Introduction

This information should be read in conjunction with the interim unaudited financial statements and the notes thereto included in this Quarterly Report on Form 10-Q, and the audited financial statements and notes thereto and " Part II. Other Information - Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ", contained in our Transition Report on Form 10-KT for the nine-month period ended December 31, 2020, filed with the Securities and Exchange Commission on March 16, 2021 (the "Annual Report").

Certain capitalized terms used below and otherwise defined below, have the meanings given to such terms in the footnotes to our unaudited consolidated financial statements included above under " Part I - Financial Information" - "Item 1. Financial Statements ".

Certain cannabinoid industry terms used in this Report are defined in the " Glossary of Cannabinoid Industry Terms " included in the Annual Report and incorporated by reference herein.

Our logo and some of our trademarks and tradenames are used in this Report. This Report also includes trademarks, tradenames and service marks that are the property of others. Solely for convenience, trademarks, tradenames and service marks referred to in this Report may appear without the ®, ™ and SM symbols. References to our trademarks, tradenames and service marks are not intended to indicate in any way that we will not assert to the fullest extent under applicable law our rights or the rights of the applicable licensors if any, nor that respective owners to other intellectual property rights will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies' trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

In this Report, we may rely on and refer to information regarding the industries in which we operate in general from market research reports, analyst reports and other publicly available information. Although we believe that this information is reliable, we cannot guarantee the accuracy and completeness of this information, and we have not independently verified any of it.

Unless the context requires otherwise, references to the "Company," "we," "us," "our," "RTSL", refer specifically to Rapid Therapeutic Science Laboratories, Inc. and its consolidated subsidiary.

In addition, unless the context otherwise requires and for the purposes of this Report only:

·"Exchange Act" refers to the Securities Exchange Act of 1934, as amended;

·"SEC" or the "Commission" refers to the United States Securities and Exchange Commission; and

·"Securities Act" refers to the Securities Act of 1933, as amended.

Where You Can Find Other Information

We file annual, quarterly, and current reports, proxy statements and other information with the SEC. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC like us at http://www.sec.gov. Copies of documents filed by us with the SEC are also available from us without charge, upon oral or written request to our Secretary, who can be contacted at the address and telephone number set forth on the cover page of this Report.

Summary of The Information Contained in Management's Discussion and Analysis of Financial Condition and Results of Operations

Our Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is provided in addition to the accompanying consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

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·Overview. Discussion of our business and overall analysis of financial and other highlights affecting us, to provide context for the remainder of MD&A.

·Plan of Operations. Discussion of our strategy moving forward and how we plan to seek to increase stockholder value.

·Results of Operations. An analysis of our financial results comparing the three months ended March 31, 2022, and 2021.

·Liquidity and Capital Resources. A discussion of our financial condition, including descriptions of balance sheet information and cash flows.

·Critical Accounting Policies and Estimates. Accounting estimates that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.





Overview


Effective November 15, 2019, the Company and Texas MDI, Inc., a Texas corporation, which is controlled by Donal R. Schmidt, Jr., the Chief Executive Officer and Director of the Company ("TMDI"), entered into a sublicense agreement (the "Sublicense Agreement") whereby the Company acquired a sublicense from TMDI to use certain technology regarding metered dose inhalers (MDI) that TMDI had licensed from EM3 Methodologies, LLC ("EM3") and the right to use the RxoidTM brand name owned by TMDI. TMDI had exclusive rights to research, develop, make, have made, use, offer to sell, sell, export and/or import and commercialize, the 'Desirick Procedure', which is a proprietary process owned by EM3 for producing MDI using hemp (and other) derivatives in the States of Texas, California, Florida and Nevada (subject to pre-existing licensing rights which have been provided by EM3 in such jurisdictions; provided that we currently have no knowledge of any pre-existing licensing rights), pursuant to an Exclusive License Agreement dated October 1, 2019, by and between TMDI and EM3 (the "Original EM3 Exclusive License"). Pursuant to the Sublicense Agreement the Company obtained substantially the same rights that TMDI had under the Original EM3 Exclusive License, as to the use of the 'Desirick Procedure' for the manufacturing of pressured MDI's (pMDI) containing hemp extract or hemp isolates or a combination thereof in any legal jurisdiction in consideration for 5,600,000 shares of the Company's common stock (issued in November 2019).

