|
||||||||||||||||||||||||||
| SEC Info℠ | | | Home | | | Search | | | My Interests | | | Help | | | Sign In | | | Please Sign In | |||||||
|
||||||||||||||||||||||||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/12/19 Gratitude Health, Inc. 10-Q 9/30/19 57:2.7M Edgar Agents LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 329K
2: EX-31.1 Certification -- §302 - SOA'02 HTML 23K
3: EX-32.1 Certification -- §906 - SOA'02 HTML 18K
46: R1 Document and Entity Information HTML 52K
27: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 103K
11: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 45K
(Parenthetical)
42: R4 Condensed Consolidated Statements of Operations HTML 80K
(Unaudited)
49: R5 Condensed Consolidated Statements of Changes in HTML 77K
Stockholders' Equity (Deficit)
30: R6 Condensed Consolidated Statements of Cash Flows HTML 102K
(Unaudited)
14: R7 Organization and Operations HTML 25K
43: R8 Significant and Critical Accounting Policies and HTML 61K
Practices
45: R9 Going Concern HTML 22K
38: R10 Inventory HTML 23K
54: R11 Property and Equipment HTML 26K
22: R12 Operating Lease Right-of-Use Assets and Operating HTML 31K
Lease Liabilities
17: R13 Note payable and Convertible Notes Payable HTML 30K
39: R14 Stockholders' Equity (Deficit) HTML 34K
55: R15 Commitments and Contingencies HTML 26K
23: R16 Concentrations of Revenue and Supplier HTML 21K
18: R17 Subsequent Events HTML 21K
36: R18 Significant and Critical Accounting Policies and HTML 113K
Practices (Policies)
57: R19 Significant and Critical Accounting Policies and HTML 23K
Practices (Tables)
28: R20 Inventory (Tables) HTML 23K
12: R21 Property and Equipment (Tables) HTML 25K
40: R22 Operating Lease Right-of-Use Assets and Operating HTML 31K
Lease Liabilities (Tables)
47: R23 Note Payable and Convertible Notes Payable HTML 22K
(Tables)
29: R24 Stockholders' Equity (Deficit) (Tables) HTML 25K
13: R25 Commitments and Contingencies (Tables) HTML 20K
41: R26 Organization and Operations (Details) HTML 22K
48: R27 Significant and Critical Accounting Policies and HTML 29K
Practices (Details)
31: R28 Significant and Critical Accounting Policies and HTML 35K
Practices (Details Textual)
10: R29 Going Concern (Details) HTML 32K
20: R30 Inventory (Details) HTML 27K
26: R31 Inventory (Details Textual) HTML 23K
53: R32 Property and Equipment (Details) HTML 38K
35: R33 Property and Equipment (Details Textual) HTML 24K
19: R34 Operating Lease Right-of-Use Assets and Operating HTML 28K
Lease Liabilities (Details)
25: R35 Operating Lease Right-of-Use Assets and Operating HTML 28K
Lease Liabilities (Details 1)
52: R36 Operating Lease Right-of-Use Assets and Operating HTML 32K
Lease Liabilities (Details 2)
34: R37 Operating Lease Right-of-Use Assets and Operating HTML 26K
Lease Liabilities (Details Textual)
21: R38 Note payable and Convertible Notes Payable HTML 26K
(Details)
24: R39 Note payable and Convertible Notes Payable HTML 64K
(Details Textual)
16: R40 Stockholders' Equity (Deficit) (Details) HTML 49K
33: R41 Stockholders' Equity (Deficit) (Details Textual) HTML 82K
51: R42 Commitments and Contingencies (Details) HTML 22K
44: R43 Commitments and Contingencies (Details Textual) HTML 27K
15: R44 Concentrations of Revenue and Supplier (Details) HTML 31K
32: R45 Subsequent Events (Details) HTML 26K
37: XML IDEA XML File -- Filing Summary XML 103K
50: EXCEL IDEA Workbook of Financial Reports XLSX 61K
4: EX-101.INS XBRL Instance -- grtd-20190930 XML 674K
6: EX-101.CAL XBRL Calculations -- grtd-20190930_cal XML 127K
7: EX-101.DEF XBRL Definitions -- grtd-20190930_def XML 349K
8: EX-101.LAB XBRL Labels -- grtd-20190930_lab XML 737K
9: EX-101.PRE XBRL Presentations -- grtd-20190930_pre XML 542K
5: EX-101.SCH XBRL Schema -- grtd-20190930 XSD 128K
56: ZIP XBRL Zipped Folder -- 0001213900-19-022841-xbrl Zip 89K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 333-170715
GRATITUDE HEALTH, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 27-1517938 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
11231 US Highway One
Suite 200
(Address of Principal Executive Offices, Zip Code)
Registrant’s telephone number, including area code: (561) 227-2727
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒
Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| Emerging growth company | ☐ | ||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None | N/A | N/A |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 8, 2019, there were 17,082,065 shares of common stock, par value $0.001, outstanding.
C:
GRATITUDE HEALTH, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Period ended September 30, 2019
| Page | ||
| PART 1 - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 19 |
| Item 4. | Controls and Procedures | 19 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 21 |
| Item 1A. | Risk Factors | 21 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
| Item 3. | Defaults Upon Senior Securities | 21 |
| Item 4. | Mine Safety Disclosures | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 21 |
| SIGNATURES | 22 | |
C:
C: i
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.
We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.
These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to GRATITUDE HEALTH, INC. “SEC” refers to the Securities and Exchange Commission.
