Psyched Wellness Ltd. — Interim / Quarterly Report 2023

Jul 31, 2023

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Psyched Wellness Ltd.

Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022

(Expressed in Canadian Dollars)

Notice to Reader

Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the condensed interim consolidated financial statements, they must be accompanied by a notice indicating that the condensed interim consolidated financial statements have not been reviewed by an auditor.

The accompanying unaudited condensed interim consolidated financial statements have been prepared by and are the responsibility of the management of Psyched Wellness Ltd.

The Company’s independent auditor has not performed a review of these unaudited condensed interim consolidated financial statements in accordance with the standards established by the Chartered Professional Accountants of Canada for a review of interim financial statements by an entity’s auditor.

Psyched Wellness Ltd.

Unaudited Condensed Interim Consolidated Statements of Financial Position (Expressed in Canadian Dollars)

	As at May 31, 2023 As at November 30, 2022
	Notes $ $ Assets Current Assets Cash 830,079 2,567,567 Accounts receivable 4 20,786 63,946 Inventories 5 1,168,098 266,789 Prepaid expenses and deposits 6 133,539 292,738
	Total Current Assets 2,152,502 3,191,040 Property and equipment 7 32,966 24,375 Intangible assets 8 30,333 95,368
	Total Assets 2,215,801 3,310,783
	Liabilities Current Liabilities Accounts payable and accrued liabilities 9,14 486,109 174,890 Deferred revenue 2,232 23,182
	Total Liabilities 488,341 198,072
	Shareholders’Equity Share capital 10 21,001,495 21,001,495 Reserve for restricted share units 11 487,000 487,000 Contributed surplus 12 1,313,966 2,048,878 Reserve for warrants 13 3,254,521 3,254,521 Accumulated other comprehensive loss (312) - Accumulated deficit (24,329,210) (23,679,183)
	Total Shareholders’ Equity 1,727,460 3,112,711
	Total Liabilities and Shareholders’ Equity 2,215,801 3,310,783
	Nature of operations and going concern 1 Contingencies and commitments 19 Subsequent event 20

Approved on behalf of the Board of Directors:

“Jeffrey Stevens” Jeffrey Stevens, Director

“Janeen Stodulski” Janeen Stodulski, Director

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

3

Psyched Wellness Ltd.

Unaudited Condensed Interim Consolidated Statements of Loss and Comprehensive Loss For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

			Three months ended May31,2023	Three months ended May31,2022 Six months ended May31,2023 Six months ended May31,2022
	Revenue Sales revenue Cost ofgoods sold	Notes 17	$ 106,731 (189,362)	$ $ $ - 164,268 - - (240,504) -
	Gross Profit(Loss)		(82,631)	- (76,236) -
	Expenses Management salaries and consulting fees Stock-based compensation Professional fees Advertising and promotion Office and general Research costs Regulatory compliance Depreciation	14 11,12,14 14 7	203,046 18,318 148,412 59,757 82,223 50,098 20,209 1,350	194,211 421,510 398,221 290,183 418,051 993,329 119,297 257,694 243,309 96,946 194,648 186,032 74,246 148,982 148,833 541,189 76,523 689,007 41,505 28,324 49,166 - 2,336 -
	Total Expenses		(583,413)	(1,357,577) (1,548,068) (2,707,897)
	Loss before Other Expenses		(666,044)	(1,357,577) (1,624,304) (2,707,897)
	Other Expenses Write-off of intangible assets Gain on disposals of properties Property taxes Foreign exchangegain(loss)	8 18	(114,914) - (412) (8,658)	- (114,914) - 193,289 - 193,289 (413) (1,558) (6,039) 1,199 (62,214) 712
	Total Other Income(Expenses)		(123,984)	194,075 (178,686) 187,962
	Net Loss		(790,028)	(1,163,502) (1,802,990) (2,519,935)
	Other Comprehensive Loss Exchange loss on translation of foreign operations		(312)	- (312) -
	Comprehensive Loss		(790,340)	(1,163,502) (1,803,302) (2,519,935)
	Weighted Average Number of Outstanding Shares - Basic and diluted	10	135,789,695	135,239,695 135,789,695 133,830,354
	Net Loss per Share - Basic and diluted	10	(0.006)	(0.009) (0.013) (0.019)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4

Psyched Wellness Ltd.

