UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 1

10-K

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

2018

or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 333-185083

VAPIR ENTERPRISES,GRATITUDE HEALTH, INC.

(Exact Name of Registrant as Specified in Its Charter)

3511 Ryder St.,11770 US Highway One

Santa Clara, California 95051Suite E303

Telephone: (800) 841-1022Palm Beach Gardens, Fl. 33408

(Address andof Principal Executive Offices, Zip Code)

Registrant’s telephone number, of Registrant’s principal executive offices)including area code: (561) 227-2727

 Not applicable

(Former Name or Former Address, if Changed Since Last Report)

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, Par Value $0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ☐☒ No ☒

☐ 

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

 Yes ☐

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. (Check One)

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 ☒

IndicateThe aggregate market value of the voting and non-voting common stock held by check mark whethernon-affiliates of the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d)as of June 30, 2018, the last business day of the Exchange Act subsequent toregistrant’s last completed second quarter, based upon the distributionclosing price of securities under a plan confirmed by a court. Yes ☒ No ☐the common stock of $0.07 on such date, is $1,171,240. 

As of April18, 2017, the Company had 49,766,819March 22, 2019, there were 16,832,065 shares of itsregistrant’s common stock $0.001 par value per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

This Amendment No. 1 to the 1016 Annual Report on Form 10-K for Vapir Enterprises, Inc., a Nevada corporation (the “Company”) is being filed to amend and expand upon the statements previously presented in the Company’s previously filed 2016 Annual Report Form 10-K in Item 9A listed below.

As used herein, the term “we,” “our,” and the “Company” refers to Vapir Enterprises, Inc., a Nevada corporation and its subsidiaries.

Vapir,THE COMPANY

Gratitude Health, Inc. was incorporated on October 26, 2006, (the “Company”) manufactures, sells and markets functional RTD (Ready to Drink) beverages sold under the Gratitude trademark. The Company’s first five drinks are Chinese Dragon Well Green Teas. Second and third functional-drink lines are now in 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.development. The unique value proposition of the Company’s proprietary technology (US Patent 6,095,153)Gratitude mission is to preventdisrupt this beverage market through our manufacturing and marketing of functional beverages that specifically promote healthy aging and to never produce a product that in any way will adversely affect the creationhealth of toxic by-products whenever plant materials are inhaled. Thisour customer. The Gratitude vision is accomplished by using convection heatto work with research partners to develop functional drinks that induces the safe release of plant essences without burning the source material. Our devices are designed in San Jose, Californiacan easily be incorporated into one’s daily lifestyle and manufactured in Guang Dong, China.fit their nutritional goals.

Our IndustryTHE PRODUCTS AND PACKAGING:

In general, “Vaporizers”Gratitude Health, Inc. is building the “Gratitude” brand with the launch of unique, naturally flavored and unsweetened RTD (Ready To Drink) teas.

Today, tea is the second largest drink category in America and is an obvious driver and mainstay in delivery systems across food and beverage categories. Americans and, especially Millennial Americans, are battery-powered productsincreasingly becoming more and more aware of the generous levels of cancer-fighting antioxidants found in tea.

While Green, White and Black teas are the most common types consumed in America, research shows that enable userstheir growth is solid year-over-year but barely above flat. We believe this is due to inhale vapor without smoke, Vaporizers are not like traditional cigarettes, and their construction is comprised of three functional components:two factors:

Our Products

Vaporizers

AsWe are addressing these issues with unique varieties of December 31, 2016, we marketed 5 vaporizers, the Prima, VapirRise 2.0 ultimate, VAPIR NO2 Portable Digital Vaporizertea that not only have interesting and VAPIR Oxygen Mini Corded Vaporizer, and the New Vapir Pen.