C:
ii
PART 1 - FINANCIAL INFORMATION
| Item 1. | Financial Statements |
GRATITUDE HEALTH, INC. AND SUBSIDIARIES
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
INDEX TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
C:
C: 1
| GRATITUDE HEALTH, INC. AND SUBSIDIARY |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Unaudited) |
| SEPTEMBER 30, | DECEMBER 31, | |||||||
| 2019 | 2018 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 16,120 | $ | 60,274 | ||||
| Accounts receivable | 9,001 | 9,432 | ||||||
| Inventory | - | 60,116 | ||||||
| Prepaid expenses and other current assets | 9,205 | 8,939 | ||||||
| Total Current Assets | 34,326 | 138,761 | ||||||
| OTHER ASSETS: | ||||||||
| Property and equipment, net | - | 37,487 | ||||||
| Operating lease right-of-use assets, net | 46,713 | - | ||||||
| Deposit | 6,828 | 6,828 | ||||||
| Total Other Assets | 53,541 | 44,315 | ||||||
| TOTAL ASSETS | $ | 87,867 | $ | 183,076 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | 115,400 | $ | 69,867 | ||||
| Accrued salaries and related payroll liabilities | 8,870 | 21,745 | ||||||
| Convertible notes payable, net of debt discount | 603,787 | - | ||||||
| Operating lease liabilities, current portion | 24,982 | - | ||||||
| Total Current Liabilities | 753,039 | 91,612 | ||||||
| Long-term liabilities: | ||||||||
| Operating lease liabilities, less current portion | 21,731 | - | ||||||
| Total Liabilities | 774,770 | 91,612 | ||||||
| COMMITMENTS AND CONTINGENCIES (see Note 9) | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock $0.001 par value: 20,000,000 shares authorized; | ||||||||
| Convertible Series A Preferred stock ($0.001 Par Value; 520,000 Shares Authorized; 519,000 and 520,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively) | 519 | 520 | ||||||
| Convertible Series B Preferred stock ($0.001 Par Value; 500,000 Shares Authorized; 500,000 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively) | 500 | 500 | ||||||
| Convertible Series C Preferred stock ($0.001 Par Value; 2,500 Shares Authorized; 2,250 shares issued and outstanding as of September 30, 2019 and December 31, 2018) | 2 | 2 | ||||||
| Common stock ($0.001 par value: 600,000,000 shares authorized; 17,082,065 and 16,832,065 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively) | 17,082 | 16,832 | ||||||
| Common stock to be issued (2,600,000 and none shares as of September 30, 2019 and December 31, 2018, respectively) | 2,600 | 2,600 | ||||||
| Additional paid-in capital | 2,506,335 | 1,186,034 | ||||||
| Accumulated deficit | (3,213,941 | ) | (1,115,024 | ) | ||||
| Total Stockholders’ Equity (Deficit) | (686,903 | ) | 91,464 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 87,867 | $ | 183,076 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
C:
2
GRATITUDE HEALTH, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended | For the three months ended | For the nine months ended | For the nine months ended | |||||||||||||
| September 30, 2019 | September 30, 2018 | September 30, 2019 | September 30, 2018 | |||||||||||||
| Net revenues | $ | 9,355 | $ | - | $ | 9,855 | $ | - | ||||||||
| Cost of sales | 64,075 | - | 69,035 | - | ||||||||||||
| Gross loss | (54,720 | ) | - | (59,180 | ) | - | ||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Compensation and related cost | 91,204 | 100,085 | 312,178 | 221,103 | ||||||||||||
| Professional and consulting expenses | 57,107 | 37,010 | 163,793 | 395,095 | ||||||||||||
| Research and development expenses | 10,879 | 2,780 | 43,424 | 2,780 | ||||||||||||
| Selling and marketing expenses | 7,154 | 3,094 | 31,647 | 5,179 | ||||||||||||
| General and administrative | 78,295 | 68,956 | 174,408 | 134,184 | ||||||||||||
| Total Operating Expenses | 244,639 | 211,925 | 725,450 | 758,341 | ||||||||||||
| LOSS FROM OPERATIONS | (299,359 | ) | (211,925 | ) | (784,630 | ) | (758,341 | ) | ||||||||
| OTHER INCOME (EXPENSE): | ||||||||||||||||
| Interest income | - | - | - | 9 | ||||||||||||
| Interest expense | (36,659 | ) | - | (62,487 | ) | (33,527 | ) | |||||||||
| Other income (expense) | (36,659 | ) | - | (62,487 | ) | (33,518 | ) | |||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | (336,018 | ) | (211,925 | ) | (847,117 | ) | (791,859 | ) | ||||||||
| Provision for income taxes | - | - | - | - | ||||||||||||
| NET LOSS | (336,018 | ) | (211,925 | ) | (847,117 | ) | (791,859 | ) | ||||||||
| Deemed dividend | (1,196,800 | ) | - | (1,251,800 | ) | - | ||||||||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | (1,532,818 | ) | $ | (211,925 | ) | $ | (2,098,917 | ) | $ | (791,859 | ) | ||||
| NET LOSS PER COMMON SHARE | ||||||||||||||||
| Basic and diluted | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.11 | ) | $ | (0.03 | ) | ||||
| WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | ||||||||||||||||
| Basic and diluted | 19,682,051 | 19,432,051 | 19,521,795 | 31,367,808 | ||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
C:
3
GRATITUDE HEALTH, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
| SERIES A | SERIES B | SERIES C | Common Stock - | Additional | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Unissued | Paid-in | Subscription | Accumulated | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 520,000 | $ | 520 | 500,000 | $ | 500 | 2,250 | $ | 2 | 16,832,065 | $ | 16,832 | 2,600,000 | $ | 2,600 | $ | 1,186,034 | $ | - | $ | (1,115,024 | ) | $ | 91,464 | ||||||||||||||||||||||||||||||||
| Beneficial conversion feature in connection with the issuance of convertible note payable | - | - | - | - | - | - | - | - | - | - | 13,750 | - | - | 13,750 | ||||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (227,335 | ) | (227,335 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 520,000 | 520 | 500,000 | 500 | 2,250 | 2 | 16,832,065 | 16,832 | 2,600,000 | 2,600 | 1,199,784 | - | (1,342,359 | ) | (122,121 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with conversion of preferred stock | (1,000 | ) | (1 | ) | - | - | - | - | 250,000 | 250 | - | - | (249 | ) | - | - | - | |||||||||||||||||||||||||||||||||||||||
| Beneficial conversion feature in connection with the issuance of convertible note payable | - | - | - | - | - | - | - | - | - | - | 55,000 | - | - | 55,000 | ||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend | - | - | - | - | - | - | - | - | - | - | 55,000 | - | (55,000 | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (283,764 | ) | (283,764 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2019 | 519,000 | 519 | 500,000 | 500 | 2,250 | 2 | 17,082,065 | 17,082 | 2,600,000 | 2,600 | 1,309,535 | - | -1,681,123 | -350,885 | ||||||||||||||||||||||||||||||||||||||||||
| Deemed dividend | - | - | - | - | - | - | - | - | - | - | 1,196,800 | - | (1,196,800 | ) | - | |||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (336,018 | ) | (336,018 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2019 | 519,000 | $ | 519 | 500,000 | $ | 500 | 2,250 | $ | 2 | 17,082,065 | $ | 17,082 | 2,600,000 | $ | 2,600 | $ | 2,506,335 | $ | - | $ | (3,213,941 | ) | $ | (686,903 | ) | |||||||||||||||||||||||||||||||
| SERIES A | SERIES B | SERIES C | Common Stock - | Additional | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Unissued | Paid-in | Subscription | Accumulated | Equity | ||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Deficit | (Deficit) | |||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | - | $ | - | 500,000 | $ | 500 | - | $ | - | - | $ | - | - | $ | - | $ | 24,492 | $ | - | $ | (96,424 | ) | $ | (71,432 | ) | |||||||||||||||||||||||||||||||
| Recapitalization of the Company | - | - | - | - | - | - | 53,141,833 | 53,142 | - | - | (76,117 | ) | - | - | (22,975 | ) | ||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for cash | 20,000 | 20 | - | - | - | - | - | - | - | - | 1,980 | - | - | 2,000 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for cash and conversion of notes payable and accrued interest | 500,000 | 500 | - | - | - | - | - | - | - | - | 507,979 | (260,000 | ) | - | 248,479 | |||||||||||||||||||||||||||||||||||||||||
| Debt discount in connection with the issuance of stock warrants | - | - | - | - | - | - | - | - | - | - | 9,992 | - | - | 9,992 | ||||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (159,513 | ) | (159,513 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2018 | 520,000 | 520 | 500,000 | 500 | - | - | 53,141,833 | 53,142 | - | - | 468,326 | -260,000 | -255,937 | 6,551 | ||||||||||||||||||||||||||||||||||||||||||
