The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Report. The forward-looking statements included in this discussion and elsewhere in this Report involve risks and uncertainties, including those set forth under " Cautionary Statement About Forward-Looking Statements. " Actual results and experience could differ materially from the anticipated results and other expectations expressed in our forward-looking statements as a result of a number of factors, including but not limited to those discussed in this Item and in " Item 1A. Risk Factors ."





Plan of Operations

Since execution of our original Sublicense Agreement with TMDI in November 2019 (as discussed in greater detail above under " Item 1. Business "), 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 its manufacturing and sales.

Moving forward, funding permitting, and upon obtaining any necessary governmental and/or third party approvals, we intend to finish the build out of our 8,566 square feet of leased commercial office building space located in Addison, Texas. This space will our house corporate office as well as our aerosol filling laboratories and isolate manufacturing facility, beginning in the fourth quarter of 2023 or early 2024, depending on contractor availability. Sales to the public of our MDIs are not anticipated in 2023 because of anticipated FDA testing in connection with our planned IND filing with the FDA, as discussed below. Notwithstanding that, we plan to explore selling pharmaceutical isolates of CBD, CBG and CBN, after the construction of the isolate manufacturing facility is complete and the Company is approved for GMP. At that time, we plan to consider white labeling non-MDI aerosol products such as oral, nasal or topical sprays using pharmaceutical grade isolates.

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, which may create significant dilution to existing shareholders.

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

We presently have plans to pursue a public offering of our securities and are intending to use the proceeds of such planned offering to fund our current business operations, gain new regulatory approvals, enhance our current product, expand our sales and marketing efforts, and continue research into next generation technology. However, we have recently experienced unexpected delays in our public stock offering causing us to simultaneously pursue other potential sources of financing in order to meet our corporate objectives. Our primary operational activities in the near term will be focused on working to achieve FDA approval of our CBD inhaler products which are based on our proprietary blend of isolates, both in crystalline solid and powder form. We are planning to resume manufacturing


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and selling of our products only when we reach this highest level of regulatory acceptance, therefore, gaining FDA approval of these devices represents the foundational building block of our current business plans.

Seeking and obtaining FDA approval of our inhalers will be a time consuming and expensive undertaking and we do not expect to be in position to achieve success in that regard before the end of 2023, at the earliest. Due to the many variables that will be involved in our planned FDA application and approval process, most of which do not lend themselves to being readily measured or quantified, we are presently unable to project our anticipated funding requirements with any degree of specificity. We believe it is conceivable that we could eventually expend a very substantial portion of the proceeds of our offering seeking such regulatory approvals and/or may need to seek out further funding to complete such process. Nonetheless, there can be no assurance that the FDA will ever approve our products.

Assuming the FDA does approve our products, we would expect to resume the commercial manufacturing and selling of our products to customers following such approval date, which we do not currently expect being earlier than the beginning of 2024. We anticipate that, based on our plans for future development, and funding permitting, we will have the manufacturing capability to deliver a substantial volume of our inhaler products to the market within only a few months of securing final FDA approval. In order for us to be positioned to meet this objective, we will be required to recruit, hire and train additional personnel in the areas of manufacturing, logistics, sales and administration. With the efforts of our existing personnel, we have started preliminary discussions with several prospective institutional customers for our products. These discussions are ongoing, however, they may not eventually result in any agreements to purchase our products, if and when, they are approved by the FDA and available for sale. We may not succeed in the development of any commercially viable products that will reach a significant level of acceptance in the marketplace, may not have sufficient funding to obtain FDA approval of our products, may never obtain FDA approval of our products, and may never generate significant revenues.





Reverse Stock Split

On March 4, 2022, the Board of Directors approved a stock split ratio of 1-for-25 in connection with the Shareholder Authority, provided that such approval was subject in all cases to approval of such Reverse Stock Split by the Financial Industry Regulatory Authority (FINRA), and the filing of an amendment to the Articles of Incorporation of the Company with the Secretary of State of Nevada. On March 29, 2022, the Company filed a Certificate of Amendment to the Company's Articles of Incorporation with the Secretary of Nevada to affect the Reverse Stock Split and the Authorized Share Increase, which became effective at 2:00:01 A.M., Central Standard Time, on March 31, 2022. The effects of the 1-for-25 Reverse Stock Split have been retroactively reflected throughout this report.