Prima

Prima is a digital vaporizercurious names but also health research that supports extractstheir benefits. Naturally, we will be calorie and botanicals. The unit is equipped with a removable/rechargeable lithium battery, a removable stainless steel vapor pathcarb free and removable mouth piece which allowsalways strive for easy cleaning, and four (4) pre-set temperatures which maintains pre-set heat levels by turning the heating element on and off as needed. Once the optimal temperature is reached, a green light on the casing will indicate that the device is now ready. This relatively simple technology enables the vaporizers to maintain heat levels.maximum antioxidant delivery. Our teas are sourced from Dragon Well in China. Our initial five flavors are:

VapirRise 2.0 Ultimate

The VapirRise 2.0 Ultimate is designed for loose-leaf herbs and essential oils. It supports both balloon inflation and direct inhalation. It can serve up to 4 users simultaneously. It has touch pad controls, an LCD temperature display and medical grade stainless steel vapir path and a ceramic heating element.

As the ceramic heating element of the device reaches the pre-set temperature, a fan blows air through the heating element. A sensor, which is located in the chamber of the unit, will constantly monitor the air temperature and maintain pre-set heat levels by turning the heating element on and off as needed. Once the optimal temperature is reached, a green light on the casing will indicate that the device is now ready. This relatively simple technology enables the vaporizers to maintain heat levels.

This convection vaporizer is a stationary desktop model - which means it isn’t intended for on-the-go consumption. The VapirRise offers an exceptional approach to the at-home vaporization experience.

Users can control the temperature (in both degrees Celsius & Fahrenheit); control the Fan Speed (ten options including a fanless setting); pick between a balloon or hose inhalation methods; and choose to serve up to four people at once with the exclusive hookah adapter.

VAPIR NO2 Portable Digital Vaporizer

The VAPIR NO2 is designed for loose-leaf herbs and direct inhalation. It is compact, portable and rechargeable. It has a medical grade pure brass element, an LCD temperature display and a silent operation. The VAPIR NO2 will be your number one portable vaporizer.

This compact portable vaporizer features touch-to-heat digital controls, an LCD thermostat, an internal rechargeable battery, and 100% silent operation. The NO2 vaporizer is designed for use with raw herbs and heats up in less than a minute. You can even vaporize while it’s charging.

The NO2 requires little to no maintenance for optimal operation and it even remembers your favorite temperature settings for quick and consistent vapor at the touch of a button.

VAPIR OXYGEN MINI CORDED

The VAPIR Oxygen Mini Corded is designed for loose-leaf herbs and direct inhalation. It is small and lightweight and is a corded vaporizer. It has an LCD temperature display and silent operation. Every portable vaporizer needs to produce clouds, not a mere mist. The Vapir Oxygen lets you live and breathe premium vapor. This herbal vaporizer harnesses premium materials and innovative design to deliver everything you’d expect from a premium vaporizer.

Our Oxygen Vaporizer features digital controls, portable design, and consistent vapor sessions with little maintenance.

VAPIR PEN

The Vapir Pen is a sleek and portable device that may be used with both concentrate and wax substances. It features an ergonomic mouthpiece that leads to a deep chamber. The Vapir Pen comes equipped with two different type of atomizers; the Coil-less Ceramic Atomizer and the Quartz Double-Rod Titanium Atomizer, both with Ceramic Chamber. The temperature controlled battery allows for a range of 3 pre-set temperatures. The Vapir Pen is directly charged through a Micro USB charging port at the bottom of the battery. This feature allows the device to be charged with any regular USB charger anywhere, whether at home or on the go. It is also included a USB charging cord in the box that can be connected directly to the device. The Vapir Pen has an elevated air flow system which reduces the likelihood of clogging or leakage.

Our Vaporizers and Accessories

Our vaporizers are sold with all the essentials that are needed to begin the vaporizing experience. In addition to the vaporizers, we also sell approximately 100 different accessories and spare parts that ranges from replacement batteries, replacement mouthpieces, recharging pieces, and all other essential accessories and spare parts.