| Cancellation of shares | - | - | - | - | - | - | (36,309,768 | ) | (36,310 | ) | - | - | 36,310 | - | - | - | ||||||||||||||||||||||||||||||||||||||||
| Collection of subscription receivable | - | - | - | - | - | - | - | - | - | - | - | 260,000 | - | 260,000 | ||||||||||||||||||||||||||||||||||||||||||
| Unissued common stock for services | - | - | - | - | - | - | - | - | 2,600,000 | 2,600 | 231,400 | - | - | 234,000 | ||||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (420,421 | ) | (420,421 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2018 | 520,000 | 520 | 500,000 | 500 | - | - | 16,832,065 | 16,832 | 2,600,000 | 2,600 | 736,036 | - | -676,358 | 80,130 | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of preferred stock for cash | - | - | - | - | 750 | 1 | - | - | - | - | 149,999 | - | - | 150,000 | ||||||||||||||||||||||||||||||||||||||||||
| Net Loss for the period | - | - | - | - | - | - | - | - | - | - | - | - | (211,925 | ) | (211,925 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2018 | 520,000 | $ | 520 | 500,000 | $ | 500 | 750 | $ | 1 | 16,832,065 | $ | 16,832 | 2,600,000 | $ | 2,600 | $ | 886,035 | $ | - | $ | (888,283 | ) | $ | 18,205 | ||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
C:4
GRATITUDE HEALTH, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the nine months ended | For the nine months ended | |||||||
| September 30, 2019 | September 30, 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (847,117 | ) | $ | (791,859 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 12,588 | 7,887 | ||||||
| Amortization of ROU asset | 16,853 | - | ||||||
| Amortization of debt discount | 62,487 | 29,703 | ||||||
| Impairment loss | 24,899 | - | ||||||
| Inventory write-off | 14,309 | - | ||||||
| Stock-based compensation | - | 234,000 | ||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | 431 | - | ||||||
| Inventory | 45,807 | (83,081 | ) | |||||
| Prepaid expenses and other current assets | (266 | ) | (7,674 | ) | ||||
| Advance to supplier | - | 11,200 | ||||||
| Deposit | - | (6,828 | ) | |||||
| Accounts payable and accrued expenses | 42,533 | 90,515 | ||||||
| Accrued salaries and related payroll liabilities | (9,875 | ) | - | |||||
| Operating lease liabilities | (16,853 | ) | - | |||||
| NET CASH USED IN OPERATING ACTIVITIES | (654,204 | ) | (516,137 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | - | (36,348 | ) | |||||
| NET CASH USED IN INVESTING ACTIVITIES | - | (36,348 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net proceeds received from issuance of convertible notes payable, net of issuance cost | 610,050 | 120,000 | ||||||
| Net proceeds received from issuance of preferred stock | - | 415,000 | ||||||
| Repayments on advances from related parties | - | (345 | ) | |||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 610,050 | 534,655 | ||||||
| NET DECREASE IN CASH | (44,154 | ) | (17,830 | ) | ||||
| CASH, beginning of year | 60,274 | 20,826 | ||||||
| CASH, end of period | $ | 16,120 | $ | 2,996 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Beneficial conversion feature in connection with the issuance of convertible notes payable | $ | 68,750 | $ | - | ||||
| Operating lease right-of-use assets and operating lease liabilities recorded upon adoption of ASC 842 | $ | 63,566 | $ | - | ||||
| Issuance of preferred stock for conversion of notes payable and accrued interest | $ | - | $ | 281,789 | ||||
| Assumption of liabilities in connection with the reverse merger | $ | - | $ | 22,975 | ||||
See accompanying notes to the unaudited condensed consolidated financial statements.
C:5
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 - Organization and Operations
Gratitude Health, Inc., (the “Company”, formerly Vapir Enterprises, Inc.) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company changed its legal name to Gratitude Health, Inc. from Vapir Enterprises Inc. On March 26, 2018, the Company merged with Gratitude Health Inc. (“Gratitude Subsidiary”), a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange. The consolidated financial statements are those of Gratitude Subsidiary (the accounting acquirer) prior to the merger and reflect the consolidated operations of the Company (the legal acquirer) from the date of the merger. The equity of the consolidated entity is the historical equity of Gratitude Subsidiary retroactively restated to reflect the number of shares issued by the Company in the reverse acquisition. The Company’s former business was focused on inventing, developing and producing aromatherapy devices and vaporizers before the merger. The Company is now engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the Company’s trademark.
On March 26, 2018 (“Closing Date”), Gratitude Subsidiary, a private Florida corporation, entered into a Share Exchange Agreement (the “Exchange Agreement”) with the Company, Hamid Emarlou, the principal shareholder of the Company (“Acquiror Principal Shareholder”), and all of the principal shareholders of Gratitude Subsidiary. Upon closing of the transactions contemplated under the Exchange Agreement (the “Merger”), Gratitude Subsidiary became a wholly-owned subsidiary of the Company.
On March 26, 2018, the Company closed the Merger with Gratitude Subsidiary. The Merger has constituted a change in control, the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to the stockholders of Gratitude Subsidiary shares of preferred stock which represented approximately 86% of the combined company on a fully converted basis after the closing of the Exchange Agreement and the Spin off Agreement as described below.
On the Closing Date, Acquiror Principal Shareholder entered into a Spin Off Agreement with the Company for the sale of the existing wholly owned Vapir, Inc. subsidiary of the Company in exchange for Acquiror Principal Shareholder’s 36,309,768 shares of Common Stock. The Spin Off Agreement closed on April 14, 2018. The Company recognized the disposition of the Vapir business on the date of merger.
Note 2 - Significant and Critical Accounting Policies and Practices
Basis of Presentation
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements and present the consolidated financial statements of the Company and its wholly-owned subsidiary as of September 30, 2019. All intercompany transactions and balances have been eliminated. Accordingly, the condensed consolidated financial statements do not include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2018 and included in the form 10-K filed with the SEC on March 25, 2019. It is management’s opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. Significant intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are not necessarily indicative of the results to be expected for the year ending December 31, 2019.
Use of Estimates and Assumptions and Critical Accounting Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to valuation of deferred tax assets, useful life of property and equipment, inventory reserves, and valuation of debt discounts.
C:
6
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.
Cash and cash equivalents
The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company held no cash equivalents as of September 30, 2019 and December 31, 2018. The Company maintains cash balances at one financial institution that is insured by the Federal Deposit Insurance Corporation. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of September 30, 2019 and December 31, 2018, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.
Fair value of financial instruments
The estimated fair value of certain financial instruments, including cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and accrued salaries and related payroll liabilities are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
Inventory
The Company values inventory, consisting of finished goods and raw materials, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. The Company recorded inventory write-off and spoilage of $14,309 and $0 during the nine months ended September 30, 2019 and 2018, respectively. The Company recorded inventory write-off and spoilage of $11,423 and $0 during the three months ended September 30, 2019 and 2018, respectively.
Property and Equipment
Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of 3 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations.
Revenue Recognition
On January 1, 2018, the Company adopted the Accounting Standard Codification (“ASC”) Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment or delivery of product). The Company primarily receives fixed consideration for sales of product.
