KTTA US Equity☆

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ANNUAL

REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2021

or

☐TRANSITION

REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________________

to __________________________

Commission file number 001-40804

PASITHEA THERAPEUTICS CORP.

(Exact name of registrant as specified in its charter)

State or other jurisdiction of (I.R.S. Employer

incorporation or organization Identification No.)

(Address of principal executive offices) (Zip Code)

Registrant’s telephone

number, including area code: (702)514-4174

Securities

registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common stock, par value $0.0001 per share KTTA The Nasdaq Capital Market

Securities

registered pursuant to Section 12(g) of the Act: None

Indicate

by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate

by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate

by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange

Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)

has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate

by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule

405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). Yes ☒ No ☐

Indicate

by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”

“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐

Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☒

If

an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate

by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness

of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered

public accounting firm that prepared or issued its audit report. ☐

Indicate

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The registrant had 22,858,371 shares of common

stock outstanding as of March 23, 2022. The aggregate market value of the common stock held by non-affiliates of the registrant as of

the last business day of the registrant’s most recently completed second fiscal quarter (June 30, 2021) was $0, as the registrant

had not been publicly-traded as of that such date.

PASITHEA THERAPEUTICS CORP.

2021 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Page

PART I

ITEM 1. BUSINESS 1

ITEM 1A. RISK FACTORS 22

ITEM 1B. UNRESOLVED STAFF COMMENTS 59

ITEM 2. PROPERTIES 59

ITEM 3. LEGAL PROCEEDINGS 59

ITEM 4. MINE SAFETY DISCLOSURES 59

PART II

ITEM 6. [RESERVED] 62

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 66

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 66

ITEM 9A. CONTROLS AND PROCEDURES 66

ITEM 9B. OTHER INFORMATION 67

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 67

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 68

ITEM 11. EXECUTIVE COMPENSATION 73

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 83

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 85

SIGNATURES 87

i

CAUTIONARY NOTE

REGARDING FORWARD-LOOKING STATEMENTS

This

Annual Report on Form 10-K (this “10-K”) contains forward-looking statements that can involve substantial risks and uncertainties.

All statements other than statements of historical facts contained in this 10-K, including statements regarding our future results of

operations and financial position, business strategy, prospective products, product approvals, research and development costs, future

revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products

and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties

and other important factors that may cause our actual results, performance or achievements to be materially different from any future

results, performance or achievements expressed or implied by the forward-looking statements.

In

some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,”

“continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,”

“potential,” “predict,” “project,” “should,” “target,” “will,”

or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain

these words. Forward-looking statements contained in this 10-K include, but are not limited to, statements about:

● the success of competing therapies that are or may become available;

ii

● our dependence on third parties;

● our financial performance;

We

have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which

we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and

these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only

as of the date of this 10-K and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk

Factors” and elsewhere in this 10-K. Because forward-looking statements are inherently subject to risks and uncertainties, some

of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events.

The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ

materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update

or revise any forward-looking statements contained herein whether as a result of any new information, future events or otherwise.

In

addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These

statements are based upon information available to us as of the date of this 10-K, and while we believe such information forms a reasonable

basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have

conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain

and you are cautioned not to unduly rely upon these statements.

iii

PART I

ITEM 1. BUSINESS

Overview

We

are a biotechnology company focused on the research and discovery of new and effective treatments for psychiatric and neurological disorders.

Epidemiological data indicate neuropsychiatric disorders as being some of the most prevalent, devastating, and yet poorly treated illnesses.

Our 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. We particularly focus on the cross-talk between the immune system and brain disorders and how immune dysregulation affects

CNS function.

For

many years the brain was considered an “immune-privileged” organ. The anatomical and physiological characteristics of the

central nervous system, in addition to the presence of the blood brain barrier, were thought to underlie slow immune reactions in the

brain. However, according to a 2020 article published by Frontiers in Neuroanatomy, a 2020 article published by Nature Reviews Immunology,

a 2019 article published by Frontiers in Immunology, and a 2020 article published by Frontiers Pharmacology, recent studies have shown

substantial progress in the understanding of neuroimmune interactions, and there is now strong evidence for a close and bi-directional

communication between nerve and immune cells. Altered communication between the immune and nervous system is emerging as a common hallmark

in neuro-developmental, neurodegenerative, and neuro-immunological diseases. On the one hand, the brain is able to modulate the immune

response through the connections between the autonomic nervous system (parasympathetic and sympathetic nerves) and lymphoid organs. Furthermore,

brain hormones such as corticotrophin-releasing hormone and substance P can regulate cytokine levels. On the other hand, the immune system

regulates the brain through its modulation of microglia cells and the release of peripheral cytokines, a phenomenon referred to as “cross

talk” due to the close, reciprocal relationship of these two systems. Our drug discovery efforts focus on neuropsychiatric disorders

that, although phenotypically distinct, are pathogenically related. We focus on mechanism-based immune treatments for the treatment of

these disorders.