Unaudited Condensed Interim Consolidated Statements of Changes in Shareholders’ Equity For the Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

							Accumulated	Accumulated
				Reserve for			Other
		Number of		Restricted	Contributed	Reserve for	Comprehensive		Accumulated
		Shares	Share Capital	Share Units	Surplus	Warrants	Loss		Deficit	Total
	Notes	#	$	$	$	$		$	$	$
Balance, November 30, 2021		130,589,695	20,451,245	-	1,882,310	3,302,535	-		(19,431,593)	6,204,497
Stock-based compensation - RSUs	11	-	-	846,471	-	-	-		-	846,471
Issuance of shares on vesting of RSUs	10,11	4,650,000	487,000	(487,000)	-	-	-		-	-
Stock-based compensation	12	-	-	-	146,858	-	-		-	146,858
Expiry of warrants		-	-	-	-	(3,173)	-		3,173	-
Net loss for theperiod		-	-	-	-	-	-		(2,519,935)	(2,519,935)
Balance,May31,2022		135,239,695	20,938,245	359,471	2,029,168	3,299,362	-		(21,948,355)	4,677,891
Balance, November 30, 2022		135,789,695	21,001,495	487,000	2,048,878	3,254,521	-		(23,679,183)	3,112,711
Stock-based compensation	12	-	-	-	418,051	-	-		-	418,051
Cancellation of options	12	-	-	-	(1,152,963)	-	-		1,152,963	-
Exchange loss on translation of foreign operations		-	-	-	-	-	(312)		-	(312)
Net loss for theperiod		-	-	-	-	-	-		(1,802,990)	(1,802,990)
Balance,May31,2023		135,789,695	21,001,495	487,000	1,313,966	3,254,521	(312)		(24,329,210)	1,727,460

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

5

Psyched Wellness Ltd.

Unaudited Condensed Interim Consolidated Statements of Cash Flows For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

		Three months ended May31,2023	Three months ended May31,2022 Six months ended May31,2023 Six months ended May31,2022
	Notes Operating Activities Net loss for the period Adjustments for non-cash items: Stock-based compensation – RSUs 11 Stock-based compensation – options 12 Gain on disposals of properties 18 Depreciation expense 7 Write-off of intangible assets 8	$ (790,028) - 18,318 - 1,350 114,914	$ $ $ (1,163,502) (1,802,990) (2,519,935) 260,726 - 846,471 29,457 418,051 146,858 (193,289) - (193,289) - 2,336 - - 114,914 -
	Net change in non-cash working capital items: Accounts receivable Inventories Prepaid expenses and deposits Accounts payable and accrued liabilities 9 Deferred revenue	(655,446) 16,075 (546,519) 270,612 51,226 1,908	(1,066,608) (1,267,689) (1,719,895) 47,699 43,160 45,025 (45,617) (901,309) (45,617) 214,581 159,199 247,032 52,637 311,219 (59,939) - (20,950) -
	Cash Flows(used in)OperatingActivities	(862,144)	(797,308) (1,676,370) (1,533,394)
	Investing Activities Additions of property and equipment 7 Additions of intangible assets 8 Proceeds on disposals of properties, net 18 Transaction costspaid on disposals ofproperties 18	- - - -	(25,714) (10,927) (25,714) - (49,879) (1,750) 204,900 - 204,900 (11,611) - (11,611)
	Cash Flowsprovided by (used in)InvestingActivities	-	167,575 (60,806) 165,825
	Decrease in cash Effects of foreign exchange on cash Cash,beginningofperiod	(862,144) (312) 1,692,535	(629,733) (1,737,176) (1,367,569) - (312) - 4,792,517 2,567,567 5,530,353
	Cash,end ofperiod	830,079	4,162,784 830,079 4,162,784

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

6

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

1. Nature of Operations and Going Concern

Psyched Wellness Ltd. (“Psyched Wellness” or the “Company”) is incorporated in the Province of Ontario, Canada. Psyched Wellness is a Canadian-based health supplements company dedicated to the distribution of mushroom-derived products and associated consumer packaged goods. The Company’s objective is to create premium mushroom-derived products that have the potential to become a leading North American brand in the emerging functional food category. The Company is currently producing and developing a line of Amanita Muscaria-derived water-based extracts, teas and capsules designed to help with three health objectives: (i) promote stress relief, (ii) relaxation and (iii) assist with restful sleeping.

The Company’s common shares are listed on the Canadian Securities Exchange (the “CSE”) under the ticker symbol “PSYC.” The Company’s common shares are also listed in the United States (the “U.S.”) on the OTCQB[®] Venture Market under the ticker symbol “PSYCF,” and in Germany on the Frankfurt Stock Exchange under the ticker symbol “5U9”. The Company’s registered office address is 77 King Street West, Suite 3000, Toronto, Ontario, M5K 1G8, Canada.