Cost of Sales
The primary components of cost of sales include the cost of the product, production costs, warehouse storage costs and shipping fees.
C:
7
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Research and development
Research and development costs incurred in the development of the Company’s products are expensed as incurred.
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in selling and marketing expenses as incurred. Shipping costs included in selling and marketing expenses were $3,090 and $0 for the nine months ended September 30, 2019 and 2018, respectively. Shipping costs included in selling and marketing expenses were $521 and $0 for the three months ended September 30, 2019 and 2018, respectively.
Advertising Costs
The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $17,557 and $6,459 for the nine months ended September 30, 2019 and 2018, respectively, and was included in general and administrative expenses. Advertising costs were $6,633 and $2,380 for the three months ended September 30, 2019 and 2018, respectively, and was included in general and administrative expenses.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Through March 31, 2018, pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions were expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions were met, which generally aligned with the vesting period of the options, and the Company adjusted the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC 606. The Company adoption did not have any material impact on its consolidated financial statements.
The expense is recognized over the vesting period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awards to consultants and other third-parties are then revalued, or the total compensation is recalculated, based on the then current fair value, at each subsequent reporting date.
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842). The updated guidance requires lessees to recognize lease assets and lease liabilities for most operating leases. In addition, the updated guidance requires that lessors separate lease and non-lease components in a contract in accordance with the new revenue guidance in ASC 606. The updated guidance is effective for interim and annual periods beginning after December 15, 2018.
On January 1, 2019, the Company adopted ASU No. 2016-02, applying the package of practical expedients to leases that commenced before the effective date whereby the Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases and; (ii) initial direct costs for any existing leases. For contracts entered into on or after the effective date, at the inception of a contract the Company assessed whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether it has the right to direct the use of the asset. The Company will allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
Operating lease right of use assets (“ROU”) assets represents the right to use the leased asset for the lease term and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most leases do not provide an implicit rate, the Company use an incremental borrowing rate based on the information available at the adoption date in determining the present value of future payments. Lease expense for minimum lease payments is amortized on a straight-line basis over the lease term and is included in general and administrative expenses in the condensed consolidated statements of operations.
C:8
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Impairment of long-lived assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded impairment expense of $24,899 and $0 during the three and nine months ended September 30, 2019. There was no impairment expense during the three and nine months ended September 30, 2018. The Company impaired the net book value of $24,899 related to equipment used for the production of the ready to drink tea beverage as the Company has shifted its focus on the product development of the Company’s Keto complete meal beverage and was included in general and administrative expenses as reflected in the consolidated statements of operations.
Basic and diluted net loss per share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period.
The potentially dilutive common stock equivalents for the nine months ended September 30, 2019 and 2018 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss. The following were the computation of diluted shares outstanding and in periods where the Company has a net loss, all dilutive securities are excluded.
| September 30, 2019 | September 30, 2018 | |||||||
| Common stock equivalents: | ||||||||
| Stock options | 1,940,000 | 1,940,000 | ||||||
| Convertible notes payable | 17,187,500 | - | ||||||
| Convertible Preferred Stock | 266,000,000 | 105,000,000 | ||||||
| Total | 285,127,500 | 106,940,000 | ||||||
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods and is applied retrospectively. The Company elected to apply the transition provisions as of January 1, 2019, the date of adoption, and recorded lease ROU assets and related liabilities on the consolidated balance sheet related to our operating leases.
C:
9
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
In July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260)”. The amendments in the update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with early adoption permitted. The Company adopted this pronouncement as of fiscal 2017 and applied it to the convertible notes payable issued in March and May of 2019 that include down round features. During the three and nine months ended September 30, 2019, a down round feature present in a convertible note payable and convertible preferred stock was triggered (see Notes 7 and 8).
In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The adoption of this guidance had no material impact on its accounting and disclosures.
In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Note 3 - Going Concern
The Company’s unaudited condensed consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the unaudited condensed consolidated financial statements, the Company has an accumulated deficit and working capital deficit of approximately $3,213,941and $719,000 at September 30, 2019,respectively, and incurred a net loss of approximately $847,000 and used cash in operating activities of approximately $654,000 for the nine months ended September 30, 2019. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date of this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to implement its business plan, raise capital, and generate sufficient revenues. Currently, management is seeking capital to implement its business plan and generate sufficient revenues. There is no guarantee that the Company will be able to raise sufficient capital or generate a level of revenues to sustain its operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4 - Inventory
Inventory consisted of the following:
| September 30, 2019 | December 31, 2018 | |||||||
| (Unaudited) | ||||||||
| Finished goods | $ | - | $ | 39,984 | ||||
| Raw materials | - | 20,132 | ||||||
| $ | - | $ | 60,116 | |||||
At September 30, 2019 and December 31, 2018, inventory held at third party locations amounted to $0 and $60,116, respectively. During the three and nine months ended September 30, 2019, there were $11,423 and $14,309, respectively, inventory write-offs included in cost of sales for both periods. There were no comparable write-offs during the three and nine months ended September 30, 2018. The write-offs are related to spoilage and value of the remaining cost of raw materials for the Company’s ready to drink tea beverage as the Company has shifted its focus on the product development of the Company’s Keto complete meal beverage.
C:
10
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Note 5 - Property and Equipment
Property and equipment consisted of the following:
| Estimated life | As of September 30, 2019 | As of December 31, 2018 | ||||||||
| (Unaudited) | ||||||||||
| Molding Tool equipment | 3 years | $ | 30,592 | $ | 30,592 | |||||
| Packing equipment | 3 years | 19,756 | 19,756 | |||||||
| Less: Accumulated depreciation | (25,449 | ) | (12,861 | ) | ||||||
| Net book value | (24,899 | ) | - | |||||||
| Less: Impairment loss | (24,899 | ) | - | |||||||
| $ | - | $ | 37,487 | |||||||
Depreciation expense amounted to $12,588 and $7,887 for the nine months ended September 30, 2019 and 2018, respectively. Depreciation expense amounted to $4,196 and $3,782 for the three months ended September 30, 2019 and 2018, respectively. Additionally, the Company recognized an impairment loss of $24,899 related to the net book value of equipment used for the production of the ready to drink tea beverage as the Company has shifted its focus on the product development of the Company’s Keto complete meal beverage and therefore recorded an impairment loss of $24,899 which is included in general and administrative expenses in the consolidated statement of operations during the three and nine months ended September 30, 2019.
Note 6 – Operating Lease Right-of-Use Assets and Operating Lease Liabilities
In April 2018, the Company entered into a lease agreement for its corporate facility in Palm Beach Gardens, Florida. The lease is for a period of 36 months commencing in July 2018 and expiring in July 2021. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of $2,154 plus a pro rata share of operating expenses beginning July 2018 and subject to annual increases beginning the 2nd and 3rd lease year. In addition to the monthly base rent, we are charged separately for common area maintenance which is considered a non-lease component. These non-lease component payments are expensed as incurred and are not included in operating lease assets or liabilities.
In March 2019, the Company entered into an equipment lease agreement for a copier on March 27, 2019 expiring March 27, 2022 and requiring monthly payments of $145 with an option to purchase the equipment at fair market value at the end of the lease term.