The

first new chemical entity drug development program is focused on schizophrenia. Schizophrenia is an inherited brain disease and an incurable

chronic mental disorder. With treatment, most recover from the first episode but then relapse. The pathogenetic mechanisms are unknown,

while the loss of grey matter and a reduced number of synaptic structures on neurons are evident. Converging lines of genetic, epidemiological

and clinical evidence indicate that inflammatory pathways are altered in schizophrenia. Studies in numerous scientific journals, including

a 2013 study from the Journal of Psychiatric Research, a 1998, 2005 and a 2014 study from the Schizophrenia Research, a 2015 study from

the Journal of Psychiatry & Neuro Science, a 2009 study from Molecular Psychiatry and a 2004 study from the Journal of Clinical Psychiatry

have repeatedly shown that patients with schizophrenia have increased serum and cerebrospinal fluid concentrations of pro-inflammatory

cytokines. Several other studies in scientific journals, including a 1997 study from Psychiatry Research, a 2016 study from Nature and

a 2012 study from Revista Brasileira de Psiquiatria, have also reported increased complement gene expression, protein concentration,

and overall activity in the serum or plasma of schizophrenia cases compared to controls. Taken together, this evidence has led to the

hypothesis that schizophrenia is a neuroimmune disorder mediated by alterations in pro- and anti-inflammatory processes in the central

nervous system (CNS). We are currently developing a brain-penetrant small molecules able to down regulate a novel neuroinflammatory pathway

for the systemic treatment of schizophrenia. The work is currently being conducted by Evotec, utilizing Evotec’s integrated research

and development expertise and state-of-the-art structure-based drug design techniques.

The

second new chemical entity drug development program is focusing in a tolerizing vaccine in Multiple Sclerosis. Infection with the Epstein-Barr

virus (EBV) has long been postulated to trigger multiple sclerosis (MS) and recent data, according to a 2022 article published by Science,

in a cohort of >10 million people have provided compelling evidence to show that EBV is the trigger for the development of MS. Furthermore,

in a 2022 article published by Nature, the mechanism through which EBV mediate MS development was elucidated. Through a process of molecular

mimicry, antibodies targeting EBNA-1 residues 386–405 that cross-react with the CNS cell adhesion molecule, glialCAM, Preclinical

work is currently being conducted at Hooke Laboratories, a full-service Contract Research Organization (“CRO”) with deep

experience in experimental autoimmune encephalomyelitis (“EAE”), the standard animal model of MS.

Our

secondary operations are focused on providing business support services to anti-depression clinics in the U.K. and in the United States.

1

We

believe that the current treatments for mental health disorders, such as depression, are inadequate and that conventional medicines have

low success rates in long-term treatment. According to an article published by PLOS One, randomized, double-blind, placebo-controlled

clinical trials of antidepressants were only effective for 42-51% of patients with MDD. For example, current pharmacotherapies for MDD

and BDep have a distinct lag of onset that can generate further distress and impairment in patients. According to an article published

in 2000 by The Journal of Clinical Psychiatry, and an article published in 2010 by Pharmaceuticals (Basel), available antidepressant

medications usually take several weeks before patients display significant therapeutic benefit. This delayed onset of treatment can result

in increased morbidity and increased risk for suicidal behavior. This has been reported in a base population study including 159,810

users of 4 antidepressant drugs showing that the risk of suicidal behavior increased in the first month after starting antidepressants,

and in particular during the first 1 to 9 days, regardless of the chemical class of antidepressant. This study was published in a 2004

article published by The Journal of the American Medical Association. Similarly, other studies including a 2006 article published by

The American Journal of Psychiatry have shown a significantly higher risk of suicide attempts during the first week of antidepressant

treatment compared to subsequent weeks. Furthermore, depressive symptoms are commonly known to affect the ability of patients to function

across multiple domains, impacting self-esteem, motivation and cognitive function. Delayed onset of antidepressants contributes to ongoing

functional impairment and may interfere with integration back into daily life, in turn delaying full functional recovery. Furthermore,

according to a 2012 article published by Biological Psychiatry and a 2013 article published by Brain Stimulation, the continued presence

of depressive symptoms may promote chronic neuronal loss and suppress neurogenesis in the hippocampus. Traditional psychiatric drugs

can also cause side effects. Furthermore, the approval of psychotropic drugs with novel mechanisms of action has been rare in recent

years.

Our operations in the U.K.

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

infusions of ketamine, and our operations in the United States involve providing business support services to entities that furnish similar

services to patients who personally pay for those services. Operations currently take place in several districts of London in the United

Kingdom. We intend to commence operations in the United States, with operations in New York, Los Angeles, San Diego and San Francisco.

In addition, we intend to expand our coverage to other jurisdictions in the United States, including Florida and Nevada. We operate through

partnerships with healthcare companies, including with Zen Healthcare and The IV Doc. Our operations in the U.K., and our future operations

in the United States, are limited to providing business support services to healthcare companies. In the United States, certain of these

business support services are subcontracted to The IV Doc through a Business Support Services Subcontract. We do not provide professional

medical services, establish or own anti-depression clinics, provide psychiatric assessments, or are responsible for the administration

of intravenous infusions of ketamine in the United States. Furthermore, we do not obtain or administer ketamine, nor will we maintain

any license or registration to own, maintain or dispense controlled substances in the U.K. or in the United States. We provide business

support services to properly authorized companies that provide clinical services of the type described above to self-pay patients, and

we subcontract certain of these business support services to The IV Doc.

