ 17,997 $ 62,233,447 $ ( 3,461 ) $ ( 26,657,789 ) $ 35,590,194 Stock-based compensation: -restricted share units 16,667 1 24,174 - - 24,175 -options - - 102,499 - - 102,499 Stock repurchase ( 5,323,451 ) ( 532 ) ( 3,725,884 ) - - ( 3,726,416 ) Foreign currency translation - - - ( 4,256 ) - ( 4,256 ) Net loss - - - - ( 3,612,590 ) ( 3,612,590 ) Balance at September 30, 2023 20,836,623 $ 17,466 $ 58,634,236 $ ( 7,717 ) $ ( 30,270,379 ) $ 28,373,606 Balance at January 1, 2022 23,008,371 $ 17,684 $ 53,627,883 $ ( 10,561 ) $ ( 2,214,505 ) $ 51,420,501 Stock-based compensation expense: -restricted share units - - 26,540 - - 26,540 -options - - 94,295 - - 94,295 -restricted stock - - 14,795 - - 14,795 Foreign currency translation - - - ( 4,513 ) - ( 4,513 ) Net loss - - - - ( 1,574,240 ) ( 1,574,240 ) Balance at March 31, 2022 23,008,371 $ 17,684 $ 53,763,513 $ ( 15,074 ) $ ( 3,788,745 ) $ 49,977,378 Stock-based compensation expense: -restricted share units - - 23,912 - - 23,912 -options - - 101,480 - - 101,480 -restricted stock 279,447 28 282,213 - - 282,241 -common stock - - - - - - Warrants issued for acquisition - - 350,722 - - 350,722 Common shares issued for acquisition 3,260,870 326 3,293,153 - - 3,293,479 Foreign currency translation - - - ( 48,985 ) - ( 48,985 ) Net loss - - - - ( 2,658,394 ) ( 2,658,394 ) Balance at June 30, 2022 26,548,688 $ 18,038 $ 57,814,993 $ ( 64,059 ) $ ( 6,447,139 ) $ 51,321,833 Stock-based compensation expense: -restricted share units - - 24,176 - - 24,175 -options - - 111,451 - - 111,451 -restricted stock - - - - - - Warrants issued for acquisition - - - - - - Common shares issued for acquisition - - - - - - Foreign currency translation - - - ( 82,514 ) - ( 82,514 ) Net loss - - - - ( 4,586,130 ) ( 4,586,130 ) Balance at September 30, 2022 26,548,688 $ 18,038 $ 57,950,620 $ ( 146,573 ) $ ( 11,033,269 ) $ 46,788,816 See accompanying notes to the unaudited condensed consolidated financial statements. 3 PASITHEA THERAPEUTICS CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the Nine Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss from continuing operations $ ( 10,476,484 ) $ ( 7,674,481 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 13,610 956 Amortization expense 472,623 - Stock-based compensation 522,329 678,890 Change in fair value of warrant liabilities ( 111,552 ) ( 871,680 ) Non-cash lease expense 2,880 - Gain on sale of assets ( 65,048 ) - Changes in operating assets and liabilities: Prepaid expenses ( 422,692 ) ( 669,627 ) Other assets 156,481 ( 621,279 ) Accounts payable and accrued liabilities 388,064 465,606 Lease liabilities - ( 17,564 ) Net cash used in operating activities ( 9,519,789 ) ( 8,709,179 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment ( 34,337 ) ( 14,376 ) Net cash proceeds from sale of assets 55,000 - Acquisition of business, net of cash acquired - 56,579 Net cash provided by investing activities 20,663 42,203 CASH FLOWS FROM FINANCING ACTIVITIES: Note payable proceeds 392,354 - Principal payments on note payable ( 392,354 ) - Repurchase of common stock ( 3,726,416 ) - Net cash used in financing activities ( 3,726,416 ) - Effect of foreign currency translation on cash ( 7,056 ) ( 129,521 ) Net cash used in operating activities of discontinued operations ( 594,383 ) ( 1,026,911 ) Net cash provided by (used in) investing activities of discontinued operations 323,807 ( 698,790 ) Net cash provided by (used in) financing activities of discontinued operations - - NET CHANGE IN CASH $ ( 13,503,174 ) $ ( 10,522,198 ) Cash and cash equivalents - Beginning of period 33,087,864 52,901,962 Cash and cash equivalents - End of period $ 19,584,690 $ 42,379,764 Supplemental disclosure of cash flow information: Lease liabilities arising from obtaining right-of-use assets $ - $ 410,392 Amount due from sale of assets 95,000 - See accompanying notes to the 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, 2023 AND 2022 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 and completed an initial public offering (the “Initial Public Offering”) on September 17, 2021. The Company is a biotechnology company focused on the discovery, research, and development of innovative treatments for central nervous system (CNS) disorders and other diseases. The Company is leveraging its expertise in the fields of neuroscience, translational medicine, and drug development to advance new molecular entities that target the pathophysiology underlying such diseases with the goal of bringing life-changing therapies to patients. The Company’s therapeutic pipeline currently consists of four programs. The Company’s lead product candidate, PAS-004, is a next-generation macrocyclic mitogen-activated protein kinase, or MEK inhibitor that the Company believes may address the limitations and liabilities associated with existing drugs targeting a similar mechanism of action. The remaining three programs are in the discovery stage, which the Company believes address limitations in the treatment paradigm of the indications the Company plans to address with these programs, which are currently