Seasonality of our Business

We do not consider our business to be seasonal.

Marketing

We offer our vaporizers and related products through our website, distributors, online stores and retail stores. Retailers of our products include small-box smoke shops, vape stores, and online retailers throughout the United States and the world.

Competition

Competition in the vaporizer industry is intense and we anticipate that competition will likely remain intense for the foreseeable future. We compete with other sellers of vaporizers that are similar to our products and our competitors use the same sales practices and marketing strategies as we use and as a result, we face a continuing challenge in attempting to differentiate our products.

The nature of our competitors is varied as the market is highly fragmented and the barriers to entry into the business are low. Our direct competitors sell products that are substantially similar to ours and through the same channels through which we sell our vaporizers. We compete with these direct competitors for sales through distributors, wholesalers and retailers and we cannot assure you that we will be successful in meeting the competitive challenges that we face that will allow us to achieve unit sales volumes at levels that will allow us to achieve profitability and positive cash flow or if we achieve either or both of these objectives, that we can sustain either or both thereafter.

Our current competitive position in the vaporizer industry is difficult to gauge as most of our competition are also smaller companies or are privately held and do not publicly report their earnings. We do know of several competitors, but, like us, many are in their initial stages of development and are focusing on different areas of this industry. We also believe that the industry likely will attract other larger companies that possess greater financial and managerial resources with the result that we are likely to face greater competitive pressures that will adversely affect our sales volume, profits, and cash flow.

As a general matter, we have access to and market and sell similar products as our competitors, and since we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is the quality of service and design we offer our customers, the scope and effectiveness of our marketing efforts, including media advertising campaigns and, increasingly, the ability to identify and develop new sources of customers by attending trade shows and word of mouth. We cannot assure you that we will be successful in these efforts or, if we are successful, that we can maintain any competitive advantages that we may currently have.

Regulatory Matters/Compliance

The United States Food and Drug Administration (the “FDA”) regulates electronic cigarettes as “tobacco products” under the Family Smoking Prevention and Tobacco Control Act of 2009 (the “Tobacco Control Act”). The FDA is not permitted to regulate electronic cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless they are marketed for therapeutic purposes.

The Tobacco Control Act imposes significant new restrictions on the advertising and promotion of tobacco products. The law also requires the FDA to issue future regulations regarding the promotion and marketing of tobacco products sold or distributed over the internet, by mail order or through other non-face-to-face transactions in order to prevent the sale of tobacco products to minors.

It is likely that the Tobacco Control Act could result in a decrease in tobacco product sales in the United States, including sales of our electronic cigarettes and vaporizers.

The Tobacco industry expects significant regulatory developments to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:

Supporting these unique flavors and key to our brand-building presentation will be our package, a first-to- RTD-market “mason jar” like 16-oz bottle featuring artistic, graphic designs actually etched onto the glass-container.

We will promote this unique presentation as more than eco-friendly (“eco” being of great importance to millennials) because they will be collectibles and advertised as such thus making their collectability and reuse arguably the eco-friendliest mass-market beverage bottle in the world. To even further support this unique presentation, artistic and colorful labels (logo, art, nutritional and redemption information) will cover the etchings driving the desires for those that keep them to buy their “missing” collectible.

Interestingly, the 2017 Natural Beverage Guide (Bevnet, Inc.) displays hundreds of Natural-Drink companies and not one has a “Mason” jar configuration. We believe this packaging will be widely preferred to the predominantly plastic bottles in the market today, we further expect modern consumers to understand and appreciate the flavor profile and obvious nutritional benefits of the teas.

Having identified the opportunity and clearly focused upon the healthy features and benefits available in Gratitude’s tea offerings, Gratitude has introduce its first five flavors of tea into the New York City market.