Ketamine

was first introduced to the medical community as a surgical anesthetic more than 50 years ago. According to a 2015 article published

by Therapeutic Advances in Chronic Disease, and a 2019 article published on the Harvard Medical School’s website, as of the date

of this 10-K, ketamine is gaining grounds as a promising treatment for some cases of major depression. It works differently than traditional

antidepressants, which target the brain’s serotonin and noradrenalin systems. Ketamine blocks NMDA, a receptor in the brain that

is activated by glutamate, a neurotransmitter. A single subanesthetic dose infusion of the NMDA receptor antagonist ketamine has been

shown to have potentially rapid and potent antidepressant effects in treatment-resistant MDD as well as for the treatment of post-traumatic

stress disorder.

2

While

not approved by the FDA or the MHRA to treat depression, and while recreational use remains prohibited, ketamine has been repurposed

for the treatment of MDD. As detailed below, the use of ketamine has been subject to consensus statements by the APA Council of Research

Task Force on Novel Biomarkers and Treatments, the Royal College of Psychiatrists Committee on Electroconvulsive Therapy and Related

Treatments, the Royal Australian and New Zealand College of Psychiatrists Committee for Evidence-Based Practice, and by an international

expert opinion paper published in the American Journal of Psychiatry that was written by an international group of mood disorder experts:

3

The following randomized-clinical

trials have reported a response after IV ketamine infusions in patients with treatment-resistant MDD and BDep:

4

The

antidepressant effects of ketamine on treatment-resistant MDD even when administered in one single subanesthetic dose has been demonstrated

in multiple studies, as set forth in a 2000 article published by Biological Psychiatry, a 2012 article published in PLOS One, a 2017

article published by Neuropsychopharmacology, a 2015 article published by Psychological Medicine, a 2018 article published by Journal

of Affective Disorders.

In

2014, a randomized, double-blind, placebo-controlled trial of ketamine infusion on 41 chronic PTSD patients published by JAMA Psychiatry

showed that 0.5mg/kg IV ketamine infusion produced a significant and rapid reduction in PTSD symptom severity within 24 hours of infusion

when compared to placebo.

Our

Strategy

Our

core strategy is to become a leader in solving psychiatric and neurological disorders, one of the world’s biggest clinical problems,

through research, development, and commercialization of novel CNS drugs. Key elements of our business strategy are as follows:

Development

Plan

We

are currently focusing in two drug development programs in the following indications:

About

Our TargetMarket

According

to the National Institute of Mental Health, mental illnesses are common in the United States. Mental illnesses include many different

conditions that vary in degree of severity, ranging from mild to moderate to severe. Two broad categories can be used to describe these

conditions: AMI and SMI. AMI encompasses all recognized mental illnesses, whereas SMI is a smaller and more severe subset of AMI.

5

In

2019, there were an estimated 51.5 million adults aged 18 or older in the United States with AMI. Among the 51.5 million adults with

AMI, 23.0 million (44.8%) received mental health services in the past year. In 2019, there were an estimated 13.1 million adults aged

18 or older in the United States with SMI, which represented 5.2% of all U.S. adults. Out of the 13.1 million adults with SMI, 8.6 million

(65.5%) received mental health treatment in the past year.

A

2004 article published in the bulletin of the WHO suggests that many people with depression do not receive treatment, and that the “treatment

gap” for major depression was 45.4% in the WHO European Region and 56.9% in the Americas. A comprehensive study of such undertreatment

published in the British Journal of Psychiatry in 2017 showed that 1 in 5 patients with MDD in high-income countries and 1 in 27 in low-income

countries received minimally adequate treatment and that only a minority of those with MDD, generally, receive either minimally adequate

counseling, psychotherapy or antidepressant therapy. In addition, according to an article published by Cambridge University Press in

2018, the overall drop-out rate, or percentage of drop-outs from out-patient mental healthcare in WHO’s Mental Health Survey initiative,

sits at 31.7%.

According

to BlueCross BlueShield, diagnosis of major depression in the US increased 33% between 2013 and 2016, and the rate is rising even faster

among millennials (up to 47%) and adolescents (up to 47% for boys and 65% for girls). Further, a 2020 report published by Reports and

Data indicates that the global anxiety and depression treatment market is anticipated to grow at a rate of 2.4% from $15.85 billion in

2019 to $19.21 billion in 2027, and that the market is mainly driven by the increasing prevalence of mental health issues like anxiety

disorder and depression. According to the Harvard School of Public Health, mental health conditions alone will account for the loss of

$16.1 trillion over a span of 20 years, from 2010 to 2030, with dramatic impact on productivity and quality of life.

According

to the Mayo Clinic, treatment for mental illness largely depends on the type of mental illness and its severity. Currently, treatment

can include psychiatric medication (such as anti-depressants, anti-anxiety medications, mood stabilizers, and antipsychotic drugs), psychotherapy,

brain-stimulation treatments, hospitalization, substance misuse treatment, or any combination of the foregoing.