In adopting ASC Topic 842, Leases (Topic 842), the Company has elected the ‘package of practical expedients’, which permit it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to apply ASC Topic 842 to arrangements with lease terms of 12 month or less. On January 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets and lease liabilities of $63,566.
Right-of- use assets are summarized below:
| 2019 | ||||
| (Unaudited) | ||||
| Office lease (remaining lease term of 21 months) | $ | 59,069 | ||
| Equipment lease (remaining lease term of 30 months) | 4,497 | |||
| Subtotal | 63,566 | |||
| Less accumulated amortization | (16,853 | ) | ||
| Right-of-use assets, net | $ | 46,713 | ||
C:
11
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
Operating Lease liabilities are summarized below:
| 2019 | ||||
| (Unaudited) | ||||
| Office lease | $ | 59,069 | ||
| Equipment lease | 4,497 | |||
| Reduction of lease liability | (16,853 | ) | ||
| Total lease liabilities | 46,713 | |||
| Less: current portion | (24,982 | ) | ||
| Long term portion of lease liability | $ | 21,731 | ||
Minimum lease payments under non-cancelable operating lease at September 30, 2019 are as follows:
| Year ended December 31, 2019 (remainder of year) | $ | 7,092 | ||
| Year ended December 31, 2020 | 28,764 | |||
| Year ended December 31, 2021 | 15,450 | |||
| Year ended December 31, 2022 | 435 | |||
| Total | $ | 51,741 | ||
| Less: present value discount | (5,028 | ) | ||
| Total operating lease liability | $ | 46,713 |
Note 7 – Note payable and Convertible Notes Payable
Convertible note payable consisted of the following:
| September 30, 2019 | December 31, 2018 | |||||||
| (Unaudited) | ||||||||
| Convertible notes payable | $ | 687,500 | $ | - | ||||
| Unamortized debt discount | (83,713 | ) | - | |||||
| Total convertible notes payable | $ | 603,787 | $ | - | ||||
On February 13, 2019, the Company issued an unsecured promissory note for principal borrowings of $50,000. The 10% promissory note and all accrued interest were due on February 22, 2019. Any amount of principal or interest on this promissory note which was not paid when due would bear interest at the rate of 20% per annum from the due date. In March 2019, this note was repaid in full using proceeds from the issuance of a convertible note as discussed below.
On March 7, 2019 and on May 14, 2019, the Company closed a financing transaction by entering into a Securities Purchase Agreement (the “ Securities Purchase Agreement ”) with an accredited investor for purchase of a promissory note (the “Note” and with other notes issued under the Securities Purchase Agreement, the “Notes”) an aggregate principal amount of $550,000 and gross cash proceeds of $500,000 (out of an aggregate of up to $550,000 principal amount of Notes representing $1.10 of note principal for each $1.00 of proceeds which can be purchased in subsequent closings in minimum amounts of $25,000). The March 7, 2019 and May 14, 2019 promissory notes were convertible into common stock of the Company at an initial conversion price of $0.05 and $0.04, respectively , which is subject to price protection, whereby upon any issuance of securities of the Company at a price below the effective conversion price of the Notes is adjusted to the new lower issuance price (“Down Round Feature”). The Notes have a term of one year from the date of issuance. The Company received gross proceeds of $500,000 of which $50,000 was used to pay the promissory note issued in February 2019 (see above).
C:
12
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
The Company accounted for the beneficial conversion features based on the intrinsic value on date of issuance. The debt discounts consisted of beneficial conversion features of $68,750, financing costs of $14,950 and debt premium of $50,000 which is being amortized over the term of the notes. During the three and nine months ended September 30, 2019 the Company recorded $36,659 and $62,487, respectively, as amortization of debt discount and is included in interest expense in the unaudited consolidated statements of operations. There were no such promissory notes outstanding as of September 30, 2018.
The Down Round Feature was triggered on May 14, 2019 when the conversion price of the March 7, 2019 convertible note payable was reduced from $0.05 to $0.04. In accordance with ASU 2017-11 “Earnings Per Share (Topic 260)”, the Company measured the value of the effect of the feature upon the Down Round Feature being triggered based on the difference of the fair value of the beneficial conversion feature immediately before and after the conversion price reduction. This difference of $55,000 has been recorded as a deemed dividend and has been reduced from the net loss available to common stockholders.
On August 12, 2019, the Company entered into an Allonge Agreement with a lender whereby the principal amount of a convertible note dated on March 7, 2019 was increased by $137,500 (“Allonge Principal”) with original issue discount of 10%, receiving gross cash proceeds of $125,000. The maturity date with respect to the Allonge Principal shall also be on March 7, 2020 and all the terms of the Note dated on March 7, 2019 remain as originally stated except the Allonge Principal is convertible into common stock of the Company at an initial conversion rate of $0.04, subject to price protection. The Company determined that there was no beneficial conversion feature as the effective conversion price is greater than the fair value of common stock shares on date of issuance.
Note 8 - Stockholders’ Equity (Deficit)
Shares Authorized
The authorized capital of the Company consists of 300,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share. On August 9, 2019, the Board of Directors of the Company approved to increase the authorized shares of the Company’s common stock to 600,000,000 shares from 300,000,000 shares of authorized shares of common stock.
Preferred stock
On March 19, 2018, the Company designated 520,000 shares of Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”). Each share of Series A Preferred Stock is convertible into shares of the Company’s common stock with a stated value of $10 per share of Series A Preferred Stock and the initial conversion price of $0.10 per share subject to adjustment in the event of stock split, stock dividends, subsequent equity sales with lower effective price, and recapitalization or otherwise and was adjusted down to $0.04 on May 14, 2019 due to a trigger event that occurred (see Note 7). The holders of the Series A Preferred Stock shall not possess any voting rights. The Series A Preferred Stock does not contain any redemption provision. The Series A Preferred Stock are entitled to receive in cash out of assets of the Company before any amounts shall be paid to the holders of any of shares of junior stock, an amount equal to the stated value plus any accrued and unpaid dividends thereon and any other fees due and owing.
On March 19, 2018, the Company designated 500,000 shares of Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”). Each share of Series B Preferred Stock is convertible into shares of the Company’s common stock with a stated value of $10 per share of Series B Preferred Stock and the initial conversion price of $0.10 per share subject to adjustment in the event of stock split, stock dividends, subsequent equity sales with lower effective price, and recapitalization or otherwise and was adjusted down to $0.04 on May 14, 2019 due to a trigger event that occurred (see Note 7). The Series B Preferred Stock votes with the common stock on a fully as converted basis. The Series B Preferred Stock does not contain any redemption provision. The Series B Preferred Stock are entitled to receive in cash out of assets of the Company before any amounts shall be paid to the holders of any of shares of junior stock, an amount equal to the stated value plus any accrued and unpaid dividends thereon and any other fees due and owing.