The business of distributing mushroom-derived products involves a high degree of risk, and there is no assurance that any prospective project in the health and wellness industry will be successfully initiated or completed. Further, regulatory evolution and uncertainty may require the Company to alter its business plan and make further investments to react to regulatory changes.

These unaudited condensed interim consolidated financial statements have been prepared on the basis that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities in the normal course of operations. The application of the going concern basis is dependent upon the Company achieving profitable operations to generate sufficient cash flows to fund continuing operations, or, in the absence of adequate cash flows from operations, obtaining additional financing to support operations for the foreseeable future. During the six months ended May 31, 2023, the Company incurred a net loss of $1,802,990 (2022 – $2,519,935) and negative cash flow from operations of $1,676,370 (2022 – $1,533,394), and as of that date, the Company’s accumulated deficit was $24,329,210 (November 30, 2022 – $23,679,183). It is not possible to predict whether financing efforts will continue to be successful in the future or if the Company will attain profitable levels of operations. These conditions represent material uncertainties which may cast doubt on the Company’s ability to continue as a going concern.

These unaudited condensed interim consolidated financial statements do not give effect to adjustments that would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and liquidate its liabilities and commitments in other than the normal course of business and at amounts different from those in the accompanying financial statements. Such adjustments could be material.

2. Basis of Presentation

(a) Statement of Compliance

These unaudited condensed interim consolidated financial statements, including comparatives, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board, and interpretations of the IFRS Interpretations Committee. These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standards 34 – Interim Financial Reporting (“IAS 34”).

These unaudited condensed interim consolidated financial statements were reviewed, approved, and authorized for issuance by the Board of Directors (the “Board”) of the Company on July 31, 2023.

(b) Basis of Measurement

These unaudited condensed interim consolidated financial statements have been prepared in accordance with IFRS, on the historical cost basis except for financial instruments which are measured at fair value. In addition, these unaudited condensed interim consolidated financial statements have been prepared using the accrual basis of accounting, except for cash flow information.

(c) Basis of Consolidation

These unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Psyched Wellness Corp. and AME Wellness Inc., and include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiaries after eliminating inter-entity balances and transactions.

7

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

2. Basis of Presentation (continued)

(d) Functional Currency

These consolidated financial statements are presented in Canadian dollars (“$” or “CAD”), which is also the functional currency of the Company. The functional currency is the currency of the primary economic environment in which the Company operates.

(e) Significant Accounting Judgments, Estimates and Assumptions

The preparation of these financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, revenue, and expenses. On an ongoing basis, management evaluates its judgments and estimates in relation to assets, liabilities, revenue, and expenses. Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgments and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. These estimates are reviewed periodically, and adjustments are made as appropriate in the period they become known. Items for which actual results may differ materially from these estimates are described as follows:

Going concern

At each reporting period, management exercises judgment in assessing the Company’s ability to continue as a going concern by reviewing the Company’s performance, resources and future obligations. The conclusion that the Company will be able to continue as a going concern is subject to critical judgments of management with respect to assumptions surrounding the short and long-term operating budgets, expected profitability, investment and financing activities and management’s strategic planning. The assumptions used in management’s going concern assessment are derived from actual operating results along with industry and market trends. Management believes there is sufficient capital to meet the Company’s business obligations for at least the next 12 months, after taking into account expected cash flows, capital commitments, future financings and the cash position at period-end.

Fair value of financial assets and financial liabilities

Fair value of financial assets and financial liabilities on the consolidated statements of financial position that cannot be derived from active markets, are determined using a variety of techniques including the use of valuation models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. Judgments include, but are not limited to, consideration of model inputs such as volatility, estimated life and discount rates.

Valuation of inventories

The valuation of work-in-process and finished goods requires the estimates of production costs incurred, which become part of the carrying amount for inventories. The Company must also determine if the cost of any inventories exceeds its net realizable value (“NRV”), such as cases where prices have decreased, or inventories have spoiled or otherwise been damaged. The Company estimates the NRV of inventories, by taking into account the most reliable evidence available at each reporting date. The future realization of these inventories may be affected by market-driven changes that may reduce future selling prices. A change to these assumptions could impact the Company’s inventory valuation and gross profit.