Recent Business

Developments

On

September 17, 2021, we sold 4,800,000 Units in our Initial Public Offering at a price

of $5.00 per Unit for a total of $24,000,000. We 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.

In

October 2021, services commenced under the terms of an agreement entered into between our wholly owned UK subsidiary, Pasithea Therapeutics

Limited (“Pasithea UK”) and Purecare Limited (operating as Zen Knightsbridge Clinic) on 31 December 2020 and amended and

re-stated on 4 August 2021 (the “Amended and Restated Zen Knightsbridge Collaboration Agreement”).

In

December 2021, services commenced under the terms of an agreement entered into between Pasithea UK and Portman Limited (operating as

Zen Baker Street Clinic) on 31 December 2020 and amended and re-stated on 4 August 2021 (the “Amended and Restated Zen Baker Street

Collaboration Agreement”).

On November 17, 2021, we announced

that Pasithea Clinics Corp. (“Pasithea Clinics”), our wholly owned Delaware subsidiary, intends to begin operations providing

business support services to registered healthcare providers who assess patients and, if appropriate, administer intravenous infusions

of ketamine in New York, Los Angeles, San Diego and San Francisco, offering in-home IV ketamine therapy to patients in those cities. On

December 1, 2021, Pasithea Clinics announced its intention to expand its business support services to clinics in Nevada, and to offer,

through registered healthcare providers, in-home IV ketamine therapy in the United States to patients in Florida, and Pasithea Clinics

is exploring potential licensure necessary for the provision of such services. On January 26, 2022, Pasithea Clinics announced it intends

to provide business support services at in-person clinics operated by registered healthcare providers in the United States, in the Los

Angeles area during the second quarter of 2022.

6

On

November 29, 2021, we consummated the November 2021 Private Placement, pursuant to which we issued 8,680,000 PIPE Shares and 8,680,000

Warrants to 21 institutional investors. The offering price per PIPE Share and accompanying Warrant was

$3.50, resulting in aggregate proceeds of $30,380,000.

On

February 3, 2022, we announced a new chemical entity (“NCE”) development program aimed at developing a tolerizing vaccine

for multiple sclerosis (“MS”). As part of this NCE development program, we named Hooke Laboratories as our research partner.

On

March 8, 2022, we announced a partnership with The Glimpse Group, Inc. (Nasdaq: VRAR), a virtual reality (“VR”) and augmented

reality platform company. Pursuant to this partnership, we will co-develop with The Glimpse Group, Inc. (and its subsidiary Foretell

Reality) VR-environments that will assist in our treatment of patients with psychiatric disorders.

Services

Our secondary operations in

the U.K., and our intended secondary operations in the United States, are focused on providing business support services to anti-depression

clinics. Our operations in the U.K. involve providing business support services to registered healthcare providers who assess patients,

and if appropriate, administer intravenous infusions of ketamine, and our intended operations in the United States involve providing business

support services to entities that furnish similar services to patients who personally pay for those services. Operations initially take

place across the United States and the U.K. through partnerships with healthcare companies, including Zen Healthcare and The IV Doc. Our

operations in the U.K. are, and our intended operations in the United States will be, limited to providing business support services to

healthcare companies. In the United States, certain of these business support services will be subcontracted to The IV Doc through a Business

Support Services Subcontract. (See “Business – License Agreements and Strategic Collaboration”) We do not provide professional

medical services, establish or own anti-depression clinics, provide psychiatric assessments, or be responsible for the administration

of intravenous infusions of ketamine in the United States. Furthermore, we do not obtain or administer ketamine, nor do we maintain any

license or registration to own, maintain or dispense controlled substances in the U.K. or in the United States. We provide business support

services to properly authorized companies that provide clinical services of the type described above to self-pay patients, and we subcontract

certain of these business support services to The IV Doc.

United

Kingdom. In the U.K., we have established Pasithea Therapeutics Limited as a wholly owned subsidiary to provide business support

to ketamine services providers. As of December 31, 2021, Pasithea Therapeutics Limited had hired one employee who is responsible for

marketing. Our U.K. branch has already partnered with Purecare Limited and Portman Health Ltd, which own Zen Healthcare, a general practice

group with two locations in London: Knightsbridge and Baker Street. Zen Healthcare clinics treat patients, including providing psychiatric

consultations, and have pharmacies that procure, handle, and administer ketamine in treatment rooms, providing all pharmaceuticals and

equipment necessary for the assessment of patients and the provision of the Treatments. Zen Healthcare has been operating for five years

and has approximately 30,000 patients. Its practices give us immediate exposure in the U.K.. Other advantages include gaining access

to an existing management structure and qualified general practitioners, pharmacists, therapists, and psychotherapists.