amyotrophic lateral sclerosis (“ALS”), multiple sclerosis (“MS”) and schizophrenia. Through December 31, 2022, the Company operated a Clinics business that was 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. involved 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 involved providing business support services to entities that furnish similar services to patients who personally pay for those services. Operations in the U.K. and the United States were conducted through partnerships with healthcare providers and the Company did not provide professional medical services or psychiatric assessments. As of June 30, 2023, the at home services in New York, NY as well as in the U.K had been discontinued and we sold and disposed of our assets associated with the Clinics operations in Los Angeles, CA, and the U.K. The lease associated with the related property in Los Angeles was assumed by the buyer in the transaction. Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Pasithea Therapeutics Corp. and its subsidiaries, Pasithea Therapeutics Limited (U.K.), Pasithea Therapeutics Portugal, Sociedade Unipessoal Lda, , Alpha-5 Integrin, LLC, and AlloMek Therapeutics, LLC. 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 a Delaware limited liability company. AlloMek Therapeutics, LLC is a 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”). 5 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. Liquidity and Capital Resources As of September 30, 2023, the Company had approximately $ 19.6 million of cash and cash equivalents and working capital of approximately $ 18.7 million. The Company’s major sources of cash have been comprised of proceeds from various private offerings, the Initial Public Offering, and the prior exercise of warrants. The Company is dependent on obtaining additional working capital funding from the sale of equity and/or debt securities to continue to execute its development plans and continue operations. 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 unaudited condensed consolidated financial statements. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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.) 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. 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. Management regularly makes estimates related to the fair value of warrant liabilities; the recoverability of long-lived assets; the fair values and useful lives of intangible assets acquired in business combinations; the potential impairment of goodwill; and income taxes. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable, the results of which form the basis for the amounts recorded in the consolidated financial statements. As appropriate, the Company obtains reports from third-party valuation experts to inform and support estimates related to fair value measurements. 6 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 and patents. Our 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, non-clinical and regulatory 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. Selling, General and Administrative Our selling, general and administrative expenses primarily consist of personnel and related costs, including stock-based compensation, legal fees relating to both intellectual property and corporate matters, accounting and audit related costs, insurance, corporate communications and public company expenses, information technology, office and facility rents and related expenses, including depreciation, amortization and maintenance, and fees for consulting, business development and other professional services. 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, classified as trading securities. The Company had cash equivalents of $ 10.3 million as of September 30, 2023, and did not have any cash equivalents as of December 31, 2022. Property and Equipment Property and equipment is recorded at cost, net of depreciation. 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. Warrant Liability The Company accounts for the publicly traded warrants issued in its Initial Public Offering (the “Public Warrants”) and the warrants issued as compensation to the underwriters in its Initial Public Offering (the “Representative Warrants” and together with the Public Warrants, 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 IPO Warrants was initially measured using a Black Scholes pricing model. Currently, the fair value of the Public Warrants is measured using quoted market prices, and the fair value of the Representative Warrants is based on an estimate of the relative fair value to the Public Warrants, accounting for a small difference in the exercise price. 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 $ 250,000 . As of September 30, 2023, the Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account. 7 Fair Value of Financial Instruments Except for 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. 