Overview

Vapir Enterprises,Gratitude Health Inc. was originally incorporated under the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp and changed its name to Gratitude Health, Inc. on March 22, 2018.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 have now entered into an Exchange Agreement with Vapir, Inc. and its shareholders. In addition, weDecember 2014, the Company changed ourits name tointo Vapir Enterprises, Inc. Effective March 23, 2018, the Company changed its legal name to better represent our newGratitude Health, Inc. from Vapir Enterprises Inc. The Company’s principal business operations.

was focused on inventing, developing and producing aromatherapy devices and vaporizers. On December 30, 2014, Vapir,March 26, 2018, the Company merged with Gratitude Health Inc. (“Gratitude Subsidiary”), a private California corporation (“Vapir”),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 Vapir (the “Vapir Shareholders”),Gratitude Subsidiary, and the Company’s controlling stockholdersprincipal stockholder whereby the Company agreed to acquire all of the issued and outstanding capital stock of VapirGratitude Subsidiary in exchange for 38,624,768the 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 December 30, 2014,March 26, 2018, the transaction closed and VapirGratitude Subsidiary is now a wholly-owned subsidiary of the Company. The number of shares issued represented approximately 80.0%86% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement. In addition, Vapir’sGratitude 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.

Vapir, Inc., our wholly-owned subsidiary, was incorporated on October 26, 2006The Company is now engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the State of California.

Vapir, Inc. specializes in the revolutionary technology of digital aromatherapy which is the art and science of utilizing naturally extracted aromatic essences from plants to balance and harmonize while freshening the environment with pleasant and distinctive fragrances. We invent, develop and produce revolutionary and easy to use digital aromatherapy devices by utilizing heat and convection air.Company’s trademark.

Results of Operations

Year EndedFor the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017

On March 26, 2018, the Company merged with Gratitude Subsidiary, a private company incorporated in Florida on September 14, 2017, Comparedin 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 Year Ended December 31, 2016merger and include the activity of the Company (the legal acquirer) from the date of the merger. Accordingly, we do not have comparable transactions from the prior periods.

Net Revenues

Net revenues forAs previously stated, the years ended December 31, 2017 and 2016 were $761,102 and $1,086,971 respectively, a decrease of $325,869 or approximately 30%. The decrease in sales duringCompany began operations on September 14, 2017. For the year ended December 31, 2017 was primarily attributable2018 and for the period from inception (September 14, 2017) to a decrease in sales of our Prima vaporizer product as a result of a decline in demand.

Management views future sales level with a fair degree of uncertainty in that management has not been able to identify whether our sales level are trending up or down over the near term. As a result, we believed our sales level are subject to high level of uncertainty and unless market conditions and competitive conditions dramatically improve, we may not achieve or maintain sufficient sales volumes at levels that will allow us to achieve or maintain any profitability or positive cash flow. Our Total Liabilities as of December 31, 2017, far exceed our Total Assets. As a result we are insolventthe Company generated revenues from the sales of ready to drink beverages amounted to $18,672 and face a clear, existential risk of potential bankruptcy or other adverse actions by our creditors that could result in stockholders losing all of their investment.$0, respectively.

Cost of RevenuesSales

CostThe primary components of revenues forcost of sales include the cost of the product, production cost and shipping fees. For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, the Company’s cost of sales amounted to $15,588 and 2016$0, respectively. For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, gross profit margins were $366,075at 17% and $678,056, respectively, a decrease of $311,981 or approximately 46%. The decrease is primarily due to the decrease in sales of our vaporizer products.0%, respectively.