During

the year ended December 31, 2020, we entered into the Amended and Restated Zen Knightsbridge Collaboration Agreement with Purecare, as

amended and restated on August 4, 2021, and the Amended and Restated Zen Baker Street Collaboration Agreement with Portman, as amended

and restated on August 4, 2021. Under the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated

Zen Baker Street Collaboration Agreement, Purecare and Portman provide consulting and treatment rooms, apply for and maintain CQC registrations,

employ or engage licensed and qualified staff, assess patients and, if appropriate, administer the Treatments, maintain equipment and

provide all ketamine and other pharmaceuticals necessary for the Treatments at the Zen Knightsbridge Clinic and the Zen Baker Street

Clinic, respectively. Under the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker

Street Collaboration Agreement, we, among other things, market the Treatments to the extent permitted under law, arrange and pay for

the fit-out of the consulting room, provide equipment necessary for the Treatments, develop, operate and maintain a booking website for

the Treatments, make bookings and take payments, and employ or engage customer services advisers to liaise with clinical staff and pay

certain staff costs. Under both the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker

Street Collaboration Agreement, we receive 30% of all revenues less certain clinical staff costs which results from the provision of

the Treatments provided at the Zen Knightsbridge Clinic and the Zen Baker Street Clinic. Services commenced in October 2021 and December

2021 under the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker Street Collaboration

Agreement respectively. (See “Business – License Agreements and Strategic Collaborations).

7

Our

Chief Operating Officer, Head of U.K. Clinics and Director, Dr. Yassine Bendiabdallah, is a co-founder, current managing director, and

25% shareholder of Purecare. Dr. Bendiabdallah is also a co-founder and 16.25% shareholder of Portman. (See “Certain Relationships

and Related Party Transactions.”)

Our

risks are mostly related to our reliance on ketamine as a key aspect of treatment because (i) ketamine is a controlled substance, (ii)

ketamine would be prescribed for an unlicensed therapeutic indication, (iii) ketamine requires specific manufacture, storing, promotion

and administration compliance, and (iv) ketamine poses certain clinical risks to patients.

First,

in the U.K., ketamine is a Schedule II controlled substance under the Misuse of Drugs Regulations 2001 and is controlled with regard

to synthesis, storage and distribution as a Class B substance under the Misuse of Drugs Act 1971 as amended. Possession of ketamine requires

Home Office licensing and may only be stored on premises complying with professional strictures of the GPhC. As a controlled substance,

ketamine requires production and supply from a manufacturer possessing MHRA manufacturing authorization which ensures the production

of GMP quality ketamine. Additionally, like in the US, because IV ketamine has not yet been granted marketing authorization for

the psychotherapy indication in the U.K., it must be regarded as an unlicensed medicine that is being used off label without its

authorized indications for anesthesia and/or chronic pain. The GMC code of good practice allows a physician to prescribe an unlicensed

medicine under his own responsibility and they will be required to abide by their professional regulatory requirements.

Moreover,

English laws restrict the offering of inducements to persons qualified to prescribe medicinal products. The Human Medicines Regulations

2012, at Regulation 300(1), make it a criminal offence for a person, in connection with the promotion of medicinal products to persons

qualified to prescribe or supply them, to supply, offer or promise to such persons any gift, pecuniary advantage or benefit unless it

is inexpensive and relevant to the practice of medicine or pharmacy. It is also an offence for any person qualified to prescribe or supply

medicines to solicit or accept any gift, pecuniary advantage or benefit in kind (Regulation 300(4)). The Bribery Act 2010, which provides

a legal framework to combat bribery in the public and private sectors, includes criminal offenses covering the offering, promising or

giving of an advantage, and requesting, agreeing to receive or accepting of an advantage; bribing a foreign public official and the corporate

offense of failing to prevent bribery. A company will be found liable of committing this offence if an “associated person”

performing services on its behalf bribes another person to obtain or retain business or a business advantage. The definition of associated

persons is broad and will capture many business relationships, including joint venture partners, introducers and other intermediaries.

The associated individual or entity that carries out the act of bribery on behalf of the organization need not have any connection to

the U.K.. The SFO, which enforces the Bribery Act, will typically not seek to prosecute unless it considers that to do so is in the public

interest; and in reaching that decision it would have regard to any relevant action already taken by the MHRA and the PMCPA. Further,

the Human Medicines Regulations 2012, at Regulation 284, prohibit the publishing of any advertisement that is likely to lead to the use

of a prescription only medicine such as ketamine.

Under

English law, the provision of health and care services is a regulated activity and requires registration with the Care Quality Commission.

The provision of regulated activities without registration is an offence .

Specifically, in the UK, we currently

operate under Zen Healthcare’s CQC registration and regulatory approvals and will have no independent employees providing health

services.

Therefore,

the associated risk factors relating to our ownership and operation of outpatient clinics dispensing and prescribing intravenous infusions

of ketamine in the U.K. include that the MHRA may not approve manufacturing authorization for the production site responsible for production

of ketamine; product defects may cause liabilities under civil law for negligence and products liability under the Consumer Protection

Act 1987; clinics or the medical staff operating the clinics may not be able to comply with regulatory requirements and standards of

performance demanded by the CQC and the GMC code of practice; similarly the operation of the clinics themselves may not comply with CQC

rules on hygiene and safety; we may be found not to comply with the Human Medicines Regulations 2012 with respect to advertising requirements

(including the prohibition of any advertisement that is likely to lead to the use of a prescription only medicine) or the Advertising

Standards Authority standards and rules (The MHRA Blue Guide on Advertising and Promotion of Medicines in the U.K. Third Edition 2020)

with regard to promotion and marketing of medicinal products; we and/or associated persons may be found to not be compliant with the

Bribery Act 2010; and the prescription of ketamine for the unlicensed indication of acute depressive illness may increase prevalence

of serious adverse events during the post marketing vigilance of the new formulation, damaging the commercial reputation of our potential

products.