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 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 date using: Fair value Quoted prices in active markets for identical liabilities (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Assets: Cash equivalents, September 30, 2023 $ 10,253,735 $ 10,253,735 $ - $ - Liabilities: Public warrant liabilities, September 30, 2023 $ 27,280 $ 27,280 $ - $ - Representative warrant liabilities, September 30, 2023 $ 1,779 $ - $ - $ 1,779 Liabilities: Public warrant liabilities, December 31, 2022 $ 132,000 $ 132,000 $ - $ - Representative warrant liabilities, December 31, 2022 $ 8,611 $ - $ - $ 8,611 The following table presents a reconciliation of the Level 3 Representative Warrants liabilities: Three months ended September 30, 2023 2022 Representative warrant liabilities, July 1 $ 4,535 $ 18,600 Issuances - - Exercises - - Change in fair value ( 2,757 ) 23,882 Representative warrant liabilities, September 30 $ 1,779 $ 42,482 Nine months ended September 30, 2023 2022 Representative warrant liabilities, January 1 $ 8,611 $ 106,205 Issuances - - Exercises - - Change in fair value ( 6,833 ) ( 63,723 ) Representative warrant liabilities, September 30 $ 1,779 $ 42,482 8 The change in fair value of the Representative Warrants liabilities is recorded in change in fair value of warrant liabilities on the condensed consolidated statement of operations and comprehensive loss. The fair value of the cash equivalents is based on the fair value of marketable securities invested in U.S. government money market funds. The fair value of the liability associated with the Public Warrants as of September 30, 2023 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, 2023 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. 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. 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 similarly to the 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: Nine months ended September 30, 2023 2022 Stock options 1,980,000 1,000,000 Warrants 15,356,000 13,600,000 Restricted stock units 83,332 200,000 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. 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. 9 The relevant translation rates are as follows: As of September 30, 2023 As of December 31, 2022 Closing rate, British Pound (GBP) to $USD at period end 1.2207 1.2039 Average rate, GBP to $USD for the period ended 1.2444 1.2362 Closing rate, Euro (EUR) to $USD at period end 1.0589 0.9367 Average rate, EUR to $USD for the period ended 1.0833 0.9517 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, 2023 and December 31, 2022, 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 statements. Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which requires entities to estimate all expected credit losses for financial assets measured at amortized cost basis, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The Company adopted this guidance on March 31, 2023. The adoption of this accounting standard did not have a material impact to the Company’s condensed consolidated financial statements. NOTE 3 – PROPERTY AND EQUIPMENT, NET Property and equipment, net consists of the following: As of September 30, 2023 As of December 31, 2022 Leasehold improvements $ 3,193 $ 3,193 Medical equipment 155,363 99,220 Office equipment 6,140 26,343 Property and equipment, gross 164,696 128,756 Less: accumulated depreciation ( 18,772 ) ( 3,559 ) Property and equipment, net $ 145,924 $ 125,197 NOTE 4 – LEASES 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 $ 16,171 per month, which will increase to $ 16,656 beginning January 1, 2024. 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 approximately $ 569,000 at inception. The ROU asset is recorded as a component of non-current assets and the liability a component of current and non-current liabilities on the Company’s consolidated balance sheets. The Company discounted the future lease payments of this lease using the prevailing collateralized lending rate which would be extended to the Company based on its credit profile relative to the period of inception, and the duration of the lease from inception. The interest rate used in calculating the fair value listed above was 7.8 %. 10 As of September 30, 2023, the Company recognized total ROU assets and lease liabilities as follows: As of September 30, 2023 As of December 31, 2022 Non-current leases - right of use assets $ 378,453 $ 500,428 Current liabilities - operating lease liabilities $ 174,471 $ 160,362 Non-current liabilities - operating lease liabilities $ 210,817 $ 344,021 Operating lease expense $ 188,206 $ 168,812 Cash paid for amounts included in the measurement of operating lease liabilities $ - $ 169,695 The following table summarizes the maturity of the Company’s operating lease payments as of September 30, 2023: 2023 (remaining) $ 65,169 2024 199,872 2025 183,216 Total future minimum lease payments $ 448,257 Amount representing interest ( 62,969 ) Present value of net future minimum lease payments $ 385,288 NOTE 5 – INTANGIBLE ASSETS AND GOODWILL Intangible assets, net consists of the following: September 30, 2023 December 31, 2022 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net In-process research and development $ 2,900,000 $ - $ 2,900,000 $ 2,900,000 $ - $ 2,900,000 Patents and intellectual property 5,671,478 ( 472,623 ) 5,198,855 5,671,478 - 5,671,478 Intangible assets, net $ 8,571,478 $ ( 472,623 ) $ 8,098,855 $ 8,571,478 $ - $ 8,571,478 As of September 30, 2023, future expected amortization expense of Intangible assets was as follows: 2023 (remaining) $ 157,541 2024 630,164 2025 630,164 2026 630,164 2027 630,164 Thereafter 5,420,658 Remaining future amortization expense $ 8,098,855 There were no changes to goodwill for the nine months ended September 30, 2023. 