With execution of the Sublicense Agreement in November 2019, the Company adopted a new business strategy focused on developing potential commercial opportunities involving the rapid application of therapeutics using the RxoidTM MDI technology then being sublicensed from EM3, with prospective healthcare providers, pharmacies and other parties in the United States and any foreign jurisdiction where hemp products are legal. Simultaneously with the entry into the Sublicense Agreement, the Company exited from its previous operations in the bitcoin mining business, which had been suspended since the middle of 2018.

The term of the Sublicense Agreement was from November 15, 2019 until the expiration of the Original EM3 Exclusive License Agreement. Pursuant to an amendment to the Original EM3 Exclusive License Agreement entered into in June 2020, all improvements to the 'Desirick Procedure' created by TMDI during the term of such agreement belonged to TMDI.

During the term of the Sublicense Agreement, the Company was required to advance payments to TMDI that TMDI was required to make to EM3, pursuant to the Original EM3 Exclusive License. The Company's obligation to make such advancements to TMDI was conditioned upon TMDI providing the Company with an advance notice requesting such payments, along with an accounting showing the calculations for such payments. Accordingly, the Company had an obligation to advance TMDI an amount of $200,000 as a license fee covering the first two years of the Sublicense Agreement and to pay an additional $200,000 each 2 years thereafter (unless at least 100,000 in MDI consumables were purchased from EM3 for use in such states during the preceding year). The Company partially satisfied this obligation by making an equipment purchase on behalf of TMDI in the amount of $135,000, and agreed to pay the remaining license fee of $65,000 in cash within a 24-month period. The Company recorded the entire $200,000 license fee as an intangible asset and was amortizing it to expense on a straight-line basis over a 24-month period. The Sublicense Agreement and Original EM3 Exclusive License were terminated in connection with the parties' entry into the Settlement Agreement discussed below.

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Effective on November 30, 2020, the Company acquired 100% of Rxoid Health Solutions, LLC ("Rxoid Health"), a Texas limited liability company, pursuant to a Membership Interest Purchase Agreement entered into with TMDI, which previously owned such entity, for $100. Rxoid Health owns the right to the RxoidTM brand name, which as of November 30, 2020, is owned and controlled by the Company, and no longer licensed from TMDI. TMDI is controlled by Mr. Schmidt, our Chief Executive Officer and director. RxoidTM Health will be the holding company which will own all intellectual property of the Company, including, but not limited to, that being developed under its isolate operations acquired from Razor Jacket, LLC.

Subsequently, in December 2020, as part of a contemplated liquidation of TMDI, its owners were distributed all of TMDI's 5,600,000 shares of stock which is subject to Trading Agreements entered into between the Company and the prior shareholders of TMDI.

On February 9, 2021, the Company entered into a Settlement and Mutual Release Agreement dated February 9, 2021 (the "Settlement Agreement") with TMDI, Diamond Head Ventures, LLC, an entity owned and controlled by Mr. Schmidt and a predecessor to TMDI ("Diamond Head"), EM3, the owner of EM3, Richard Adams ("Adams") and Holly Brothers Pictures, LLC, an entity co-owned by Mr. Schmidt and Mr. Adams ("Holly"). The Settlement Agreement was entered into in order to settle certain disputes which had arisen between the parties relating to the Sublicense Agreement, Original EM3 Exclusive License, and related agreements. Pursuant to the Settlement Agreement, the parties agreed to (a) terminate the Sublicense Agreement, Original EM3 Exclusive License, and a separate Sales and Licensing Agreement dated November 21, 2018, pursuant to which EM3 agreed to sell certain consumables to Diamond Head and provide a license to use certain intellectual property in connection therewith; (b) Adams agreed that the Company was no longer required to issue him 4,000 shares of the Company's common stock, which were to be issued to him pursuant to the terms of the First Amendment (which have not been issued as of such date); (c) EM3 and Adams agreed to enter into a new Exclusive License Agreement with the Company (discussed below); (d) each of the parties to the Settlement Agreement, other than the Company, agreed that the Company was the rightful owner of all improvements to the Licensed IP (as defined below), which was created by TMDI, Diamond Head or the Company, prior to, and after the date of the parties' entry into the Settlement Agreement; (e) Holly Brothers agreed to transfer to Adams ownership of a touring coach; and (f) each of TMDI, Diamond Head and the Company provided a general release to EM3 and Adams, and EM3 and Adams provided a general release to each of TMDI, Diamond Head, and each of their officers, directors and related parties. As a result of the release, the Company no longer owes TMDI (or EM3) any license fees under the Sublicense Agreement or Original EM3 Exclusive License (including, but not limited to the $65,000 previously owed under the terms of the Sublicense Agreement, which amount was previously accrued).