The Company is continuing its development plan for 2019: (1) pursuing additional distributors for our Dragon Well Tea brands on the east coast of the United States; and (2) launching and distributing KetoFuel™ a ready-to-drink line of ketogenic meal-replacement shakes in shelf-stable Tetra Pak containers. We haveengaged a leading scientist with advanced studies into the ketogenic diet to create this proprietary and strategically balanced fat-to-protein-to-carbohydrate, macro-nutrient formulation that refuels and supports the body’s ability to naturally burn fat for energy and maintain consumers already in ketosis.KetoFuel™ is the ultimate meal replacement drink and is created to deliver healthy nutrition for all. Each “keto shake” delivers proper macro and micro nutrients in a scientifically developed balance of healthy fat, protein and carb ratios. KetoFuel™ is USDA Organic and will come in 16.9 oz, shelf-stable Tetra Pak Prisma containers and will be sold across multiple beverage channels. Additional information can be found at the Company’s investor relations website, www.ir.organicgratitude.com.

MARKET INFORMATION AND THE VALUE CHAIN AND ROUTES TO MARKET

According to Beverage Marketing Corporation’s 2017 “DrinkTell” database, RTD tea sales totaled $10.31 billion in 2017 up four percent. Importantly, Gratitude’s market analyses and product development targets the main attributes fueling this growth. According to this database, “Ready-to-drink tea is leading the growth in its category with new forms and formulations that offer both function and flavor. Consumers are willing to trade up to products that offer them better quality or benefits.” Further according to BMC, “Retailers say refrigerated RTD teas are the leading segment in this category, and new varieties are emerging. In the RTD tea category, reduced-sugar formulations and local and artisanal brands are poised for continued growth.”

We are the first company to introduce Chinese Dragon Well Tea to the mass RTD American market. Dragon Well is subtle in taste with a hint of chestnut and is the most popular tea in China being granted “Imperial” status. Because it is “Green”, our tea will be well known to the US consumer. Because it is “DragonWell”, it will be a welcome new experience to the US RTD market. All our teas are either low calorie--45 per 16z—or totally unsweetened. Our “small batch * handmade” brand positioning features totally unique and first-to-market packaging that meets artisanal characteristics influencing today’s consumer purchase.

According to the Tea Association of the USA, in its 2017-2018 Tea Market Review and Forecast, Ready-to-drink (RTD) tea accounted for some 45.7% of the tea market share in 2017 and will exceed 1.7 billion gallons in 2017. The Review states “Specialty Tea is still driving interest and consumption in the category with consumers grazing for new and different options and flavors and origins. Sustainability of these high quality, higher priced teas confirms that the analogy to wine is stronger than ever.” Furthermore, according to the Tea Association: “Naturalness continues to drive consumers who demand foods that are closer to their unrefined or pure state, seeking “less processed” drinks, incentivizing companies to remove artificial ingredients. This trend will also encourage consumers to reach for foods in their most natural, original form, such as true teas, for health benefits, instead of supplements and nutraceuticals. Tea is a natural, simple and whole food.”

By marrying a famous and revered green tea in China with such organic flavors as Peach, Mint, Wildberry and Blood Orange and putting those complementary flavors in a totally unique glass package, Gratitude is well positioned for our targeted consumer audience.

Gratitude’s retail shelf price is between $2.99 to $3.49 per bottle. We have established cost for finished product per bottle and per 12-count case. We will approach and engage the same retail systems and value chain structure relative to all RTD beverage brands in the industry.

There will be three routes to market:

If electronic cigarettes

PRODUCTION

We used third party vendors to outsource and purchase raw materials as well as contract manufactures (co-packers) its products. Our co-packer is independently owned and operated and function as a third party manufacturing partner in order fulfill the inventory needs of Gratitude’s RTD brands. Our co-packer is located in the northeastern United States, and currently we use one co-packer.