11 NOTE 6 – STOCKHOLDERS’ EQUITY Common Stock The Company had 20,836,623 and 26,548,688 shares of its Common Stock issued and outstanding at September 30 , 2023 and 2022, respectively. Common Stock Issuances for the Three and Nine Months Ended September 30 , 2023 During the three and nine months ended September 30 , 2023, the Company issued 16,667 and 116,668 shares of common stock, respectively, due to the vesting of restricted stock units (“RSUs”), and recognized approximately $ 24,175 and $ 71,736 , respectively, of stock-based compensation expense related to its outstanding restricted stock units. Stock-based compensation expense related to the Company’s restricted stock units is recognized within selling, general and administrative expense. As of September 30 , 2023, the remaining unamortized RSU stock-based compensation expense was approximately $ 117,000 . The Company did no t grant any RSUs or restricted stock awards during the three and nine months ended September 30 , 2023. Tender Offer (Common Stock Repurchase) On July 20, 2023, the Company announced that its Board of Directors authorized the repurchase, through a $ 4.0 million tender offer of up to approximately 5.7 million shares of the Company’s outstanding common stock at a cash purchase price of $ 0.70 per share (the “Tender Offer”). The Company launched the Tender Offer on August 9, 2023 and it expired on September 8, 2023. On September 14, 2023, the Company disclosed the results of the Tender Offer. A total of 5,323,451 shares of the Company’s common stock (the “Tender Offer Shares”) were validly tendered and not properly withdrawn at a purchase price of $ 0.70 per for an aggregate purchase price of $ 3,726,416 , including fees and expenses relating to the Tender Offer. The Company had 20,819,956 shares of common stock outstanding following payment for the shares of common stock purchased in the Tender Offer. The Tender Offer Shares were retired and cancelled following the closing of the Tender Offer. NOTE 7 – STOCK OPTIONS Stock Options Issued, Vested and Cancelled During the three months ended September 30 , 2023, no stock options were issued. During the three months ended September 30 , 2023, stock options to purchase an aggregate of 279,167 shares of Common Stock, subject to time-based milestone vesting conditions, vested. During the nine months ended September 30, 2023, the Company issued stock options under the 2021 Plan to employees, to purchase an aggregate of 880,000 shares of Common Stock with a strike price equal to $ 0.491 per share and a term of ten years . One-third of these options vest on the one -year anniversary of the employee hire date and then the remaining stock options vest in equal quarterly installments over the remaining two years . These options had a total fair value of approximately $ 288,000 , as calculated using the Black-Scholes pricing model with a volatility assumption of 68.64 %. During the nine months ended September 30 , 2023, stock options to purchase an aggregate of 629,168 shares of Common Stock, subject to time-based milestone vesting conditions, vested. During the nine months ended September 30 , 2023, stock options to purchase an aggregate of 200,000 shares of Common Stock were cancelled. 12 Stock-Based Compensation For the three months ended September 30, 2023 and 2022, total stock-based compensation expense related to the Company’s stock options was approximately $ 102,000 and approximately $ 111,000 , respectively. For the three months ended September 30, 2023, the Company recognized approximately $ 81,000 of stock-based compensation related to its options within selling, general and administrative expense, and approximately $ 21,000 within research and development expense. For the three months ended September 30, 2022, all stock-based compensation expense was recorded within selling, general and administrative expense. For the nine months ended September 30, 2023 and 2022, total stock-based compensation expense related to the Company’s stock options was approximately $ 451,000 and approximately $ 307,000 , respectively. For the nine months ended September 30, 2023, the Company recognized approximately $ 349,000 of stock-based compensation related to its options within selling, general and administrative expense, and approximately $ 102,000 within research and development expense. For the nine months ended September 30, 2022, all stock-based compensation expense was recorded within selling, general and administrative expense. The following table