8

United States (including

New York and California). In New York and California, we have established business support services agreements (BSSAs) with a California

independent professional services company and an independent professional services company in New York that is organized and established

under the laws of the state of New York. The independent professional services companies, through their employed or contracted medical

providers (i.e., physicians and nurses), will provide clinical services. Individual clinicians, including psychiatrists, anesthesiologists,

and nurses, all licensed and qualified to provide clinical services, will contract with the independent professional services companies

to provide their services. Through our business support services agreements, we, in conjunction with The IV Doc, will provide non-clinical

business support services necessary for the professional services companies to operate, including administrative services, information

technology services and marketing services, online advertising, and other channels, in exchange for a flat fee.

Pasithea

Clinics, an affiliate of the Company, has entered into a BSSA with the following professional corporations: Nadelson Medical PLLC and

Nadelson Medical of CA, P.C. Elliot J. Nadelson, MD, is the sole owner of Nadelson Medical PLLC and Nadelson Medical of CA, P.C. These

professional corporations are separate and independent entities from Pasithea Clinics, and have been organized consistent with the state

professional licensing laws, including fee-splitting prohibitions, and all requirements for establishment of professional corporations

in their respective states. The BSSA sets forth the details of the support services which will include non-medical administrative, financial,

human resources, technology, and legal services to the professional corporations. Any service fees will be based on fair market value

for the services Pasithea Clinics provides and no professional fees will be shared with Pasithea Clinics by the professional corporations.

As

noted above, we have partnered with The IV Doc, a leading provider of administrative and support services to affiliated clinical practices

providing intravenous infusions. Adam J. Nadelson, MD, serves as the Chief Executive Officer of The IV Doc and also holds voting power

over the Living Trust of Adam Nadelson, a minority stockholder in the Company. (See “Certain Relationships and Related Party Transactions.”)

The IV Doc itself and through clinical affiliates has treated over 50,000 patients over the past seven years and has developed significant

business support resources. The IV Doc has established relationships with over 800 clinicians in the intravenous infusion space. Through

these efforts, The IV Doc has developed a national reputation for the provision of in-home infusion services, testing, and outpatient

medical care. Pursuant to the Business Support Services Subcontract, we have access to The IV Doc’s business support resources,

which will allow us to provide superior business support services to the professional services companies with which we contract. We expect

The IV Doc’s business support resources will facilitate the efficient expansion of our intended operations in New York and Los

Angeles to other locations utilizing The IV Doc business support services to assist their patient service delivery model, including The

IV Doc software and technology and clinical services management resources.

We

provide business support services to one or more professional services companies that utilize psychiatrists to perform diagnostic services

and anesthesiologists to administer IV ketamine. Our business support services agreements require all independent practices receiving

our business support services to ensure all clinicians possess and maintain all applicable state and local licenses during the course

of their employment or contractual obligations. At this time, we do not plan on entering into business support services agreements with

professional services companies that receive third-party reimbursement for their services.

In

the United States, the FDA, the DEA and state agencies regulate the use, maintenance and distribution of ketamine. At the federal level,

the FDA has approved ketamine for use as an anesthetic but not for subanesthetic intravenous administration for psychotherapy. However,

in general, physicians may prescribe FDA-approved drugs for conditions other than what the drugs have been explicitly approved for (off-label

use). Once a drug such as ketamine is approved for any use, physicians may prescribe those drugs for off-label uses consistent with applicable

state medical practice requirements (see below). The DEA, under the federal Controlled Substance Act, oversees the maintenance and distribution

of all controlled substances, including ketamine. Depending on the specific clinical protocols and standards established by the independent

professional services company and the contracted or employed physicians prescribing and administering ketamine, the entity and/or the

contracted or employed physicians will be required to comply with all DEA requirements. Our business support services agreements require

all independent practices receiving our business support services to ensure the entity and/or the contracted or employed physicians comply

with all DEA requirements.

Our

business support services arrangements are subject to state laws, including those in certain of the states where we operate, which prohibit

the practice of medicine by, and/or the splitting of professional fees with, non-professional persons or entities such as general business

corporations. Corporate practice of medicine and fee-splitting prohibitions vary widely from state to state. In addition, such prohibitions

are subject to broad powers of interpretation and enforcement by state regulators. Our failure to comply with state regulations could

lead to adverse action against us and/or our providers by courts or state agencies, civil or criminal penalties, loss of provider licenses,

or the need to restructure our business model and/or physician relationships, any of which could harm our business.

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Under

our BSSAs we provide various administrative and operations support services in exchange for scheduled fees at the fair market value of

our services provided to each professional services company. As a result, our ability to receive cash fees from the professional services

companies is limited to the fair market value of the services provided under the BSSAs. To the extent our ability to receive cash fees

from the professional services companies is limited, our ability to use that cash for growth, debt service or other uses may be impaired

and, as a result, our results of operations and financial condition may be adversely affected.