Impairment

Long-lived assets, including property and equipment and intangible assets, are reviewed for indicators of impairment at each reporting period or whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is defined as the higher of: (i) value-in-use; or (ii) fair value less cost to sell. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying amount of the asset exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

8

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

2. Basis of Presentation (continued)

(e) Significant Accounting Judgments, Estimates and Assumptions (continued)

Warrants, options and restricted share units

Management determines the costs for share-based compensation on options, restricted share units (“RSUs”), and share purchase warrants using market-based valuation techniques. The fair value of the market-based and performance-based share awards are determined at the date of grant using generally accepted valuation techniques. Assumptions are made and judgments are used in applying the valuation techniques. These assumptions and judgments include the expected volatility of the share price, expected forfeitures, expected dividend yield, expected term of the warrants or options, and expected risk-free interest rate. Such assumptions and judgments are inherently uncertain. Changes in these assumptions can affect the fair value estimates of share-based compensation.

Expected credit losses on financial assets

Determining an allowance for expected credit losses (“ECL”) for amounts receivable and all debt financial assets not held at fair value through profit and loss requires management to make assumptions about the historical patterns for the probability of default, the timing of collection and the amount of incurred credit losses, which are adjusted based on management’s judgment about whether economic conditions and credit terms are such that actual losses may be higher or lower than what the historical patterns suggest.

Research and development costs

Judgment is required to distinguish the research phase and the development phase to correctly identify costs that qualify for capitalization.

Functional currency

The functional currency for the Company and its subsidiaries is the currency of the primary economic environment in which they operate. Determination of functional currency involves significant judgments and other entities may make different judgments based on similar facts. The Company reconsiders periodically the functional currency of its businesses if there is a change in the underlying transactions, events or conditions which determine its primary economic environment.

3. Summary of Significant Accounting Policies

The accounting policies applied by the Company in these unaudited condensed interim consolidated financial statements are the same as those disclosed in Note 3 of the Company’s audited consolidated financial statements for the years ended November 30, 2022 and 2021, unless otherwise noted. The Company adopted the following accounting policy, effective December 1, 2022.

(a) Foreign Currency Translation

Monetary assets and liabilities denominated in currencies other than CAD are translated into CAD at the rate of exchange in effect at the consolidated statements of financial position date. Non-monetary assets and liabilities are translated at the historical rates. Revenues and expenses are translated at the transaction exchange rate. Foreign currency gains or losses resulting from translation are reflected in net comprehensive income (loss) for the period.

The assets and liabilities of entities with a functional currency that differs from the presentation currency are translated to the presentation currency as follows:

• Assets and liabilities are translated at the closing rate at the financial period;

• Income and expenses are translated at average exchange rates (unless the average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case, income and expenses are translated at the rate on the dates of the transactions);

• Equity transactions are translated using the exchange rate at the date of the transaction; and

• All resulting exchange differences are recognized as a separate component of equity as reserve for foreign exchange.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future, and which in substance, is considered to form part of the net investment in the foreign operation, are recognized in the reserve for foreign exchange.

9

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

4. Accounts Receivable

The Company’s accounts receivable balance comprises amounts due from government taxation authorities in respect of the Harmonized Sales Tax and other receivables from suppliers. The Company anticipates full recovery of these amounts, and therefore had not recorded any ECL against these receivables during the three and six months ended May 31, 2023 (2022 – $nil and $nil), which are due in less than one year.

5. Inventories

As at May 31, 2023 and November 30, 2022, the Company’s inventories consisted of raw materials held with the Company’s U.S.based contract manufacturing organization partner, and those in transit, and finished goods.

	May 31,	November 30,
	2023	2022
	$	$
Raw materials	685,562	244,414
Finishedgoods	482,536	22,375
	1,168,098	266,789

During the three and six months ended May 31, 2023, the net value of inventories on finished goods expensed to cost of goods sold was $189,362 and $235,956 (2022 – $nil and $nil), respectively.

6. Prepaid Expenses

	May 31,	November 30,
	2023	2022
	$	$
Prepaid insurance	3,391	23,735
Advances made to suppliers	130,148	269,003
	133,539	292,738

7. Property and Equipment

Property and Equipment
	Machinery	Total
	$	$
Cost at:
November 30, 2021	-	-
Additions	25,714	25,714
November 30, 2022	25,714	25,714
Additions	10,927	10,927
May31,2023	36,641	36,641
Accumulated depreciation at:
November 30, 2021	-	-
Depreciation expense	1,339	1,339
November 30, 2022	1,339	1,339
Depreciation expense	2,336	2,336
May31,2023	3,675	3,675
Net book value:
November 30, 2022	24,375	24,375
May31,2023	32,966	32,966

10

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

8. Intangible Assets

The Company previously submitted an application with the United States Patent and Trademark Office to register the trademark “AME-1” in connection with its Amanita Muscaria Extract formulation. As the trademarks are considered to have an indefinite life, they are not subject to amortization.