COMPETITION

Source: Statista 2018

RESEARCH, DEVELOPMENT AND PHILANTHROPY

Gratitude’s RD&P (Research, Development and Philanthropy) is working with a number of institutions to develop, license and/or vaporizersacquire valid and proven intellectual property that fights cancer and promotes healthy aging. To that end, Gratitude has solely licensed patented technology from a prominent U.S. university research foundation for their patent (U.S. Patent #: 6,713,605) for the use of tea polyphenol esters for cancer prevention and treatment. The patented invention relates to novel polyphenol esters derived from green teas, which are potent inhibitors of the growth of cancerous cells, and their use in the prevention and treatment of conditions characterized by abnormal cellular proliferation. Gratitude will fund our charities from our sales and, in addition to giving away product to those who cannot afford them, we will contribute to university and institutional research studies that focus on chemo-protection, healthy aging, phytochemical superfoods and clean nutrition.

GOVERNMENT REGULATION

We are subject to one labor and employment laws, import and trade restrictions laws, laws governing advertising, privacy and data security laws, safety regulations and other laws, including consumer protection regulations that apply to retailers and/or more significantthe promotion and sale of merchandise and the operation of stores and warehouse facilities. In the United States, we are subject to the regulatory initiatives,authority of, among other agencies, the Federal Trade Commission (“FTC”) and U.S. Food and Drug Administration (“FDA”). We will employ a number of external resources to assist us in complying with our regulatory obligations. These external resources will include outside technology providers and consultants. As we expand our business, results of operationswe will be required to raise additional capital to cover the expected increase in costs to hire and financial condition could be materiallytrain additional internal and adversely affected.external resources to ensure we remain in substantial compliance with our governmental obligations. We monitor changes in these laws and believe that we are in material compliance with applicable laws.

Intellectual PropertyINTELLECTUAL PROPERTY

Licensed Patents

We currently own four domestic utility patents and two design patents relating to vaporizers, as well as two utility patent applications and one design application pending in the United States as described below. There is no assurance that we will be awarded patents for of any of these pending patent applications. Further, we have not obtained an independent evaluation of our patent tights or any of our intellectual property rights. As a result, we cannot assure you that our patents and all of our intellectual property rights do not infringe upon those rights claimed by others. In that event we may be exposed to superior claims asserted by others and thereby we may be liable for significant damages arising out of any such infringement claims.

US Patent # 9,155,848 Method6,713,605 Tea Polyphenols Esters and System for Vaporization of a SubstanceAnalogs

We haveIn January 2018, we entered into a utilityStandard Exclusive License Agreement (the “License Agreement”) whereby the licensor agreed to grant exclusive license to us 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 apparatusenforceable 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 vaporization of materials that releases active constituents for inhalation withoutlicense granted in with respect to such market or territory upon sixty (60) days written notice to Licensee. See Note 9 to the creation of harmful byproducts such as carcinogens associated with combustion and inhalation of substances. This patent expires on October 13, 2035.

U.S. Patent # 6,095,153 - Vaporization of volatile materials

We have a utility patent for the vaporization of volatile materials while avoiding combustion and denaturation of such material provide an alternative to combustion as means of volatilizing bioactive and flavor compounds to make such compounds available for inhalation without generating toxic or carcinogenic substances that are by-products of combustion and pyrolysis. This patent expires on June 19, 2018.

U.S. Patent # 6,772,756 - Method and System for Vaporization of a Substance

We have a utility patent for an apparatus for the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such as carcinogens associated with combustion and inhalation of substances. This patent expires on February 9, 2022.

U.S. Patent # 6,990,978 - Method and System for Vaporization of a Substance

We have a utility patent for an apparatus for the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such as carcinogens associated with combustion and inhalation of substances. This patent expires on January 31, 2026.

U.S. Design Patent # 489,448 - Vaporization Apparatus

We have a design patent for the ornamental design for the vaporization apparatus. This patent expires on May 4, 2018.

U.S. Design Patent # 508,119 - Mesh Filter with Glass Insert

We have a design patent for the ornamental design for a component for a vaporizer. This patent expires on August 2, 2019.