Operating Expenses

Total operating expenses for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 were $988,166 and 2016 were $661,179 and $1,944,309, respectively, a decrease of $1,283,130 or approximately 66%.$89,488, respectively. The decreaseincrease in operating expenses duringof $898,678 was primarily attributable to an increase in compensation of $286,274 due to increase in number of employees, increase in professional and consulting fees of $431,511 primarily related to increase in stock-based consulting fees, accounting and legal expenses and increase in general and administrative expenses of $180,893 for the year ended December 31, 2017 is primarily2018 due to decreaseincrease in stock based consultingtravel expenses, license fees, inventory spoilage expense and office expenses. Total operating expenses for the period from inception (September 14, 2017) to December 31, 2017 was $89,488 and was primarily related to compensation of $53,000 to our CEO and COO and stock based compensation expensethrough the issuance of approximately $579,016, decrease in impairment of intangible assets of $126,426, and decrease in compensation of $237,191 as a result of decrease in number of employees. Additionally, an overall decrease in Selling, General and Administrative costs of approximately $281,141 as a result of cost cutting measures. While we implemented these cost cutting measures, we cannot assure you that these measures can be sustained or, if sustained that we will not incur other costs that far exceed the benefits obtained from these cost cutting measures. These and other factors would likely cause uspreferred stock to continue to incur significant and protracted losses in the future with the result that we may be facing claims by our creditors that we cannot satisfy since we are insolvent. As a result, there can be no guarantee that we will be successful in reducing our operating costs to a level that would allow us to achieve profitability, positive cash flow or both of them or if we do achieve these objectives that we can sustain profitability, positive cash flow or both of them. As of December 31, 2017, our Total Liabilities were $1,893,764 and our Total Assets as of that date were $387,655. As a result we are insolvent and any person who acquires our Common Stock or any other instrument that we have or will issue faces a high likelihood that they will lose their entire investment as we face a clear prospect of bankruptcy.

We continue to evaluate our operating cost with an aim of reducing our operating expenses in the future. However, some of our costs are fixed and we face intense competition from others who have more favorable operating cost structures and greater unit volumes that allows them to have an ability to compete aggressively on pricing. These and other factors would likely cause us to continue to incur significant and protracted losses in the future. As a result, there can be no guarantee that we will be successful in reducing our operating costs to a level that would allow us to achieve profitability, positive cash flow or both of them or if we do achieve these objectives that we can sustain profitability, positive cash flow or both of them.founders.

Other Income (Expense), net

Total otherInterest expense, net for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 was $33,518 and 2016 were $99,145$6,936, respectively primarily related to interest expense and $348,176, respectively, a decrease of $249,031 or %72%. The decrease in other expense is the primary result of the decreased amortization of debt discount of approximately $252,000 in connection with the issuance of convertible debentures.notes which were paid off during fiscal 2018.

Net loss

NetOur net loss for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 was $1,018,600 and 2016 was $365,297 and $1,883,570,$96,424, respectively, as a result of the items discussed above.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. As of December 31, 2017, our total current liabilities exceeded our total current assets and, as a result, we had a working capital deficit and a further deterioration in our liquidity over the past 12 months.

We are not aware of any known demands, commitments or events that will result in our working capital liquidity increasing or decreasing in any material way. We are not aware of any matters that would have a positive impact on future operations. But over the past twelve months we have had increasing losses that is likely to continue if current market conditions continue.

Our net revenues are not sufficient to fund our operating expenses. At December 31, 2017, we had a cash balance of approximately $5,200 and working capital deficit of $1,685,000. Our cash decreased duringFor the year ended December 31, 2017 by approximately $6,8002018 and for the period from our cash balance atinception (September 14, 2017) to December 31, 2016 of $12,000.2017

During the year ended December 31, 2017, we received related party advances for a total of $57,000 to fundThe following table provides detailed information about our operating expenses, pay our obligations, and grow our company. We currently have no material commitments for capital expenditures.net cash flows: 

During the year ended December 31, 2016, we borrowed $50,000 by issuing a note payable which will mature in February 2019 and we also received related party advances for a total of $430,000 to fund our operating expenses, pay our obligations, and grow our company. We currently have no material commitments for capital expenditures.