During the six months ended May 31, 2023, the Company incurred an additional cost of $49,879 in relation to internally-generated research costs incurred on AME-1. Subsequently, the Company recorded a write-off of $114,914 on certain balance of internallygenerated intangible assets which no longer met the capitalization requirement.

9. Accounts Payable and Accrued Liabilities

Accounts payable of the Company are principally comprised of amounts outstanding for trade purchases relating to regular business activities. The Company’s standard term for trade payable is 30 to 60 days.

ies. The Company’s standard term for trade payable	is 30 to 60 days.
	May 31,	November 30,
	2023	2022
	$	$
Accounts payable	422,504	105,545
Accrued liabilities	63,605	69,345
	486,109	174,890

10. Share Capital

The Company is authorized to issue an unlimited number of common shares without par value.

Common shares issued and outstanding as at May 31, 2023 are as follows.

mon shares issued and outstanding as at May 31, 2023 are as follows.
	May 31,	November 30,
	2023	2022
	$	$
Issued: 135,789,695 common shares
(November 30,2022 – 135,789,695 common shares)	21,001,495	21,001,495

Share capital transactions for the six months ended May 31, 2023

There were no share capital transactions during the six months ended May 31, 2023.

Share capital transactions for the six months ended May 31, 2022

During the six months ended May 31, 2022, the Company issued 4,650,000 common shares as a result of the vesting of RSUs. These common shares were valued at an amount of $487,000. See Note 11 for more details.

Basic and diluted loss per share

Basic and diluted loss per share is calculated by dividing the net loss of $790,028 and $1,802,990, respectively, for the three and six months ended May 31, 2023 (2022 – net loss of $1,163,502 and $2,519,935, respectively) by the weighted average number of common shares outstanding during the period.

For the three and six months ended May 31, 2023, the basic and diluted loss per share was $0.006 and $0.013, respectively (2022 – basic and diluted loss of $0.009 and $0.019, respectively).

11

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

11. Reserve for Restricted Share Units

On January 24, 2022, the Company implemented a RSU plan (the “RSU Plan”). Under the RSU Plan, Eligible Persons (as such term is defined in the RSU Plan) may, at the discretion of the Compensation Committee of the Board, be allocated a number of RSUs, which are subject to a maximum vesting term of three years from the end of the calendar year in which RSUs were granted.

On January 24, 2022, the Company granted 8,800,000 RSUs to certain officers and advisors. Half of the RSUs vested immediately, with the other half vesting upon launch of the Company’s products. Stock-based compensation of $247,116 and $803,128 in connection with the vesting of these RSUs was recorded during the three and six months ended May 31, 2022.

On January 27, 2022, the Company granted another 500,000 RSUs to certain officers and advisors, under the same vesting terms as those RSUs granted on January 24, 2022. Stock-based compensation of $13,610 and $43,343 in connection with the vesting of these RSUs was also recorded during the three and six months ended May 31, 2022.

As at May 31, 2023, the Company had 4,650,000 RSUs which are issuable under the RSU Plan.

12. Contributed Surplus

The Company maintains the Option Plan whereby certain key employees, officers, directors and consultants may be granted stock options for common shares of the Company. The Option Plan provides that the aggregate number of securities reserved for issuance will be up to 10% of the number of the common shares issued and outstanding from time to time. The Option Plan is administered by the Board, which has full and final authority with respect to granting stock options thereunder. As at May 31, 2023, the Company had 203,969 common shares that are issuable under the Option Plan.

Under the Option Plan, the exercise price of stock options grants will be determined by the Board, will not be less than the greater of the closing market prices of the underlying securities on: (a) the trading day prior to the date of grant of the stock options; and (b) the date of grant of the stock options. All stock options granted under the Option Plan will expire not later than the date that is ten years from the date that such options are granted. Stock options terminate earlier as follows: (i) immediately in the event of dismissal with cause; (ii) 90 days from the date of termination other than for cause employment (or such other date as Board or a committee thereof may determine); (iii) one year from the date of death or disability. Vesting terms are determined at the discretion of the Board.