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


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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 and convertible debt, as discussed below. We also continue to evaluate our business operations based on new information as it becomes 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

The following discussion pertains to the Company's revenues and expenses for the years ended December 31, 2022 and 2021, as reported in our consolidated financial statements and notes thereto included herein.

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 suspended such sales around December 31, 2021. Accordingly, the Company reported no product sales in the year ended December 31, 2022 and only an insignificant amount of product sales in the year ended December 31, 2021.

General and Administrative Expense - General and administrative expenses for the year ended December 31, 2022 were $1,239,361, compared to $2,141,632 in the year ended December 31, 2021. This decrease was due to a lower level of corporate expenses incurred in seeking an uplisting of the Company's common stock on a national securities exchange as well as in various regulatory and other related expenses incurred in pursuing a new drug application with the FDA and for certain other clinical-oriented initiatives.

Amortization Expense - Amortization expense for the year ended December 31, 2022 was zero compared to $12,500 in the year ended December 31, 2021. The amortization expense recorded in the year ended December 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 year ended December 31, 2022 was $23,972, compared to $22,100 in the year ended December 31, 2021. This increase reflects slightly higher depreciation on the Company's purchases of property and equipment beginning in September 2020.

Other Income (Expense) - Interest expense for the year ended December 31, 2022 was $1,895,650, compared to $1,323,838 in the year ended December 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 in conjunction with convertible debentures issued in August 2021 and May 2022. Other income (expense) also includes gains from the change in valuation of the warrant liability in the years ended December 31, 2022 and 2021 of $1,364,257 and $631,853, respectively.

Net Loss - Net loss for the year ended December 31, 2022 was $1,794,726, compared to $2,867,883 in the year ended December 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 year ended December 31, 2022 was $1,151,709, compared to $2,209,131 in the year ended December 31, 2021. This net decrease largely occurred due to a lower level of corporate expenses incurred in seeking an uplisting of the Company's common stock on a national securities exchange as well as in various regulatory and other related expenses incurred in pursuing a new drug.


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Investing activities. Net cash used in investing activities for the year ended December 31, 2022 was $39,155, compared to $292,531 in the year ended December 31, 2021. This decrease was largely due to the lower amounts paid 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 late 2023, pending funding and contractor availability.

Financing activities. Net cash provided by financing activities for the year ended December 31, 2022 was $998,380, compared to $2,195,000 in the year ended December 31, 2021. As further discussed above under "Business - Recent Material Funding and Other Events," our net cash provided by financing activities in the year ended December 31, 2022 resulted primarily from new convertible borrowings of $424,250 from previous institutional investor sources as well as the issuance of two non-convertible notes for new short-term loans, one of which came 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. Net cash provided by financing activities in the year ended December 31, 2021 resulted from the initial convertible borrowing of $1,650,000 from the same institutional investor as well as from the private sales of 58,500 shares of restricted common stock to several accredited investors at an offering price of $10.00 per share for total proceeds of $585,000, partially offset by the net repayment of various unsecured notes payable in the amount of $40,000.

In order to meet short-term working capital needs beginning 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 2021 through December 2022 in the net amount of $396,902. 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.

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

As of December 31, 2022, we had a zero cash balance and a working capital deficit of $4.7 million. We have not generated a net profit from the limited sales of our inhaler products beginning in early 2020 and only generated minimal revenues during the year ended December 31, 2021. 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 operating plans, we may seek additional capital due to favorable market conditions or strategic considerations, which may cause dilution to our existing stockholders.

Off-Balance Sheet Transactions

We do not engage in off-balance sheet transactions.





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 $10,316,149 since inception.

These factors, among others, indicate that there is substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. The consolidated financial statements do not contain any adjustments to reflect the


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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 Significant Judgments and Estimates

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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