We are facing increasing demands that will likely require that we raise additional funds. If circumstanceshave an accumulated deficit and market conditions allow, we may be able to raise additional capital but it may be under market conditions that are not favorable with the result that we may incur dilution or be required to accept debt covenants or other conditions that are onerous or which otherwise limit our ability to gain or attract additional financing in the future. Further, there can be no assurance that we will be successful in raising any additional funds or if we are successful, that we will be able to do so on terms that are reasonable in light of our current circumstances. As a small company with a limited product line and limited customer base, we face continuing risks and uncertainties that serve to make our company and an investment in our common stock subject to risks that are beyond our control. We estimate that based on current plans and assumptions, that our cash is not sufficient to satisfy our cash requirements under our presenthave incurred operating expectations, without further financing, for the next 12 months.

Our ability to generate and maintain a positive cash flow from our operations cannot be assured. Based solely on our own internal estimates without the benefit of any independent third party evaluation, we anticipate that our cash and cash flow will not be sufficient to satisfy our cash requirements and we will likely require significant additional external financing. The magnitude of the additional financing and its timing is not yet precisely known and depending on the level of our sales revenues and other operating needs we may be facing a prolonged multi-period scenario of negative cash flows with increasing losses. Further andlosses since our Total Current Liabilities as of December 31, 2017 were $1,889,243inception and our Total Current Assets were only $203,889, we are and remain insolvent in that as of December 31, 2017 our Current Ratio (defined as Total Current Assets divided by Total Current Liabilities) was only 0.11. That is, it was far below one (1). Overall, there can be no assurance that we will be successful in raising additional capital on a timely basis or if we are able to raise additional capital that we can raise it on terms that are reasonable in light of our current circumstances. As a result, we face increasing risks and persons who acquire our common stock may incur the loss of all or substantially all of their investment.

On April 3, 2015, we closed a financing transaction by entering into a Securities Purchase Agreement dated April 3, 2015 (the “Securities Purchase Agreement”) with two accredited investors (the “Purchasers”) for an aggregate subscription amount of $500,000 (the “Purchase Price”). Pursuant to the Securities Purchase Agreement, we issued a 6% Convertible Debenture (the “Debenture”) to each investor and warrants exercisable into an aggregate of 500,000 shares of common stock at an exercise price of $0.60 per share (the “Warrants”).

Each Debenture accrues interest at a rate equal to 6% per annum and the Debenture has an extended maturity date of July 26, 2018.

Each Debenture is convertible at any time and from time to time after its issuance date. Each Purchaser has the right to convert the Debenture that they hold into shares of the Company’s common stock at a conversion price equal to ten cents ($0.10). The conversion price, however, is subject to full ratchet anti-dilution in the event that Company issue any securities at a price lower than the conversion price then in effect. We have relied upon the use of debt financing to raise significant amounts of capital and we may continue to do so in the future. Under these circumstances and given our financial condition, any holder of our Common Stock is faced with the risk of the total loss of their investment. 

Pursuant to the Securities Purchase Agreement, the Company issued warrants to acquire 500,000 shares of our common stock. The Warrants issued in this transaction are immediately exercisable and currently at an exercise price of ten cents ($0.10) per share, subject to applicable adjustments including full ratchet anti-dilution in the event that the Company issues any securities at a price lower than the exercise price then in effect. The Warrants have an expiration period of five years from the original issue date.

In January 2018, the Company issued an aggregate of 3,375,000 shares of common stock to Purchasers upon the conversion of $327,500 principal amount of note and $10,000 accrued interest pursuant to the conversion terms of the Convertible Debenture.

Currently, we have no other known alternative source for any additional financing except those sources which we have previously used and we cannot be assured that our prior sources will have any willingness to provide us with additional capital or, if they do, that the terms of any such additional financing will be reasonable in light of our current conditions. Further, we cannot assure you that we can continue to rely upon those existing financing sources in the future. We may not have sufficient working capital and funds from the collection of revenues that may allow us to maintain or expand our existing operations, to provide sufficient working capital to meet our operating needs and our outstanding financial obligations. For this reason, we anticipate that, based on current market conditions and our existing financial condition, we will likely need to obtain significant additional capital. In this sense we currently anticipate that we will remain dependent on our ability to secure additional financing.