U.S. Patent Application # 11/872,040 - Method and System for Vaporization of a Substance

We have a utility patent (filed on October 15, 2007) pending for an apparatus for the vaporization of materials that releases active constituents for inhalation without the creation of harmful byproducts such as carcinogens associated with combustion and inhalation of substances.

U.S. Patent # 14/254,723 - Multi-User Inhalation Adaptor

We have a utility patent (filed on April 16, 2014) pending for a component of a vaporizer that allows multiple users to inhale the vapors of materials.

U.S. Design Patent # 29/473,910 - Vaporizer

We have a design patent (filed on November 26, 2013) for the ornamental design for the vaporization apparatus.consolidated financial statements included elsewhere in this report.

Trademarks

We own trademarks on certain of our products, including: Digital Air®, Nicohale®, and Vapir®.

Trademark serial number 87943839, “Gratitude®”

KetoFuel™ (trademark registration in progress)

EmployeesEMPLOYEES

As of December 31, 2016,2018, we have four (4) full-time and two (2)one part-time employees. None of these employees are represented by collective bargaining agreements and the Company considers it relations with its employees to be good.

Corporation InformationOUR CORPORATE HISTORY AND RECENT DEVELOPMENTS

We were 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 include the activity of the Company (the legal acquirer) from the date of the merger. Our principal executive officesformer business was focused on inventing, developing and producing aromatherapy devices and vaporizers before the merger. We are located at 3511 Ryder St., Santa Clara, CA, 95051. Our telephone number is (800) 841-1022. Our website is www.vapir.com.now engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the Company’s trademark.

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 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.

The application of the Federal Food, Drug and Cosmetic Act to all tobacco products, including products like the Company’s vaporizers, will have a material adverse effect on our business.

On May 9, 2016, the Food and Drug Administration (FDA) announced the issuance of a final rule (the “Rule”) deeming all tobacco products, including “electronic cigarettes” and their components and parts, subject to the Federal Food, Drug, and Cosmetic Act (the FD&C Act), as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act). As a result of the new Rule, all electronic cigarette products will be subject to the same FD&C Act provisions and relevant regulatory requirements to which cigarettes are subject, with respect to the following:

The application of the Rule will result in additional expenses, could affect the markets we sell our products in, could require us to change our advertising and labeling and method of marketing our products, any of which would have a substantial adverse effect on our business, results of operation and financial condition. In addition, the application process of our products by the FDA could cost the Company several hundred thousand dollars and we may incur significant and protracted losses thereby.

We may face the same governmental actions aimed at conventional cigarettes and other tobacco products.

The tobacco industry expects significant regulatory developments to take place over the next few years, driven principally by the World Health Organization’s Framework Convention on Tobacco Control, or the FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. Regulatory initiatives that have been proposed, introduced or enacted include:

If vaporizers and/or electronic cigarettes are subject to one or more significant regulatory initiates enacted under the FCTC, our business, results of operations and financial condition could be materially and adversely affected. Further and given the recent development of our industry, we may be facing significant and adverse regulatory provisions that may cause us to incur significant costs and resulting losses thereby. We cannot assure you that our current regulatory environment will be maintained or that new adverse regulations will not be adopted that will result in us incurring significant and protracted losses thereby.

We are a small public company and we face ever-increasing challenges in fulfilling the ever-rising costs of regulatory compliance under our federal, state, and other laws.

As a small company we have limited financial resources and we face compliance and regulatory costs that are increasing yearly. While we believe that our business strategies are sound, we cannot assure you that we will not incur such costs and have the ability to pass these increased costs onto our customers. As a result, we may incur significant operating losses and negative cash flow for the foreseeable future with resulting adverse impact on our continued existence as a corporation.

Our Total Current Liabilities were greater than our Total Current Assets as of December 30, 2016.