The following summarizes the options activity for the six months ended May 31, 2023 and 2022:

	2023		2022
		Weighted		Weighted
	Number of	average exercise	Number of	average exercise
	options	price	options	price
	#	$	#	$
Outstanding, beginning of period	12,875,000	0.17	11,375,000	0.18
Granted	7,150,000	0.10	1,500,000	0.145
Granted	500,000	0.10	-	-
Cancelled	(1,050,000)	0.15	-	-
Cancelled	(2,000,000)	0.145	-	-
Cancelled	(750,000)	0.185	-	-
Cancelled	(100,000)	0.19	-	-
Cancelled	(250,000)	0.225	-	-
Cancelled	(1,000,000)	0.23	-	-
Cancelled	(2,000,000)	0.39	-	-
Outstanding,end ofperiod	13,375,000	0.10	12,875,000	0.17

12

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

12. Contributed Surplus (continued)

Options activities for the six months ended May 31, 2023

On January 6, 2023, the Company cancelled an aggregate 7,150,000 options previously granted to directors, advisory board members, employees, advisors and consultants (the “Participants”), exercisable at prices ranging from $0.145 to $0.39 per common share. An amount of $1,152,963, representing the grant date fair value recognized as stock-based compensation of these options recorded in contributed surplus, was transferred to accumulated deficit upon the cancellation.

On February 5, 2023, the Company, in compliance with the policies of the CSE, granted an equal number of options to such Participants at an exercise price of $0.10. These options vested immediately on grant and will expire three years from the date of grant. These options were valued using the Black-Scholes pricing model (“Black-Scholes”) with the following assumptions: expected volatility of 124% based on historical share price of the Company, expected dividend yield of 0%, risk-free interest rate of 3.54% and an expected life of three years. The grant date fair value attributable to these options was $399,626, of which $nil and $399,626, respectively, was recorded as stock-based compensation in connection with the vesting of options during the three and six months ended May 31, 2023.

On March 15, 2023, the Company granted 500,000 options to certain employees. The options are exercisable at a price of $0.10 per common share for a period of five years. The options vest four months from the date of grant and were valued using BlackScholes with the following assumptions: expected volatility of 100% based on the estimated volatility for the psychedelic industry, expected dividend yield of 0%, risk-free interest rate of 2.85% and an expected life of five years. The grant date fair value attributable to these options was $29,023, of which $18,318 and $18,318, respectively, was recorded as stock-based compensation in connection with the vesting of options during the three and six months ended May 31, 2023.

Options activities for the six months ended May 31, 2022

On December 1, 2021, the Company granted 1,500,000 options to an officer. The options are exercisable at a price of $0.145 per common share for a period of five years. 50% of the options vested immediately on grant, 25% vest on June 1, 2022, and the final 25% vest on December 1, 2022. The options were valued using Black-Scholes with the following assumptions: expected volatility of 100% based on the estimated volatility for the psychedelic industry, expected dividend yield of 0%, risk-free interest rate of 1.35% and an expected life of five years. The grant date fair value attributable to these options was $155,541, of which $nil and $107, respectively, was recorded as stock-based compensation in connection with the vesting of options during the three and six months ended May 31, 2023 (2022 – $29,457 and $135,724, respectively).

During the three and six months ended May 31, 2022, as the Company also recorded stock-based compensation of $nil and $11,134, respectively, in connection with the vesting of options which were granted prior to December 1, 2021.

The following table summarizes information of stock options outstanding and exercisable as at May 31, 2023:

	Number of	Number of		Weighted average
	options	options		remaining
Date of expiry	outstanding	exercisable	Exerciseprice	contractual life
	#	#	$	Years
July 13, 2025	5,725,000	5,725,000	0.10	2.12
February 5, 2026	7,150,000	7,150,000	0.10	2.69
March 15,2028	500,000	-	0.10	4.79
	13,375,000	12,875,000	0.10	2.52

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Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

13. Reserve for Warrants

The following summarizes the warrant activity for the six months ended May 31, 2023 and 2022:

	May31,	2023	May31,	2022
		Weighted		Weighted
	Number of	average exercise	Number of	average exercise
	warrants	price	warrants	price
	#	$	#	$
Outstanding, beginning of period	23,886,365	0.42	24,806,365	0.42
Expired	-	-	(60,800)	0.10
Outstanding,end ofperiod	23,886,365	0.42	24,745,565	0.42

Warrant issuances for the six months ended May 31, 2023 and 2022

There were no warrant issuances during the six months ended May 31, 2023 and 2022.