In the event that we are able to secure a sufficient amount additional financing on a timely basis, it may include the issuance of equity or debt securities, obtaining credit facilities, or entering into other financing arrangements on such terms as then existing market conditions require. The capital market for small or micro-cap companies has been and likely will remain very difficult in the near future. As a result our ability to obtain additional capital on terms that are reasonable in light of current market conditions cannot be assured. We may be forced to obtain additional capital on terms that could limit our long-term ability to remain in business or otherwise materially restrict our operations. Further, our current financial structure and the demands of our existing creditors is such that we face a clear risk of not being able to meet the obligations to our creditors. In that event, we face a clear risk of insolvency with the result that persons who acquire our common stock may lose all or substantially all of their investment.

Further, the market price of our common stock and the uncertainties of the U.S. economy and other factors will likely negatively impact us and the financing options that we may have. Any downturn in the U.S. equity and debt markets could also make it more difficult for us to obtain additional financing.

Even if we are able to raise the additional financing, it is possible that we could incur unexpected costs and expenses, fail to collect amounts owed to us, or experience significant and protracted unexpected cash requirements that would force us to seek other, less-attractive alternative financing on terms that could result in significant dilution and with other terms that are not reasonable in light of our current circumstances.

Currently we do not have any commitment from any outside financing source to meet our anticipated financing needs and we have no basis to believe that any such commitment is forthcoming. Furthermore, in the event that we were to issue additional equity or debt securities, stockholders may experience significant additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. And in the case of any issuance of one or more debt securities, the debt covenants may restrict our operating ability and our ability to raise additional financing from debt.

Overall if we are unable to raise additional capital on terms that are reasonable in light of current market conditions we will likely restrict our ability to grow and may reduce our abilityexpect losses to continue to conduct business operations. We face a clear risk of insolvency unless we are able to successfully raise significant additional capital on terms that will allow us to reduce our financial obligations and improve our profitability and cash flow. If we are unable to obtain significant additional financing, we will likely be required to curtail our marketing and development plans and possibly cease our operations with the clear risk of insolvency.

We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, there isduring fiscal year 2018. 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, implement its business plan and persons who acquiregenerate sufficient revenues. 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 year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017

Cash used in operating activities for the year ended December 31, 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 $(758,859) consisted of a net loss of $(1,018,600). The net loss was partially offset by reconciliation of depreciation of $12,083, amortization of debt discount of $29,703, inventory write-off of $22,648, stock-based compensation of $234,000 offset by net changes in operating assets and liabilities of $16,045 primarily from an increase in accounts receivable, inventory and prepaid expenses offset by the increase in accounts payable and accrued expenses, accrued salaries and related payroll liabilities, and decrease in advances to suppliers. Cash used in operating activities for the period from inception (September 14, 2017) to December 31, 2017 was $(70,519) and consisted of a net loss of $(96,424) offset by reconciliation of primarily stock-based compensation of $15,000, amortization of debt discount of $5,281 and increase in accounts payable and accrued expenses of $16,046 offset by increase in advances to suppliers of $11,200.

Investing Activities

For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017

For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, we used cash in investing activities of $36,348 and $14,000, respectively, consisting of purchases of equipment and property.

Financing Activities

For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017

For the year ended December 31, 2018 we received net proceeds from issuance of convertible notes of $120,000 and we raised $715,000 from the sale of our preferred stocks offset by repayment of an advance to our CEO of $345. For the period from inception (September 14, 2017) to December 31, 2017 we received proceeds from related party advances of $345 and proceeds from issuance of convertible notes of $105,000.

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.