Also, on February 9, 2021, as a required term and condition of the Settlement Agreement, the Company, EM3, and Adams entered into a new Exclusive License Agreement dated February 9, 2021 (the "New EM3 License"). Pursuant to the New EM3 License, EM3 provided us a royalty-free, perpetual license to use the Desirick Procedure or any derivation thereof and its application and use, including, but not limited to, related consumables (cans, valves, and actuators), filling equipment for pressurized MDIs (pMDIs), and/or plastic testing vials and training, support or maintenance thereon of any combination thereof, and all intellectual property of EM3 relating to the foregoing (collectively, the "Licensed IP"), on an exclusive basis in the states of Texas, California, Florida and Nevada (subject to pre-existing licensing rights which have been provided by EM3 in such jurisdictions; provided that we currently have no knowledge of any pre-existing licensing rights), and on a non-exclusive basis throughout the rest of the world, in consideration for $10. The New EM3 License provides our right of ownership of any improvements to the Licensed IP, requires EM3 to indemnify us against any claims associated with EM3's breach of the agreement (including in the event any third-party claims to own the Licensed IP), and contains non-circumvention provisions. The New EM3 License continues in place until such time, if ever, as we terminate the agreement. In the event we terminate the New EM3 License, we are provided the non-exclusive license to use the Licensed IP throughout the world for so long as we continue to manufacture and distribute products.

As a result of the Settlement Agreement and the New EM3 License, we no longer owe any obligations to TMDI or EM3 (other than the $10 and other consideration already paid), and have a royalty-free, perpetual exclusive license applicable to Texas, California, Florida, and Nevada from EM3 (subject to pre-existing licensing rights which have been provided by EM3 in such jurisdictions; provided that we currently have no knowledge of any pre-existing licensing rights) to research, develop, make, have made, use, offer to sell, contract fill, export and/or import and commercialize the Licensed IP, which enables the production of a so-called metered dose inhaler using hemp cannabinoid derivatives under the RxoidTM brand or on a white label basis.

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Separately, the Company completed an asset acquisition from Razor Jacket, LLC ("Razor Jacket") and its two owners who were subsequently hired by the Company in November 2020 (provided that one of such seller's employment with the Company has since been terminated). The Company purchased all of Razor Jacket's equipment relating to the manufacture of cannabinoid isolates and related products, including, but not limited to, terpenes, and the production of isolate and related products.

The Company paid $300,000 in cash, and issued 25,000 shares of restricted common stock to the owners, and provided them the right to earn up to 16.5 million shares of Series A Preferred Stock of the Company, convertible for common stock on a one-for-one basis, subject to certain conditions. As of the date of this filing, the Company fully expects all conditions will have been met in the near future, which includes the construction of a new facility and completion of patent applications.





Plan of Operations



Since execution of the Sublicense Agreement with TMDI in November 2019, our plan of operations has been primarily focused on preliminary activities of marketing and production planning for our licensed aerosol inhaler product line ultimately leading to the initial sales of our new products, beginning in early 2020.

However, due to the subsequent impact of the COVID 19 pandemic, as well as other contributing factors, the Company has currently suspended such sales. In that regard, we have supplemented the proceeds received from the sale of convertible notes with the private sales of restricted shares of our common stock to various accredited investors, and completed the sale of a convertible debenture in August 2021 in the aggregate principal amount of $1,941,176, as discussed in greater detail below, to further fund our operations moving forward.





Reverse Stock Split



On March 31, 2022, the Company completed a Board of Directors approved 1-for-25 reverse stock split. Accordingly, all common stock share and per share amounts herein and in our consolidated financial statements have been retroactively adjusted to reflect the reverse stock split. At the same time, the total number of shares of common stock authorized was increased to 800 million.





Our Growth Strategy


Our growth strategy is expected to build on what we believe is a superior delivery system that delivers a superior Active Pharmaceutical Ingredient (API), that together increases performance and safety of our products. We plan on growing our business in six main ways:

·Capturing market share in the hemp space. Via our MDI devices that deliver a measured amount of aerosolized inhalant in a mist to the lungs, we believe our product offering provides a faster acting, more accurate dosing and higher value bioavailability of our ingredients for our customers. As a result, we believe that we will be able to increase our consumer base and to provide top line growth for our retail and clinic customers.