The following table summarizes information of warrants outstanding as at May 31, 2023:

	Number of		Weighted average
	warrants		remaining contractual
Date of expiry	outstanding	Exerciseprice	life
	#	$	Years
February 17, 2024	22,395,365	0.43	0.72
February17,2024	1,491,000	0.31	0.72
	23,886,365	0.42	0.72

14. Related Party Transactions

In accordance with IAS 24 – Related Party Disclosures, key management personnel, including companies controlled by them, are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly, including any directors (executive and non-executive) of the Company.

The remuneration of directors and other members of key management personnel during the three and six months ended May 31, 2023 and 2022 were as follows:

and 2022 were as follows:
	Three months	Three months	Six months	Six months
	ended	ended	ended	ended
	May31,2023	May31,2022	May31,2023	May31,2022
	$	$	$	$
Management salaries and consulting fees	159,998	169,998	319,996	313,330
Professional fees	30,000	22,500	57,500	49,000
Stock-based compensation	-	204,750	195,728	704,983
	189,998	397,248	573,224	1,067,313

Effective May 1, 2021, Psyched Wellness and the Chief Executive Officer (“CEO”), who is also a director of the Company, entered into an executive agreement whereas the Company agreed to pay an annual base salary of $240,000 for the CEO’s services. The CEO may also be eligible to receive an annual bonus at the discretion of the Compensation Committee of up to 50% of his annual base salary, based on criteria set by the Board. During the three and six months ended May 31, 2023, the Company recorded management salaries of $60,000 and $120,000, respectively, (2022 – $70,000 and $120,000) in relation to the CEO’s employment compensation. As at May 31, 2023, no balance was owed to the CEO (November 30, 2022 – $4,115 included in accounts payable and accrued liabilities).

14

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

14. Related Party Transactions (continued)

During the three and six months ended May 31, 2023, the Chief Operating Officer (“COO”) of Psyched Wellness charged fees of $49,998 and $99,996, respectively, (2022 – $49,998 and $93,330) for consulting services provided to the Company, which are included in management salaries and consulting fees. As at May 31, 2023, $16,666 (November 30, 2022 – $nil) owing to the COO was included in accounts payable and accrued liabilities. The amount outstanding is unsecured, non-interest bearing and due on demand.

On December 1, 2021, Psyched Wellness and the Chief Commercial Officer (“CCO”) of the Company, entered into an executive agreement whereas the Company agreed to pay an annual base salary of $200,000 for the CCO’s services. During the three and six months ended May 31, 2023, the Company recorded management salaries of $50,000 and $100,000, respectively, (2022 – $50,000 and $100,000) in relation to the CCO’s employment compensation. As at May 31, 2023, no balance was owed to the CCO (November 30, 2022 – $nil).

During the three and six months ended May 31, 2023, Branson Corporate Services Ltd. (“Branson”), where the Chief Financial Officer (“CFO”) of the Company is employed, charged fees of $30,000 and $57,500, respectively, (2022 – $22,500 and $49,000), for CFO services, as well as other accounting and administrative services, which are included in professional fees. As at May 31, 2023, no balance was owed to Branson (November 30, 2022 – $8,492 included in accounts payable and accrued liabilities).

Stock-based compensation

During the three and six months ended May 31, 2023, the Company recorded total stock-based compensation of $nil and $195,728, respectively, in connection with the vesting of options and RSUs previously granted to officers and directors of Psyched Wellness (2022 – $204,750 and $704,983, respectively).

15. Capital Management

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern and to maintain optimal returns to shareholders and benefits for its stakeholders. As the Company has begun commercial operations, management will closely monitor its capital structure and adjusts according to market conditions to meet its objectives given the current outlook of the business and industry in general. The Board does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the management team to sustain the future development of the business.

Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company’s capital management objectives, policies and processes have remained unchanged in the current financial reporting period.

The Company is not subject to any externally imposed capital requirements.

16. Risk Management

The Company is exposed to various risks as it relates to financial instruments. Management, in conjunction with the Board, mitigates these risks by assessing, monitoring and approving the Company’s risk management process. There have not been any changes in the nature of these risks or the process of managing these risks from the previous reporting periods.

Credit risk

Credit risk is the risk of loss associated with a counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, and accounts receivable (excluding sales tax recoverable), which expose the Company to credit risk should the borrower default on maturity of the instruments. Cash is held at reputable Canadian and U.S. chartered banks and in trust with the Company’s legal counsel, which is closely monitored by management. Management believes that the credit risk concentration with respect to cash, and accounts receivable (excluding sales tax recoverable) is minimal.