We are dependent on our product sales to fund our operations, and may require the sale of additional common stock faceand preferred stock to maintain operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the riskform of losing all cash advances, loans, and/or substantially all of their investment.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 year ended December 31, 20172018 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 consolidated financial statements.We believe the critical accounting policies in Note 2 to the consolidated financial statements appearing in the Annual Report, Form 10-Kour audited financial statements for the year ended December 31, 2017,2018 included in this form 10-K, 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 aremay not be limited to, allowance for doubtful accounts, inventory obsolescence and markdowns, thevaluation of deferred tax assets, useful life of property and equipment, the valuation of deferred tax assets and liabilities, valuation of intangible assets,debt discount, the assumptions used to calculate fair value of stock options and warrants granted, 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.  

Revenue Recognition

We revenue in accordance with ASC Topic 606 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’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, our contracts have a single performance obligation (shipment of product). We primarily receive fixed consideration for sales of product.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

FINANCIAL STATEMENTS

December 31, 2018

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

DECEMBER 31, 2017 and 2016

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018 and 2017

CONTENTS

D. Brooks and Associates CPA’s, P.A. Certified Public Accountants    ●     Certified Valuation Analysts

Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Gratitude Health, Inc, formerly known as Vapir Enterprises, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Gratitude Health, Inc, formerly known as Vapir Enterprises, Inc. (the “Company”)Company) as of December 31, 20172018 and 2016,2017, and the related consolidated statements of operations, stockholders’ deficit,equity (deficit), and cash flows for each of the years in the two-yearyear ended December 31, 2018 and period endedfrom September 14, 2017 (Inception) through December 31, 2017, and the related notes to the consolidated financial statements (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172018 and 2016,2017, and the results of its operations and its cash flows for each of the years in the two year ended December 31, 2018 and period endedfrom September 14, 2017 (Inception) through December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has incurred operating losses, has incurred negative cash flows from operations and has a working capitalan accumulated deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 3 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

D. Brooks and Associates CPA’s, P.A.

We have served as the Company’s auditor since 2016.2018.   Palm Beach Gardens, Florida

March 22, 2019

GRATITUDE HEALTH, INC. AND SUBSIDIARY 

CONSOLIDATED BALANCE SHEETS 

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

For the year ended December 31, 2018 and for the Period from September 14, 2017 (Inception) to December 31, 2017

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

For the Years Ended December 31, 2017 and 2016

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERDecember 31, 2017 and 20162018

Note 1 - Organization and Operations

Gratitude Health, Inc., (formerly known as(the “Company”, formerly Vapir Enterprises, Inc.) ( the “Company”) 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 (see Note 8). 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 principalformer business was focused on inventing, developing and producing aromatherapy devices and vaporizers.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 aromatherapy devices utilize heattrademark.

Recent developments- Acquisition

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 convection airall 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 thereby extract natural essences and produce fresh fragrances.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. (“Vapir”) is a wholly owned subsidiary of the Company and was incorporated 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 Statedisposition of California in October 2006. the Vapir business on the date of merger.

Note 2 - Significant and Critical Accounting Policies and Practices

The Management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

Basis of Presentation and principles of consolidation

The Company’saccompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements present the consolidated financial statements of the Company and its wholly-owned subsidiary as of December 31, 2018. All intercompany transactions and balances have been eliminated.

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

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 unaudited condensed 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 allowance for doubtful accounts, inventory obsolescence and markdowns, thevaluation of deferred tax assets, useful life of property and equipment, theinventory reserves, and valuation of deferred tax assets and liabilities, valuation of intangible assets, the assumptions useddebt discounts. 

GRATITUDE HEALTH, INC. AND SUBSIDIARY

Notes to calculate fair value of stock options and warrants granted, stock-based compensation and the fair value of common stock issued. Consolidated Financial Statements

December 31, 2018

Principles of ConsolidationNote 2 - Significant and Critical Accounting Policies and Practices (continued)

The Company applies the guidance of Topic 810“Consolidation” of the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. The consolidated financial statements include all accounts of Gratitude Health, Inc., (formerly known as Vapir Enterprises, Inc.) and Vapir, Inc. All inter-company balances and transactions have been eliminated.

Fair value measurements and fair value of financial instruments

The estimated fair value of certain financial instruments, including cash, accounts receivable, prepaid expenses and accounts payable are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.