On August 1, 2018, the Company designated 1,000 shares of Series C Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”). Each share of Series C Preferred Stock is convertible into shares of the Company’s common stock with a stated value of $200 per share of Series C Preferred Stock and the initial conversion price of $0.05 per share subject to adjustment in the event of stock split, stock dividends, subsequent equity sales with lower effective price, and recapitalization or otherwise and was adjusted down to $0.04 on May 14, 2019 due to a trigger event that occurred (see Note 7). The Series C Preferred Stock votes with the common stock on a fully as converted basis. The Series C Preferred Stock does not contain any redemption provision. The Series C Preferred Stock are entitled to receive in cash out of assets of the Company before any amounts shall be paid to the holders of any of shares of junior stock, an amount equal to the stated value plus any accrued and unpaid dividends thereon and any other fees due and owing. In October 2018, the Board of Directors of the Company approved and authorized an amendment to increase the number of designated authorized shares of the Series C preferred stock from 1,000 to 2,500 shares.
C:
13
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
The Down Round Feature embedded in all Series of Preferred Stock was triggered on May 14, 2019 when the conversion price of the May 14, 2019 convertible note payable was issued at $0.04 (see Note 7). The Company measured the value of the effect of the feature upon the Down Round Feature being triggered based on the incremental intrinsic value that resulted from triggering the Down Round Feature which was measured as the additional common stock shares that would be issued upon conversion due to the reduction in the conversion rate and the intrinsic value on the trigger date of May 14, 2019. This difference of $1,196,800 has been recorded as a dividend and has been reduced from the net loss available to common stockholders.
Common Stock
In June 2019, the Company issued 250,000 shares of the Company’s common stock in exchange for the conversion of 1,000 shares of the Company’s Series A Preferred Stock.
Common Stock Options
Stock option activity for the nine months ended September 30, 2019 is summarized as follows:
| Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Aggregate Intrinsic Value | |||||||||||||
| Balance at December 31, 2018 | 1,940,000 | 0.10 | 2.04 | - | ||||||||||||
| Granted | - | - | - | - | ||||||||||||
| Balance at September 30, 2019 | 1,940,000 | 0.10 | 1.54 | - | ||||||||||||
| Options exercisable at September 30, 2019 | 1,940,000 | $ | 0.10 | 1.29 | $ | - | ||||||||||
As of September 30, 2019, all outstanding options are fully vested and there were $0 unrecognized compensation expense in connection with unvested stock options.
Note 9 - Commitments and Contingencies
License Agreement
In January 2018, the Company entered into a Standard Exclusive License Agreement (the “License Agreement”) whereby the licensor agreed to grant exclusive license to the Company for licensed patent owned or controlled by licensor. The licensed patent is related to tea polyphenols esters and analogs for cancer prevention and treatment. The term of this license shall begin on the effective date of this License Agreement and continue until the later of the date that no licensed patent remains a pending application or an enforceable patent, or the date on which Company’s obligation to pay royalties expires pursuant to the License Agreement. If the Company has not pursued a market or territory respecting the licensed patents within one year of the date of execution of this License Agreement and Licensor has received notice that a third party wishes to negotiate a license for such market or territory, Licensor may terminate the license granted in with respect to such market or territory upon sixty (60) days written notice to Licensee. The Company agreed to pay license issue fee of $5,000 within 30 days of the effective date which was paid in March 2018.
Additionally, the Company agreed to pay certain royalty payments as follows:
(i) three percent (3%) for Net Sales of Licensed Products, and Licensed Processes (all as defined in the License Agreement), for each product or process, on a country-by-country basis, for cumulative Net Sales up to one million dollars ($1,000,000); and
(ii) four percent (4%) for Net Sales of Licensed Products and Licensed Processes, for each product or process, on a country-by-country basis, for cumulative Net Sales from one million dollars ($1,000,000) to five million dollars ($5,000,000); and
(iii) five percent (5%) for Net Sales of Licensed Products and Licensed Processes, for each product or process, on a country-by-country basis, Net Sales over five million dollars ($5,000,000).
Furthermore, the Company agrees to pay Licensor minimum royalty payments, as follows:
| Payment | Year | |||
| $ | 20,000 | 2018 | ||
| $ | 50,000 | 2019 | ||
| $ | 100,000 | 2020 and every year thereafter on the same date, for the life of this License Agreement. | ||
C:
14
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
The minimum royalty shall be paid in advance on a quarterly basis for each year in which this License Agreement is in effect. The first minimum royalty payment shall be due on March 31st, 2018 and shall be in the amount of $5,000. The minimum royalty for a given year shall be due in advance and shall be paid in quarterly installments on March 31, September 30, September 30, and December 31 for the following quarters. As of September 30, 2019 and December 31, 2018, the Company has accrued royalty of $47,500 and $10,000, respectively, which is included in accounts payable and accrued expenses on the consolidated balance sheets.
Note 10 – Concentrations of Revenue and Supplier
During the nine months ended September 30, 2019, beverage sales to two customers represented approximately 95% of the Company’s net sales. There was no revenues generated during the nine months ended September 30, 2018.
As of September 30, 2019, accounts receivable from two customers represented approximately 100% of total accounts receivable as compared to one customer represented approximately 98% as of December 31, 2018.
During the nine months ended September 30, 2019, the Company purchased raw materials and products from two vendors totaling approximately $3,424 (100% of the purchases).
Note 11 – Subsequent events
On October 11, 2019, the Company entered into a Second Allonge Agreement with a lender whereby the principal amount of a convertible note dated on March 7, 2019 was increased by another $110,000 (“Second Allonge Principal”) with original issue discount of 10%, receiving gross cash proceeds of $100,000. The maturity date with respect to the Second Allonge Principal shall also be on March 7, 2020 and all the terms of the Note dated on March 7, 2019 remain as originally stated (see Note 7). The Company determined that there was no beneficial conversion feature as the effective conversion price is greater than the fair value of convertible instrument related to the Second Allonge Principal.
C:
15
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.
Forward-Looking Statements
Certain information contained in this Quarterly Report on Form 10-Q, as well as other written and oral statements made or incorporated by reference from time to time by the Company and its representatives in other reports, filings with the Securities and Exchange Commission, press releases, conferences or otherwise, may be deemed to be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. This information includes, without limitation, statements concerning the Company’s future financial position and results of operations, planned expenditures, business strategy and other plans for future operations, the future mix of revenues and business, customer retention, project reversals, commitments and contingent liabilities, future demand and industry conditions. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Generally, the words “anticipate,” “believe,” “estimate,” “expect,” “may” and similar expressions, identify forward-looking statements, which generally are not historical in nature. Actual results could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth in this Quarterly Report on Form 10-Q, the specific risk factors identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and those described from time to time in our future reports filed with the Securities and Exchange Commission.
The following discussion is qualified in its entirety by, and should be read in conjunction with, the Company’s financial statements, including the notes thereto, included in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
As used herein, the terms “we,” “us,” “our” and the “Company” refers to GRATITUDE HEALTH, INC., a Nevada corporation and its subsidiaries unless otherwise stated.