·Increasing penetration of hemp user. There is a decreasing stigma around the use of non- tetrahydrocannabinol (THC) cannabis products as a result of legal, regulatory and social views are rapidly evolving. However, there are still some people and physicians unwilling to use these products largely based on the inability to achieve accurate and controlled dosing. Our product lines are designed to be manufactured to ensure an accurate and measured dose with every actuation. We believe that this will allow us to provide consumers and medical practitioners with the peace of mind that they can utilize our products safely and effectively and thus bring new consumers into the category.

·Expand our product portfolio. We plan to grow our product portfolio by expanding into areas where we can identify "safe for inhalation" non-THC ingredients which are currently being used in less efficacious delivery methods and put them into our delivery device.

·Cannabinoids, the U.S. The Food and Drug Administration (FDA), and Clinical Testing. The cannabinoid and hemp marketplace are still somewhat devoid of medical substantiation. There have been very few products that have started to undergo medical testing in the hopes of gaining information around benefits, dosing and potential FDA approval. Our goal is to start to explore the medical opportunity by conducting voluntary clinical testing on our nh?lerTM branded products. We have partnered with a

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healthcare group who has a captive patient population to test our nh?lerTM brand with patients presenting with clinical diagnosis around pain, anxiety, PTSD, insomnia and long haul COVID-19 problems. This timing of this testing is based on the results of the FDA application process, described below. In addition to clinical testing, we have engaged with a group of FDA consultants to help us position our manufacturing and formulations with the future goal of filing a New Drug Application (NDA) with the FDA. We have removed products sold under the nh?ler brand name from the market because we are preparing to file an IND (Investigational New Drug Application) with the FDA. We have hired a law firm to prepare the application and have further hired a lobbying firm located in Washington, D.C. to interface with the FDA on our behalf in the U.S. Congress. The Company is presently intending to conduct a pre-IND meeting with the FDA prior to filing the actual IND application with the FDA. The Company believes the pre-IND meeting and the IND application will occur in the second quarter of 2022.

·Legal Status. Our products are not FDA approved. However, we plan to file an Investigative New Drug Application ("IND") with the FDA in the fourth quarter of 2021 to conduct Phase I human clinical trials of our flagship metered dose inhaler containing CBD. CBD is considered a drug by the FDA and no CBD product, except one prescription product, is approved by the FDA for use in humans. Nevertheless, the FDA generally has not interfered in the commercial sale of CBD products to the public unless a manufacturer or marketer of such products make therapeutic or false claims about their products. This position has been publicly stated by the FDA in writing. As such, we make no therapeutic claims whatsoever. In addition, the FDA does not consider CBD to be a dietary substance and presently may not be labeled as such. Finally, our MDI is considered a class II medical device and the FDA considers such devices, when not properly manufactured or if adulterated, to be potentially dangerous to the public at large. There are currently ongoing discussions about CBD and cannabinoids with Congress that may impact the Company's business operations both positively and negatively.

·International Expansion. We plan to eventually seek to expand our marketing and sales to outside of the United States, potentially sometime in 2022, funding permitting, and assuming further declines in the spread of COVID-19. Similar to the growth trends that we are seeing in the U.S., we believe there will be a significant opportunity for us to capture market share internationally with our product offerings.

Results of Operations and Financial Condition





Novel Coronavirus (COVID-19)


In December 2019, a novel strain of coronavirus, which causes the infectious disease known as COVID-19, was reported in Wuhan, China. The World Health Organization declared COVID-19 a "Public Health Emergency of International Concern" on January 30, 2020 and a global pandemic on March 11, 2020. In March and April 2020, many U.S. states and local jurisdictions began issuing 'stay-at-home' orders. As disclosed above, the Company has recently adopted a new business strategy focused on developing potential commercial opportunities which will involve the rapid application of therapeutics using proprietary metered dose inhaler technology that the Company has recently licensed from a third party. This strategy includes typical pharmaceutical type marketing efforts (e.g., marketing directly to doctors) that has been shown to work with traditional drug product type sales, versus novelty type sales, which currently include cannabidiols. We are planning on moving away from traditional internet sales and marketing and believe this transition will benefit the Company going forward. COVID-19 resulted in the Company being forced to temporarily suspend its marketing plans as the Company was not able to travel to meet with doctors directly. Moving forward, the range of possible impacts on the Company's business in the event the coronavirus pandemic continues to include: (i) changing demand for the Company's products; (ii) rising bottlenecks in the Company's supply chain; and (iii) increasing contraction in the capital markets.