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 December 31, 2018 and 2017. The Company maintains cash and cash equivalent 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 December 31, 20172018 and 2016,2017, 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.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 and 2016

Note 2 - Significant and Critical Accounting Policies and Practices (continued)

Accounts receivableFair value measurements and allowance for doubtful accountsfair value of financial instruments

The Company has a policyestimated fair value of providing on allowance for doubtfulcertain financial instruments, including cash, accounts based on its best estimatereceivable, advance to supplier, and accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the amountshort-term nature of probable credit losses in its existing accounts receivable. The Company periodically reviews its accounts receivable to determine whether an allowance is necessary based on an analysis of past due accounts and other factors that may indicate that the realization of an account may be in doubt. Account balances deemed to be uncollectible are charged to bad debt expense and included in the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of December 31, 2017, the Company has included $1,932 and $2,009, respectively, in the allowance for doubtful accounts. The Company recorded bad debt recovery (expense) of $3,013 and $(1,619) during the years ended December 31, 2017 and 2016, respectively.

Inventorythese instruments.

Inventory Valuation

The Company values inventory, consisting of finished goods and raw materials, at the lower of cost or market.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 marketnet realizable value. Factors utilized in the determination of the estimated marketnet realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. AsThe Company did not record any allowance for slow moving inventory as of December 31, 2017 and 2016, the Company had recorded a reserve for slow-moving inventory of $23,245 and $39,734, respectively.2018.

Inventory Obsolescence and Markdowns

The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classifies inventory markdowns in the income statement as a component of cost of goods sold pursuant to ASC 420 – “Exit or Disposal Cost Obligations”, to adjust inventory to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

During the years ended December 31, 2017 and 2016, the Company wrote down slow moving inventory in the amount of $0 and $39,734, respectively. There was no lower of cost or market adjustments for the years ended December 31, 2017 or 2016.

Advances to suppliers

Advances to a supplier represents the cash paid in advance which is usually in three installment payments for the purchase of inventory. The advances to a supplier are interest free and unsecured. As of December 31, 20172018 and 2016,2017, advances to the Company’s major supplier amounted to $70,740$0 and $103,274,$11,200, respectively. Upon shipment of the purchasepurchased inventory, the Company reclassifies or records such advances to the supplier into inventory.

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 fromof 3 to 5 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.

Intangible assetsRevenue Recognition

The Company records the purchase of intangible assets not purchased in a business combination in accordance with ASC 350-30-65 “Goodwill and Other Intangible Assets” and records intangible assets acquired in a business combination or pushed-down pursuant to acquisition by its parent in accordance with ASC 805 “Business Combinations”.

Customer Relationships are based upon the estimated percentage of annual or period projected cash flows generated by such relationships, to the total cash flows generated over the estimated life of the customer relationships.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 and 2016

Note 2 - Significant and Critical Accounting Policies and Practices (continued)

In accordance with ASC 350-30-65, “Intangibles - Goodwill and Others”,On January 1, 2018, the Company assessesadopted the impairment of identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors the Company considers to be important which could trigger an impairment review include the following:

When the Company determines that the carrying value of intangibles may not be recoverable based upon the existence of one or more of the above indicators of impairmentAccounting Standard Codification (“ASC”) Topic 606 and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. The Company measures any impairment based on a projected discounted cash flow method using a discount rate determined by management to be commensurate with the risk inherent in the current business model. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company evaluates the recoverability of intangible assets annually or whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable.

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 record impairment losses of $0 and $126,426 during the years ended December 31, 2017 and 2016, respectively.

Customer Deposits

Customer deposits consisted of prepayments from customers to the Company. The Company will recognize the prepayments as revenue upon delivery of the products, in compliance with its revenue recognition policy.

Revenue recognition

The Company follows ASC 605 – “Revenue Recognition” in accounting for revenue related transactions. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Consideration paid to promote and sell the Company’s products to customers is typically recorded as marketing costs incurred by the Company. If the amount of consideration paid to customers exceeds the marketing costs, any excess is recorded as a reduction of revenue. The Company follows the requirements of ASC 605-50-45-2, Revenue Recognition—Customer Payments and Incentives.