summarizes the activity related to the Company’s stock options for the nine months ended September 30, 2023: Number of Options Weighted average exercise price per share Weighted average remaining contractual term (years) Aggregate intrinsic value (in thousands) Outstanding, January 1, 2023 1,300,000 $ 2.28 9.12 $ - Granted 880,000 0.49 9.41 - Expired/Cancelled ( 200,000 ) - - - Exercised - - - - Outstanding, September 30, 2023 1,980,000 $ 1.62 8.81 - Exercisable, September 30, 2023 845,835 $ 2.63 8.52 $ - As of September 30 , 2023, the remaining unamortized stock-based compensation expense related to the stock options was approximately $ 479,000 . NOTE 8 – WARRANTS As of September 30 , 2023, the fair value of the Public Warrants was approximately $ 0.01 per Public Warrant based on the closing price of the warrants on The Nasdaq Capital Market. The fair value of the Representative Warrants was approximately $ 0.01 per Representative Warrant, which was based on the relative fair value to the Public Warrants. The following table summarizes the Company’s outstanding warrants: Exercise Price Number of warrants Weighted- average remaining contractual term (years) Weighted average exercise price $ 1.88 2,000,000 3.88 $ 3.50 8,680,000 3.15 $ 6.00 276,000 2.96 $ 6.25 4,400,000 2.96 15,356,000 3.19 $ 4.12 No warrants were granted, expired/cancelled, or exercised during the three and nine months ended September 30 , 2023. NOTE 9 – COMMITMENTS AND CONTINGENCIES Legal and Regulatory Environment The healthcare industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, government healthcare program participation requirement, reimbursement for patient services and Medicare and Medicaid fraud and abuse. Government activity has increased with respect to investigations and allegations concerning possible violations of fraud and abuse statutes and regulations by healthcare providers. 13 Violations of these laws and regulations could result in expulsion from government healthcare programs, together with the imposition of significant fines and penalties, as well as significant repayments for patient services previously billed. Management believes that the Company is in compliance with fraud and abuse regulations, as well as other applicable government laws and regulations. While no material regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time. NOTE 10 – DISCONTINUED OPERATIONS As of June 30, 2023, we sold and disposed of our assets associated with the Clinics operations in Los Angeles, CA and disposed of our services in the U.K. The lease associated with the related property in Los Angeles was assumed by the buyer in the transaction. As of September 30, 2023, the carrying amounts of the classes of assets and liabilities related to the discontinued operations of the Clinics operations were $ 0 . The results of operations from discontinued operations for the three and nine months ended September 30 , 2023 and 2022, have been reflected in the condensed consolidated statements of operations and consist of the following: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues $ - $ 218,608 $ - $ 245,847 Cost of services - 86,465 - 114,503 Gross margin - 132,143 - 131,344 Selling, general and administrative - 527,232 502,063 1,320,627 Research and Development - - - - Loss from discontinued operations - ( 395,089 ) ( 502,063 ) ( 1,189,283 ) Gain on sale of accounts payable - - - 45,000 Gain on sale of assets - - 65,048 - Gain (loss) from discontinued operations, before income tax - ( 395,089 ) ( 437,015 ) ( 1,144,283 ) Income tax expense - - - - Net loss from discontinued operations, net of tax $ - $ ( 395,089 ) $ ( 437,015 ) $ ( 1,144,283 ) Weighted-average common shares outstanding, basic and diluted 25,160,994 26,548,688 25,784,010 24,415,888 Basic and diluted loss per share from discontinued operations $ ( 0.00 ) $ ( 0.01 ) $ ( 0.02 ) $ ( 0.05 ) 14 The following table presents the gain on the sale of assets in Los Angeles, CA: As of September 30, 2023 Cash proceeds $ 55,000 Proceeds to receive in installments 95,000 Total $ 150,000 Less transaction costs ( 11,250 ) Less book value of assets ( 73,702 ) Gain on sale, before income tax $ 65,048 Income tax expense - Gain on sale, net of tax $ 65,048 The following table presents non-cash items related to discontinued operations, which are included in the Company’s unaudited condensed consolidated statement of cash flows: Nine months ended September 30, 2023 Cash Flows From Operating Activities: Gain on sale of assets $ ( 65,048 ) Supplemental disclosure of cash flow information: Amount due from sale of assets $ 95,000 NOTE 11– NOTE PAYABLE Directors and Officer ’ s Liability Insurance On January 9, 2023, the Company entered into a 9-month financing agreement for its directors and officer’s liability insurance in the amount of approximately $ 392,000 that bears interest at an annual rate of 7.8 %. Monthly payments, including principal and interest, are approximately $ 45,000 per month. The balance due under this financing agreement was $ 0 at September 30 , 2023 and December 31, 2022, respectively. 15