At this time, the Company's sales have not been materially affected by the pandemic (as the Company has had only limited sales to date), and it believes that it is premature to determine the potential impact on the Company's business prospects from these or any other factors that may be related to the coronavirus pandemic; however, it is possible that Covid-19 and the worldwide response thereto, may have a material negative effect on our operations, cash flows and results of operations.

Through the date of this Report, we have been able to successfully support our operations with our cash on hand, through equity sales (which have to date been completed through private offerings), and borrowings. Moving forward we believe we will need to raise additional funding to support our operations which funding we anticipate being available through the sale of equity or debt, similar to our recently completed sale of a convertible debenture, as discussed below. We also continue to evaluate our business operations based on new information as it becomes

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available and will make changes that we consider necessary in light of any new developments regarding the pandemic. Additionally, we anticipate requiring further funds in the future to grow our operations and produce additional product lines, which funds we anticipate raising through equity offerings, and if necessary, debt.

The future impact of COVID-19 on our business and operations is currently unknown. The pandemic is continuously evolving and the full extent to which COVID-19 will ultimately impact us depends on future developments, including the duration and spread of the virus, as well as potential seasonality of new outbreaks and virus mutations.

Results of Operations for the three months ended March 31, 2022 compared to 2020

The following discussion reflects the Company's revenues and expenses for the three-month periods ended March 31, 2022 and 2021, as reported in our consolidated financial statements included in Item 1.

Revenues - The Company commenced limited sales of its inhaler products to customers, while still in a product development mode, on a trial basis in January 2020. However, due to the subsequent impact of the COVID 19 pandemic, as well as other contributing factors, the Company has currently suspended such sales.

General and Administrative Expense - General and administrative expenses for the three months ended March 31, 2022 were $762,141 compared to $501,923 in the three months ended March 31, 2021. This increase was due to higher level corporate expenses incurred in seeking an uplisting of the Company's common stock on a national securities exchange as well as to various regulatory and other related expenses incurred in pursuing a new drug application with the FDA and for certain other clinical-oriented initiatives. We expect the level of both types of expenses to generally rise in comparison to prior year amounts in the foreseeable future.

Amortization Expense - Amortization expense for the three months ended March 31, 2022 was $21,259, compared to $12,500 in the three months ended March 31, 2021.

This increase was due to the amortization expense recognized in the three months ended March 31, 2022 on an operating lease asset beginning in October 2021, which was partially offset by amortization expense recorded in the three months ended March 31, 2021 related to the Sublicense Agreement, which was terminated effective February 9, 2021, under which the Company had been obligated to reimburse TMDI in the amount of $200,000 for a license fee owed by TMDI to EM3, covering the first two years of the Sublicense Agreement, as discussed in greater detail above.

Depreciation Expense - Depreciation expense for the three months ended March 31, 2022 was $5,993, compared to $5,525 in the three months ended March 31, 2021.

This increase reflects the rising depreciation level on the Company's purchases of property and equipment beginning in September 2020.

Other Income (Expense) - Interest expense for the three months ended March 31, 2022 was $713,313, compared to $13,798 in the three months ended March 31, 2021.

This increase was due to the amortization of the original issue debt discount and other adjustments to interest expense arising from the warrant liability recognized from the issuance of common stock warrants issued in conjunction with a convertible debenture in August 2021. Other income (expense) also includes a loss from the change in valuation of the warrant liability in the quarter ended March 31, 2022 of $77,045.

Net Loss - Net loss for the three months ended March 31, 2022 was $1,579,751, compared to $533,746 in the three months ended March 31, 2021, representing the net amounts of the various revenue and expense categories indicated above. The Company has not recognized any income tax benefits for these net losses due to the uncertainty of their ultimate realization.

Liquidity and Capital Resources

Operating activities. Net cash used in operating activities for the three months ended March 31, 2022 was $383,775, compared to $524,370 in the three months ended March 31, 2021. This net decrease largely occurred because the full cash impact of the higher level of general and administrative expenses incurred in the three months ended March 31, 2022 was delayed, as a relatively large portion of such amounts were only accrued and not paid in the current quarter.