Overview
Gratitude Health Inc. was originally incorporated under the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp. Our original business was to develop, market, publish and distribute social games and software applications that consumers could use on a variety of platforms, including social networks, wireless devices and stand-alone websites. We were unsuccessful in operating our business and on October 7, 2013 we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC and we changed our name to FAL Exploration Corp. The agreement with FAL Minerals LLC has since been terminated and we entered into an Exchange Agreement with Vapir, Inc. and its shareholders. In December 2014, the Company changed its name into Vapir Enterprises, Inc. Effective March 23, 2018, the Company changed its legal name to Gratitude Health, Inc. from Vapir Enterprises Inc. The Company’s principal business was focused on inventing, developing and producing aromatherapy devices and vaporizers. On March 26, 2018, the Company merged with Gratitude Health Inc. (“Gratitude Subsidiary”), a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange, and the business of Gratitude Subsidiary became the business of the Company. On March 26, 2018, Gratitude Subsidiary, which is the historical business of the Company’s wholly-owned subsidiary, entered into a Share Exchange Agreement with the Company, Gratitude Subsidiary, all of the stockholders of Gratitude Subsidiary, and the Company’s principal stockholder whereby the Company agreed to acquire all of the issued and outstanding capital stock of Gratitude Subsidiary in exchange for the issuance of 520,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock, to the stockholders of Gratitude Subsidiary, upon conversion into 102,000,000 shares of the Company’s common stock. On March 26, 2018, the transaction closed and Gratitude Subsidiary is now a wholly-owned subsidiary of the Company. The number of shares issued represented approximately 86% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement. In addition, Gratitude Subsidiary’s board of directors and management obtained the board and management control of the combined entity stock immediately after the consummation of the Share Exchange Agreement.
The Company is engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the Company’s trademark.
On August 9, 2019, our Board of Directors approved to increase our authorized shares of common stock to 600,000,000 shares from 300,000,000 shares of authorized shares of common stock.
On August 9, 2019, the Board of Directors of the Company appointed Roy G. Warren, Jr. as director and Chief Operating Officer of the Company. Roy G. Warren, Jr. is the son of the former CEO of the Company, Roy G. Warren.
C:
16
Results of Operations
For the three and nine months ended September 30, 2019 and 2018
On March 26, 2018, the Company merged with Gratitude Subsidiary, a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange, and the business of Gratitude Subsidiary became the business of the Company. The consolidated financial statements are those of Gratitude Subsidiary (the accounting acquirer) prior to the merger and include the activity of the Company (the legal acquirer) from the date of the merger.
Net Revenues
For the nine months ended September 30, 2019 and 2018, the Company generated revenues from the sales of ready to drink beverages amounted to $9,855 and $0, respectively. For the three months ended September 30, 2019 and 2018, the Company generated revenues from the sales of ready to drink beverages amounted to $9,355 and $0, respectively.
Cost of Sales
The primary components of cost of sales include the cost of the product, production cost, warehouse storage cost, cost of spoilage, and shipping fees. For the three and nine months ended September 30, 2019, the Company’s cost of sales amounted to $69,035 and $64,075, respectively. For the three and nine months ended September 30, 2019, gross loss was $54,720 and $59,180, respectively. There was no comparable cost of sales during the three and nine months ended September 30, 2018. These resulted to gross loss of $54,720 and $59,180 for the three and nine months ended September 30, 2019 as we have sold our remaining ready to drink tea products with remaining shelf-life of less than six months of the sell-by date at sales price below cost of the products. We have begun reviewing alternative packaging methods to reduce future production cost and increase product shelf life. Additionally, we wrote-off $14,309 of inventory due to spoilage and the value of the remaining cost of raw materials for our ready to drink tea beverage as we have shifted our focus on the product development of our Keto complete meal beverage.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2019 and 2018 were $725,450 and $758,341, a decrease of 32,891 or 4%. The decrease was primarily attributable to decrease in professional and consulting fees of $231,302 or 59% due to decrease in stock based compensation expense offset by increase in compensation of $91,075 or 41% due to the hiring of additional employees, increase in research and development expense of $40,644 or 1,462% related to product development of our Keto complete meal beverage, increase in sales, marketing and advertising expenses of $26,468 or 511% related to our sales promotion of our products, increase in general and administrative expenses of $40,224 or 30% primarily due to increase royalty expenses and lease expense.
Total operating expenses for the three months ended September 30, 2019 and 2018 were $244,639 and $211,925, an increase of $32,714 or 15%. The increase was primarily attributable to increase in professional and consulting fees of $20,097 or 54% due to increase consulting fees related to investor relation services, increase in research and development expense of $8,099 or 291% related to product development of our Keto complete meal beverage, and increase in in general and administrative expense of $9,339 or 14% primarily due to increase royalty expenses.
Other Income (Expense), net
Interest expense for the nine months ended September 30, 2019 and 2018 were $62,487 and $33,518, respectively, primarily related to interest expense and amortization of debt discount in connection with convertible notes. Interest expense for the three months ended September 30, 2019 and 2018 were $36,659 and $0, respectively, primarily related to interest expense and amortization of debt discount in connection with convertible notes.
Net Loss
Our net loss for the nine months ended September 30, 2019 and 2018 was $847,117 and $791,859, respectively, as a result of the items discussed above. Our net loss for the three months ended September 30, 2019 and 2018 was $336,018 and $211,925, respectively, as a result of the items discussed above.
As a result of the foregoing, we generated a net loss per common share – basic and diluted of ($0.08) and ($0.11) for the three and nine months ended September 30, 2019 as compared to a net loss per common share – basic and diluted of ($0.01) and ($0.03) for the three and nine months ended September 30, 2018, as a result of the discussion above.
Net Loss Available to Common Stockholders
Our net loss available to common stockholders for the nine months ended September 30, 2019 and 2018 was $2,098,917 and $791,859, respectively, as a result of the items discussed above. Our net loss available to common stockholder for the three months ended September 30, 2019 and 2018 was $1,532,818 and $211,925, respectively, as a result of the items discussed above.
C:
17
The Down Round Feature was triggered on May 14, 2019 when the Company issued a convertible note payable with a conversion price of $.04. The Company measured the value of the effect of the feature upon the Down Round being triggered based on the incremental intrinsic value that resulted from triggering the Down Round Feature which was measured as the additional common stock shares that would be issued upon conversion due to the reduction in the conversion rate and the intrinsic value on the trigger date of May 14, 2019. . This difference of $1,251,800 has been recorded as a deemed dividend and has been reduced from the net loss available to common stockholders during the nine months ended September 30, 2019.
Liquidity and Capital Resources
For the nine months ended September 30, 2019 and 2018
The following table provides detailed information about our net cash flows:
For
the Ended |
For
the Ended |
|||||||
| Cash Flows | ||||||||
| Net cash used in operating activities | $ | (654,204 | ) | $ | (516,137 | ) | ||
| Net cash used in investing activities | - | (36,348) | ||||||
| Net cash provided by financing activities | 610,050 | 534,655 | ||||||
| Net change in cash | $ | (44,154) | $ | (17,830) | ||||
We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during fiscal year 2019. This raises substantial doubt about our ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Operating Activities
For the nine months ended September 30, 2019 and 2018
Cash used in operating activities for the nine months ended September 30, 2019 consisted of net loss as well as the effect of changes in operating assets and liabilities as well as adjustments to reconcile net loss to net cash used in operating activities. Cash used in operating activities of $(654,204) consisted of a net loss of $(847,117). The net loss was partially offset by reconciliation of depreciation of $12,588, amortization of debt discount and ROU asset of $62,487 and $16,853, respectively, impairment expense of $24,899, inventory write-off of $14,309, net changes in operating assets and liabilities of $61,777 primarily from a decrease in inventory offset by the increase in accounts payable and accrued expenses. Cash used in operating activities for the nine months ended September 30, 2018 consisted of net loss as well as the effect of changes in operating assets and liabilities as well as adjustments to reconcile net to loss to net cash used in operating activities. Cash used in operating activities of $(516,137) consisted of a net loss of $(791,859). The net loss was partially offset by reconciliation of depreciation of $7,887, amortization of debt discount of $29,703, stock-based compensation of $234,000 offset by net changes in operating assets and liabilities of $4,132 primarily from an increase in inventory and prepaid expenses offset by the increase in accounts payable and accrued expenses and decrease in advances to suppliers.