Our ability to perform business

support services in a particular U.S. state is directly dependent upon the applicable laws governing the practice of medicine, healthcare

delivery and fee splitting in such locations, which are subject to changing political, regulatory and other influences. The extent to

which a U.S. state considers particular actions or contractual relationships to constitute the practice of medicine is subject to change

and to evolving interpretations by medical boards and state attorneys general, among others, each of which has broad discretion. There

is a risk that U.S. state authorities in some jurisdictions may find that our relationships with professional services companies violate

laws prohibiting the corporate practice of medicine and fee splitting. Accordingly, we must monitor our compliance with laws in every

jurisdiction in which we operate on an ongoing basis, and we cannot provide assurance that our activities and arrangements, if challenged,

will be found to be in compliance with the law. Additionally, it is possible that the laws and rules governing the practice of medicine

and fee splitting in one or more jurisdictions may change in a manner adverse to our business. While our BSSAs prohibit us from controlling,

influencing or otherwise interfering with the practice of medicine at each professional services company, and provide that licensed physicians

retain exclusive control and responsibility for all aspects of the practice of medicine and the delivery of medical services, we cannot

assure you that our contractual arrangements and activities with the professional services companies are free from scrutiny from U.S.

state authorities, including the possibility that a U.S. state regulatory authority would find that the BSSAs create an impermissible

delegation of clinical control by a physician practice to an unlicensed person. We further cannot guarantee that subsequent interpretation

of the corporate practice of medicine and fee splitting laws will not circumscribe our business operations. Further, notwithstanding our

belief that the professional corporations have been organized and operate consistent with all applicable laws, these risks may be heightened

due to the immediate familial relationship between Adam J. Nadelson, MD, the Chief Executive Officer of The IV Doc and the individual

with voting power of the Living Trust of Adam Nadelson, a minority stockholder in the Company, and Elliot J. Nadelson, MD, the sole shareholder

of each of Nadelson Medical PLLC and Nadelson Medical of CA, P.C. State corporate practice of medicine doctrines also often impose penalties

on physicians themselves for aiding the corporate practice of medicine, which could discourage providers from participating in our network

of physicians. If a successful legal challenge or an adverse change in relevant laws were to occur, and we were unable to adapt our business

model accordingly, our operations in affected jurisdictions would be disrupted, which could harm our business.

Any

material changes in our relationship with or among the professional services companies, whether resulting from a dispute among the entities,

a challenge from a governmental regulator, a change in government regulation, or the loss of these relationships or contracts with the

professional services companies, could impair our ability to provide services to the professional services companies and could harm our

business. Any scrutiny, investigation or litigation with regard to our arrangements with professional services companies, and any resulting

penalties, including monetary fines and restrictions on or mandated changes to our current business and operating arrangements, could

harm our business.

Moreover,

identifying professional services companies, and negotiating and documenting relationships with them, requires significant time and resources.

Our competitors may be more effective in executing such relationships and performing against them. If we are unsuccessful in establishing

or maintaining our relationships with professional services companies, our ability to compete in the marketplace or to grow our net revenue

could be impaired and our results of operations may suffer.

Financial Overview

We

have experienced losses since inception and, at December 31, 2021, had an accumulated deficit of approximately $2.2 million. We expect

to incur additional losses in the future and expect cumulative losses to increase. In January 2021, we received approximately $1.2 million

in equity financing in connection with which we issued 635,594 shares of Common Stock to 29 accredited investors through a series of

financings conducted pursuant to the Rule 506(b) Regulation D “safe harbor” for the private offering exemption of Section

4(a)(2) of the Securities Act completed in January 2021. On September 17, 2021, we sold 4,800,000 Units

in our Initial Public Offering at a price of $5.00 per Unit for a total of $24,000,000. We 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.

On November 29, 2021, we consummated the November 2021 Private Placement, pursuant to which we issued 8,680,000 PIPE Shares and

8,680,000 Warrants to 21 institutional investors. The offering price per PIPE Share and accompanying Warrant was

$3.50, resulting in aggregate proceeds of $30,380,000.

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Competition

in our Pharmaceutical Model

The

pharmaceutical market for the treatment of major depressive disorder (MDD) includes selective serotonin reuptake inhibitors, serotonin

and norepinephrine reuptake inhibitors and atypical antipsychotics. A number of these marketed antidepressants will be generic, and would

be key competitors to our future drug candidates. These products include Janssen Pharmaceuticals, Inc.’s Spravato (esketamine),

Forest Laboratory’s Lexapro/Cipralex (escitalopram) and Viibryd (vilazodone), Pfizer, Inc.’s Zoloft (sertraline), Effexor

(venlafaxine) and Pristiq (desvenlafaxine), GlaxoSmithKline plc’s Paxil/Seroxat (paroxetine), Eli Lilly and Company’s Prozac

(fluoxetine) and Cymbalta (duloxetine), AstraZeneca plc’s Seroquel (quetiapine) and Bristol-Myers Squibb Company’s Abilify

(aripiprazole), among others.