Investing activities. Net cash used in investing activities for three months ended March 31, 2022 was $350,851, compared to $19,779 in the three months ended March 31, 2021. This increase was largely due to the

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amounts paid in the three months ended March 31, 2022 on the build out of the Company's new corporate office and laboratory space located in Addison, Texas, which the Company is expecting to complete in the second or third quarter of 2022.

Financing activities. Net cash provided by financing activities for three months ended March 31, 2022 was $575,127, compared to $230,000 in the three months ended March 31, 2021. Net cash provided by financing activities in the three months ended March 31, 2022 resulted from the issuance of two promissory notes for new short-term loans, one of which was from an independent director in the amount of $400,000, and one of which was from an institutional investor in the net amount of $175,127, after deducting an original issue discount $21,873.

Both of these loans were in the form of unsecured promissory notes bearing interest at a rate of approximately 8-18% per annum with a maturity of one year. For the larger note with an independent director, the principal amount and accrued interest are due at maturity whereas for the smaller note with an institutional investor, monthly payments of principal and interest of $21,276 are required, beginning on May 1, 2022. Net cash provided by financing activities in the three months ended March 31, 2021 of $230,000 reflected the private sales of 53,000 shares of restricted common stock to three accredited investors at an offering price of $10.00 per share, partially offset by the repayment of notes payable in the amount of $300,000.

In order to meet short-term working capital needs in the summer of 2021, the Company obtained unsecured cash advances from two of its officers (its Chief Executive Officer, Donal R. Schmidt, Jr., and its Senior Vice President) in May through August 2021 in the net amount of $260,000. Such advances are expected to be repaid out of the proceeds of an underwritten public offering of the Company's equity securities which the Company is currently pursuing. However, no assurance can be given that the Company will be successful in achieving a closing of the underwritten public offering.

In order to further meet our working capital needs in advance of a proposed underwritten offering, which may not be completed timely, if at all, on August 4, 2021, the Company sold an accredited investor an Original Issue Discount Convertible Debenture in the original principal amount of $1,941,176 (the "Debenture") and a warrant to purchase up to 194,118 shares of common stock of the Company (the "Investor Warrants"). The Debenture and the Warrants were purchased for an aggregate of $1,650,000 (a 15% discount to the principal amount of the Debenture). The amount owed under the Debenture is due upon the earlier of (a) May 1, 2022, and (b) the date of a Qualified Offering (defined below), unless earlier converted into common stock of the Company, as discussed below. "Qualified Offering" means a single public offering of common stock and/or common stock equivalents which results in the listing of the Company's common stock on a national securities exchange (including Nasdaq). The Debenture may not be prepaid without the prior written consent of the holder. The Debenture does not accrue interest, except upon the occurrence of an event of default, at which time the amount owed accrues interest at the rate of 18% per annum, until paid in full. Due to unforeseen delays experienced in our planned public offering of common stock on a national exchange, we recently reached an agreement in principle with the institutional investor for an extension and expansion of borrowings under this bridge loan, based on terms that are yet to be agreed upon.

The amount owed under the Debenture, including amounts owed upon the occurrence of an event of default, may be converted, in whole or part, by the holder, into common stock of the Company, at a conversion price of $10.00 per share (the "Conversion Price"), provided that the outstanding amount of the Debenture automatically converts into common stock of the Company upon the closing of a Qualified Offering, at the lower of (i) the Conversion Price; and (ii) 75% of the offering price of the Qualified Offering. The conversion of the Debenture is subject to a beneficial ownership limitation of 4.99%, preventing such conversion by the holder thereof, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99%, with at least 61 days prior written notice by the holder thereof.

The Investor Warrants, which are evidenced by a Common Stock Purchase Warrant (the "Warrant Agreement"), have an exercise price of $10.00 per share, and may be exercised at any time from the grant date of the Investor Warrants until August 3, 2026. The total number of shares of common stock issuable upon exercise of the warrants equals 100% of the total initial shares of common stock issuable upon conversion of the Debenture. The Investor Warrants have cashless exercise rights if when exercised, and following the six-month anniversary of the closing of the offering, a registration statement registering the shares of common stock issuable upon exercise thereof, is not effective with the Securities and Exchange Commission. The exercise of the Investor Warrants is subject to a beneficial ownership limitation of 4.99%, preventing such exercise by the holder thereof, if such exercise would result in such holder and its affiliates, exceeding ownership of 4.99% of our common stock, which percentage may be increased to up to 9.99% with at least 61 days prior written notice by the holder thereof. The Investor Warrants contain anti-dilution rights such that if we issue, or are deemed to have issued, common stock or

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common stock equivalents at a price less than the then exercise price of the Investor Warrants, subject to certain customary exceptions and the sale of up to $1.5 million in private transactions, the exercise price of the Investor Warrants is automatically reduced to such lower value, and the number of shares of common stock issuable upon exercise thereafter is adjusted proportionately so that the aggregate exercise price payable upon exercise of such Investor Warrants is the same prior to and after such reduction in exercise price. As a result, the effect of the anti-dilution right may cause significant dilution to existing shareholders.