Investing Activities
For the nine months ended September 30, 2019 and 2018
For the nine months ended September 30, 2019 and 2018, we used cash in investing activities of $0 and $36,348, respectively, consisting of purchases of equipment and property.
Financing Activities
For the nine months ended September 30, 2019 and 2018
For the nine months ended September 30, 2019, we received net proceeds from issuance of convertible note of $610,050. For the nine months ended September 30, 2018 we received net proceeds from issuance of convertible notes of $120,000 and we raised $415,000 from the sale of our preferred stocks offset by repayment of advance to our CEO of $345.
We currently have no external sources of liquidity, such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
C:
18
We are dependent on our product sales to fund our operations, and may require the sale of additional common stock and preferred stock to maintain operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees.
If we are unable to raise the funds required to fund our operations, we will seek alternative financing through other means, such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.
Inflation and Changing Prices
Neither inflation nor changing prices for the nine months ended September 30, 2019 had a material impact on our operations.
Off-Balance Sheet Arrangements
None.
Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments.
We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements. We believe the critical accounting policies in Note 2 to the financial statements appearing in the audited financial statements for the year ended December 31, 2018 included in the form 10K, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant matters requiring the use of estimates and assumptions include, but may not be limited to, valuation of deferred tax assets, useful life of property and equipment, valuation of debt discount, the assumptions used to calculate fair value of stock warrants granted, valuation of ROU assets and operating lease liabilities, inventory reserves, the value of stock-based compensation and fees and the fair value of the common stock issued. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
As a smaller reporting company, we are not required to provide this information.
| Item 4. | Controls and Procedures. |
We maintain “disclosure controls and procedures,” as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive and Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
C:
19
With respect to the quarterly period ending September 30, 2019, under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of the design and operations of our disclosure controls and procedures. Based upon this evaluation, our management has concluded that our disclosure controls and procedures were not effective as of September 30, 2019 due to our limited internal resources and lack of ability to have multiple levels of transaction review. In connection with this evaluation, management identified the following control deficiencies that represent material weaknesses as of September 30, 2019:
| (1) | Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors. These factors are counter to corporate governance practices as defined by the various stock exchanges and lead to less supervision over management. | |
| (2) | We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures due to our limited resources with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles. | |
| (3) | Need for greater integration, oversight, communication and financial reporting of the books and records of our office. | |
| (4) | Lack of sufficient segregation of duties such that the design over these areas relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard company assets. |
Changes in Internal Controls.
There have been no changes in our internal controls over financial reporting or in other factors during the fiscal quarter ended September 30, 2019, that materially affected, or is likely to materially affect, our internal control over financial reporting.
C:
20
| Item 1. | Legal Proceedings. |
From time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition or cash flows.
| Item 1A. | Risk Factors |
As a smaller reporting company we are not required to provide risk factors. Please refer to our registration statement under Form 10-K for more information regarding risks related to the securities of the Company.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosure. |
Not applicable.
| Item 5. | Other Information. |
None.
| Item 6. | Exhibits. |
| 3.1 | AMENDMENT TO THE ARTICLES OF INCORPORATION OF ISSUER (1) |
| 3.2 | AMENDMENT TO THE CERTIFICATE OF DESIGNATION (3) |
| 4.1 | CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK(1) |
| 4.2 | CERTIFICATE OF DESIGNATION OF SERIES B PREFERRED STOCK(1) |
| 4.3 | CERTIFICATE OF DESIGNATION OF SERIES C PREFERRED STOCK(2) |
| 10.1 | SHARE EXCHANGE AGREEMENT(1) |
| 10.2 | SPIN-OFF AGREEMENT(1) |
| 10.3 | FORM OF NOTE AGREEMENT(4) |
| 31.1 | Section 302 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer* |
| 32.1 | Section 906 Certification by the Registrant’s Principal Executive Officer and Principal Financial Officer* |
| 101.ins | XBRL Instance Document |
| 101.sch | XBRL Taxonomy Schema Document |
| 101.cal | XBRL Taxonomy Calculation Document |
| 101.def | XBRL Taxonomy Linkbase Document |
| 101.lab | XBRL Taxonomy Label Linkbase Document |
| 101.pre | XBRL Taxonomy Presentation Linkbase Document |
| * | Filed herein |
| (1) | As filed with our Form 8K on March 28, 2018, and incorporated herein by reference. |
| (2) | As filed with our Form 8K on August 21, 2018, and incorporated herein by reference. |
| (3) | As filed with our Form 8K on October 24, 2018, and incorporated herein by reference. |
| (4) | As filed with our Form 8K on March 13, 2019, and incorporated herein by reference. |
C:
21
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| GRATITUDE HEALTH, INC. | ||
| Date: November 12, 2019 | By: | /s/ Roy G. Warren, Jr. |
| Roy G. Warren, Jr. | ||
Chief Operating Officer (Principal Operating Officer and Principal Financial Officer) | ||
22
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 12/31/22 | ||||
| 3/27/22 | ||||
| 12/31/21 | ||||
| 12/31/20 | ||||
| 3/7/20 | ||||
| 12/31/19 | 10-K | |||
| 12/15/19 | ||||
| Filed on: | 11/12/19 | |||
| 11/8/19 | ||||
| 10/11/19 | ||||
| For Period end: | 9/30/19 | |||
| 8/12/19 | 10-Q | |||
| 8/9/19 | ||||
| 6/30/19 | 10-Q | |||
| 5/14/19 | ||||
| 3/31/19 | 10-Q | |||
| 3/27/19 | ||||
| 3/25/19 | 10-K | |||
| 3/13/19 | 8-K | |||
| 3/7/19 | 8-K | |||
| 2/22/19 | ||||
| 2/13/19 | ||||
| 1/1/19 | ||||
| 12/31/18 | 10-K | |||
| 12/15/18 | ||||
| 10/24/18 | 8-K | |||
| 9/30/18 | 10-Q | |||
| 8/21/18 | 8-K | |||
| 8/1/18 | ||||
| 6/30/18 | 10-Q | |||
| 4/14/18 | ||||
| 3/31/18 | 10-Q | |||
| 3/28/18 | 8-K | |||
| 3/26/18 | ||||
| 3/23/18 | 8-K, 8-K/A | |||
| 3/19/18 | ||||
| 1/1/18 | ||||
| 12/31/17 | 10-K | |||
| 9/14/17 | ||||
| 10/7/13 | ||||
| 12/17/09 | ||||
| List all Filings | ||||