We

anticipate that competition in our industry will increase. In addition, the health care industry is characterized by rapid technological

change, resulting in new product introductions and other technological advancements. Our competitors may develop and market products

that render future product candidates, or any products manufactured or marketed by us, non-competitive or otherwise obsolete.

Intellectual

Property

We

currently do not hold any intellectual property, but intend to develop product candidates that may be the subject of future patent applications.

TraDigital Services

Agreement

On

September 18, 2021, the Company entered into a services agreement with TraDigital Marketing Group (“TraDigital”) pursuant

to which TraDigital provide consulting services from September 18, 2021 through December 17, 2021 (the “Services Agreement”).

The Services Agreement included a prepaid cash consulting fee of $394,000, payable and paid upon the agreement date; the Company expensed

the total amount over the term of the agreement as selling, general and administrative expense as of December 31, 2021. The Services

Agreement also includes 150,000 common shares of the Company due and earned upon the agreement date of September 18, 2021.

License Agreements

and Strategic Collaborations

Zen Clinics

During

the year ended December 31, 2020, we entered into the Amended and Restated Zen Knightsbridge Collaboration Agreement, as amended and

restated on August 4, 2021, with Purecare, a company that operates the Zen Knightsbridge Clinic, whereby both parties have agreed to

collaborate on the provision of Treatments at Purecare’s London based clinic. During the year ended December 31, 2020, we entered

into the Amended and Restated Zen Baker Street Collaboration Agreement, as amended and restated on August 4, 2021, with Portman, a company

that operates the Zen Baker Street Clinic, whereby both parties have agreed to collaborate on the provision of Treatments at Portman’s

London based clinic.

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Under

the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker Street Collaboration Agreement,

Purecare and Portman provide consulting and treatment rooms, apply for and maintain CQC registrations, employ or engage licensed and

qualified staff, assess patients and, if appropriate, administer the Treatments, maintain equipment and provide all ketamine and other

pharmaceuticals necessary for the Treatments at the Zen Knightsbridge Clinic and the Zen Baker Street Clinic, respectively. Under the

Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker Street Collaboration Agreement,

we, among other things, market the Treatments to the extent permitted under law, arrange and pay for the fit-out of the consulting room,

provide equipment necessary for the Treatments, develop, operate and maintain a booking website for the Treatments, make bookings and

take payments, and employ or engage customer services advisers to liaise with clinical staff and pay certain staff costs. Under both

the Amended and Restated Zen Knightsbridge Collaboration Agreement and the Amended and Restated Zen Baker Street Collaboration Agreement,

we receive 30% of all revenues less certain clinical staff costs which results from the provision of the Treatments provided at the Zen

Knightsbridge Clinic and the Zen Baker Street Clinic. The initial term of the Amended and Restated Zen Knightsbridge Collaboration Agreement

and the Amended and Restated Zen Baker Street Collaboration Agreement commenced during the year ended December 31, 2020 and continues

in effect for an initial term of two years and thereafter continues unless terminated on three months’ notice by either party provided

that this notice of termination may not be given during the initial term. Each party may terminate the Amended and Restated Zen Knightsbridge

Collaboration Agreement and the Amended and Restated Zen Baker Street Collaboration Agreement, as applicable, immediately at any time

by giving written notice to the other party upon the occurrence of certain conditions, including, but not limited to, the other party

committing any default, breach or fraud, or the other party suspending or ceasing to carry on all or a substantial part of its business.

The IV Doc

On April 9, 2021, Pasithea

Clinics, 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 provided under a BSSA with Pasithea Clinics. During the term of the Subcontract, 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, which represents fair market value for the subcontract services and are commensurate with the subcontract

services to be provided, and do 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 services provided pursuant to such agreement, provided that

such expenses are otherwise commercially reasonable and necessary. The initial term of the Subcontract is 15 years, and will automatically

renew for successive five-year terms unless either party delivers written notice to the other party of its intent not to renew at least

180 days before the end of the initial term or unless the Subcontract is earlier terminated pursuant to the terms thereof. The Subcontract

may be terminated during the term by (a) mutual agreement of the parties, (b) by Pasithea Clinics immediately and without notice upon

termination of the BSSA, (c) by Pasithea Clinics immediately upon written notice if The IV Doc breaches the Subcontract and fails to cure

such breach within 45 days after receiving written notice from Pasithea Clinics or if The IV Doc admits in writing that it is unable to

pay its debts generally when due, or (d) by The IV Doc immediately upon written notice if Pasithea Clinics breaches the Subcontract and

fails to cure such breach within 45 days after receiving written notice from The IV Doc or if Pasithea Clinics admits in writing that

it is unable to pay its debts generally when due.

Government Regulation and Drug Approval

Governmental Regulations

Government

authorities in the United States (including federal, state and local authorities) and in other countries, extensively regulate, among

other things, the manufacturing, research and clinical development, marketing, labeling and packaging, storage, distribution, post-approval

monitoring and reporting, advertising and promotion, pricing and export and import of pharmaceutical products, such as our future product

candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign

statutes and regulations require the expenditure of substantial time and financial resources. Moreover, failure to comply with applicable

regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure

of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market. Any agency

or judicial enforcement action could have a material adverse effect on us.

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U.S. Government

Regulation

In