Pursuant to a Placement Agent Agreement entered into with Maxim Group LLC (the "Placement Agent"), who served as placement agent for the offering of the Debenture and Investor Warrants, we agreed to pay the Placement Agent for the offering a cash commission of 8% of the gross proceeds received in the offering ($132,000), and to grant the Placement Agent a warrant to purchase 5% of the total shares issuable upon conversion of the Debenture (9,706), with an exercise price equal to the same exercise price as the Investor Warrants $10.00 per share), which have a term of five years and are in substantially similar form as the Investor Warrants (the "Placement Warrants" and together with the Investor Warrants, the "Offering Warrants"). We agreed to register the shares of common stock issuable upon exercise of the Placement Warrants under the Securities Act.

The proceeds of the Debenture offering are being used to meet the Company's short-term working capital needs in anticipation of ultimately closing a qualified listing on a national exchange and raising capital in connection with an underwritten offering, provided no assurance can be given that the Company will be successful in uplisting to a national exchange or achieving a closing of the underwritten public offering.

Effective March 31, 2021 and August 31, 2020, the Company reached the necessary milestones to trigger the conversion of certain notes payable issued on various dates in 2018 and 2019, as amended, into shares of the Company's common stock, at conversion prices of $1.25 to $3.25 per share, subject to a 4.99% ownership limitation for each beneficial owner of such notes. In conjunction with these conversions, the holders of notes with total principal and accrued interest balances in the aggregate amount of $794,358 converted their notes into 433,203 shares of common stock, effective March 31, 2021, and the holders of notes with total principal and accrued interest balances in the aggregate amount of $501,137 converted their notes into 400,910 shares of common stock, effective August 31, 2020. As of March 31, 2022, convertible notes payable in the amount of $174,685, plus accrued interest in the amount of $41,141, remain outstanding and are available to be subsequently converted into 172,661 shares of common stock, subject to the ownership limitation

On October 15, 2020, the Company entered into a private stock subscription agreement with an accredited investor whereby the Company agreed to sell the investor 105,600 shares of restricted common stock and warrants to purchase 240,000 shares of the Company's common stock at an exercise price of $12.50 per share and a term of one year, in exchange for a cash payment to the Company in the amount of $100,000, and the performance of certain other obligations. Based on previous negotiations between the Company and the investor prior to the execution of this agreement, the investor had made a provisional payment of $90,000, which was reflected by the Company as a liability as of September 30, 2020. Upon execution of the agreement, the investor paid the remaining $10,000 to the Company. The resale of the shares held by the purchaser are subject to a lock-up agreement.

In November 2020, the Company closed an Asset Purchase and Sales Agreement with Razor Jacket, an Oregon based supplier of isolate and related products, to acquire all of Razor Jacket's equipment relating to the manufacture of cannabinoid isolates and related products. As previously noted, the Company paid $300,000 in cash at closing, and issued 25,000 shares of restricted common stock to the owners of Razor Jacket, and provided them the right to earn up to 16.5 million shares of Series A Preferred Stock of the Company, convertible for common stock on a one-for-one basis, subject to certain conditions.

We have not generated a net profit from the limited sales of our inhaler products beginning in early 2020. Due to the subsequent impact of the COVID 19 pandemic, as well as other contributing factors, the Company has currently suspended such sales. Until such time that we can generate substantial net profit from operations, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations.

However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our operations. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future

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operating plans, we may seek additional capital due to favorable market conditions or strategic considerations, which may cause dilution to our existing stockholders.





Going Concern



The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has generated limited revenues and has suffered recurring losses totaling $10,101,174 since inception. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on consolidated financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We believe that certain accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. See " Note 2. Summary of Significant Accounting Policies " of the Notes to Consolidated Financial Statements set forth above and under " Item 8. Financial Statements and Supplementary Data " of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 16, 2022, for a further description of our critical accounting policies and estimates.

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