The Company adopted ASU 2015-14amendments 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 their fiscal year beginning January 1, 2018. those goods or services.The Company does not expect this ASUrecognizes 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 material impact on its financial statements.single performance obligation (shipment 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 cost and shipping fees.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718, “Compensation — Stock Compensation” (“ASC 718”), which requires recognition in the consolidated 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). ASC 718 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.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERDecember 31, 2017 and 20162018

Note 2 - Significant and Critical Accounting Policies and Practices (continued)

Pursuant to ASC Topic 505-50, “Equity Based Payments to Non-employees”, for share-based payments to consultants and other third-parties, compensation expense is determined at the measurement date. 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 initially records compensation expense based on the fair value of the award at the reporting date.

Shipping and Handling Costs

The Company accounts for shipping and handling fees in accordance with ASC 605.606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in cost of goods soldgeneral and administrative expenses as incurred. Shipping costs included in cost of goods soldgeneral and administrative expense were $3,518$1,500 and $43,151$0 for the yearsyear ended December 31, 20172018 and 2016,for the period from inception (September 14, 2017) to December 31, 2017, 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 $7,102$13,089 and $9,876$0 for the years ended December 31, 2017 and 2016, respectively.

The amounts paid to customers for marketing expenses incurred on behalf of the Company are recorded as marketing cost and not as a reduction of revenue in accordance with ASC 605-50-45-2, Revenue Recognition—Customer Payments and Incentives. For the years ended December 31, 2017, the Company did not pay customers for marketing expenses. During the year ended December 31, 2016,2018 and for the Company recorded expensesperiod from inception (September 14, 2017) to December 31, 2017, respectively, and was included in the amount of $30,000.general and administrative expenses.

Deferred Tax Assets and Income Tax ProvisionTaxes

The Company accounts for income taxes underpursuant to the provision of ASC 740-10-30 “Income740-10, “Accounting for Income Taxes”. Deferred (“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 are determined based uponfor the expected future tax consequences of temporary differences between the financial reportingcarrying amounts and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expectedliabilities. A valuation allowance is provided to reverse. Deferredoffset any net deferred tax assets are reduced by a valuation allowance to the extentfor which management concludesbelieves it is more likely than not that the assetsnet deferred asset will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.

The Company adoptedfollows the provision of ASC 740-10-25.740-10 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 740-10-25 addresses740-10, the determinationbenefit of whether tax benefits claimed or expected to be claimed on a tax return should be recordedposition is recognized in the financial statements. Under ASC 740-10-25,statements in the Company may recognize the tax benefit from an uncertain tax position only ifperiod during which, based on all available evidence, management believes it is more likely than not that the tax position will be sustained onupon examination, byincluding the taxing authorities, based onresolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.

Tax positions that meet the technical merits of the position. The tax benefits recognized in the financial statements from such a position should bemore likely than not recognition threshold are measured based onat the largest amount of tax benefit that has a greateris more than fifty50 percent (50%) likelihoodlikely of being realized upon ultimate settlement.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, also“Definition of Settlement”, which provides guidance on de-recognition, classification, interesthow an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and penaltiesprovides 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 taxes, accounting in interim periodstax returns of the Company are subject to examination by the IRS and requires increased disclosures.state taxing authorities, generally for three years after they are filed.

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 estimated future tax effects of temporary differences betweenpotentially dilutive common stock equivalents during the tax basis of assets and liabilities are reported inyear ended December 31, 2018 were excluded from the accompanying consolidated balance sheets,dilutive loss per share calculation as well as tax credit carry-backs and carry-forwards. The Company periodically reviewsthey would be antidilutive due to the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.net loss.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

(FORMERLY KNOWN AS VAPIR ENTERPRISES, INC.)Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBERDecember 31, 2017 and 20162018

Note 2 - Significant and Critical Accounting Policies and Practices (continued)