15

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

16. Risk Management (continued)

Liquidity risk

Liquidity risk is the risk that the Company will not have sufficient cash resources to meet its financial obligations as they come due. The Company’s liquidity and operating results may be adversely affected if the Company’s access to the capital market is hindered, whether as a result of a downturn in stock market conditions generally or related to matters specific to the Company. The Company generates cash flow primarily from its financing activities. The Company endeavors to have sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot be reasonably predicted.

As at May 31, 2023, the Company had a cash balance of $830,079 (November 30, 2022 – $2,567,567) to settle current liabilities of $488,341 (November 30, 2022 – $198,072), and had the following contractual undiscounted obligations:

	Carrying
	amount	Year 1	Year	2 to 3	Year	4 to 5
	$	$		$		$
Accountspayable and accrued liabilities	486,109	486,109		-		-

The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet its liabilities as they come due. The Company has undertaken several proposed restructuring initiatives and other corporate measures to rationalize its capital and debt structure to better position the Company for future opportunities and meet its obligations as they come due. Until these initiatives and efforts are finalized, there is no assurance that one or any of these initiatives will be successful.

Management believes there is sufficient capital to meet short-term business obligations, after taking into account cash flow requirements from operations and the Company’s cash position as at May 31, 2023.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As at May 31, 2023, the Company had no financial instruments which are interest-bearing, and had no hedging agreements in place with respect to floating interest rates. Management believes that the interest rate risk concentration with respect to financial instruments is minimal.

Foreign exchange risk

Foreign exchange risk is the risk that the Company will be subject to foreign currency fluctuations in satisfying obligations related to its foreign activities. The Company’s operations are based in Canada and the U.S., and will have, from time to time, transactions denominated in foreign currencies, primarily in U.S. dollars. The Company’s primary exposure to foreign exchange risk is that transactions denominated in foreign currency may expose the Company to the risk of exchange rate fluctuations. Based on its current operations, management believes that the foreign exchange risk remains minimal.

Fair value

Fair value estimates of financial instruments are made at a specific point in time based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

As at May 31, 2023, the Company’s financial instruments consisted of cash, accounts receivable (excluding sales tax recoverable), and accounts payable and accrued liabilities. The fair value of cash, accounts receivable (excluding sales tax recoverable) and accounts payables and accrued liabilities are approximately equal to their carrying value due to their short-term nature.

16

Psyched Wellness Ltd.

Notes to the Unaudited Condensed Interim Consolidated Financial Statements For the Three and Six Months Ended May 31, 2023 and 2022 (Expressed in Canadian Dollars)

16. Risk Management (continued)

Fair value (continued)

The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

• Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• Level 3 – Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

As at May 31, 2023, the Company did not have any financial instruments which were carried at fair value (November 30, 2022 – $nil).

17. Revenues

The Company’s revenues for the three and six months ended May 31, 2023 and 2022 were comprised of the following:

	Three months	Three months	Six months	Six months
	ended	ended	ended	ended
	May31,2023	May31,2022	May31,2023	May31,2022
	$	$	$	$
Mushroom-derived products	105,221	-	162,033	-
Apparels and accessories	1,510	-	2,235	-
	106,731	-	164,268	-

18. Other Income

During the six months ended May 31, 2022, the Company disposed of two non-core legacy properties located in the Red Lake District in northwestern Ontario, Canada, for gross proceeds of $204,900. A gain on disposals of $193,289, net of commissions and other selling costs of $11,611, was included in other income on the unaudited condensed interim consolidated statements of loss and comprehensive loss.

19. Contingencies and Commitments

The Company’s operations are subject to a variety of provincial, state and federal regulations in Canada and the U.S. Failure to comply with one or more of those regulations could result in fines, restrictions on its operations, or losses of permits that could result in the Company ceasing operations in that specific state or local jurisdiction.

While management believes that the Company is in compliance with applicable local and state regulations as at May 31, 2023, regulations continue to evolve and are subject to differing interpretations. As a result, the Company may be subject to regulatory fines, penalties, or restrictions in the future.

20. Subsequent Event

On June 12, 2023, the Company closed the initial tranche (the “Initial Tranche”) of a non-brokered private placement (the “Offering”). Pursuant to the Initial Tranche of the Offering, the Company has issued 9,585,000 units (each a “Unit”) at a price of $0.07 per Unit for gross proceeds of USD $500,000 (approximately $670,950). Each Unit consists of one common share and one warrant exercisable at $0.10 for a period of 60 months from the date of issuance, exercisable on a cashless basis, subject to acceleration and compliance with the policies of the CSE. The Company intends to use the net proceeds from the Offering for working capital and general corporate purposes.

17