As of December 31, 2016, our Total Current Liabilities were $1,661,799 and our Total Current Assets were $288,493. As a result, we do not have sufficient cash or other liquid current assets to meet our current financial obligations that become due within the twelve-months.

We need to raise additional external capital but we have received no commitment from any source to provide this capital and there can be no assurance that we can raise any additional capital.

We estimate that we may need to raise $300,000 to $500,000 or more in additional external capital to meet our current and projected financial needs. Currently we do not have any existing commitments from any reliable source to provide this capital and we cannot assure you that we will be successful in raising the additional capital that we need or, if we are successful, that we will be able to raise it on a timely basis and on terms that are reasonable in light of our present circumstances.

We previously obtained an aggregate of $500,000 in financing from two accredited investors. In exchange, we issued convertible subordinated debentures with an aggregate total stated principal amount of $500,000. These debentures are unsecured and allaccrued and unpaid principal and interest is due and payable on each on July 26, 2018. In any event, any holder of our Common Stock is faced with the risk of the total loss of their investment.

We incurred significant losses in 20162018 and our cash flow is limited and volatile with the result that we face constant financial challenges in meeting our monthly operating and other financial obligations.

We incurred significant losses in 20162018 and we cannot assure you that we will achieve profitability or if we do achieve it that we can sustain any profitability in the future. Further and as a small company, our cash flow is limited and we do not have a diversified customer base with diversified customers and markets compared to larger companies. As a result, our monthly cash flow is limited and more volatile than other larger companies. For this reason we are exposed to greater financial risks and persons who acquire our common stock could lose all or substantially all of their investment.

Continuing and increasing losses may directly impact our ability to remain in business.

During the year ending December 31, 2016, weWe incurred $1,986,861approximately $1,019,000 in losses compared to $514,806 innet losses for the year ended December 31, 2015. The net2018, and we anticipate these losses include non-cash expenses primarily due to stock based compensation of $777,058 during the year ended December 31, 2016.continuing in 2019. While we believe that if circumstances and market conditions allow, we may be able to achieve profitability, there can be no assurance that we will be successful in these efforts or if we are successful, that we can sustain any profitability. If are not successful in achieving and sustaining profitability and positive cash flow, then persons who acquire our common stock could lose all or substantially all of their investment.

Limited trading market and limited and sporadic trading of our Common Stock.

The trading market for our Common Stock is limited and any holder of our Common Stock will likely find it difficult to sell their shares in any large amount without incurring protracted delays and difficulty and without a significant reduction in the market price of the overall trading market for our Common Stock. The trading market for our Common Stock is limited and sporadic and there can be no assurance that any liquid trading market will develop or if it does develop that it can be sustained. As a result, any purchase of our Common Stock or any conversion of any debt instrument that is convertible into our Common Stock should only be considered by those who can afford to own a relatively illiquid investment and the likelihood that they may incur the total loss of their investment.

There is substantial doubt about our ability to continue as a going concern.

We had had net loss of approximately $1,019,000 and $96,000 for the years ended December 31, 2018 and 2017, respectively. The net cash used in operations were approximately $759,000 and $71,000 for the years ended December 31, 2018 and 2017, respectively. Additionally, the Company had an accumulated deficit of approximately $1,115,000 at December 31, 2018. These conditions, among others, raise substantial doubt about our ability to continue as a going concern for a period of twelve months for the issuance date of this report as described in Note 3 in our consolidated financial statements for the year ended December 31, 2018.

Management cannot provide assurance that we will ultimately achieve sufficient profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings and generate sufficient revenues to fund its operations in the future.

Although management believes there is substantial doubt about our ability to continue as a going concern, they do not reflect any adjustments that might result if we are unable to continue our business. Our consolidated financial statements contain additional note disclosure describing the circumstances that lead to this disclosure.

The Company’s corporate headquarters is located in California. The Company currently leases space locatedFlorida at 3511 Ryder Street, Santa Clara, CA, 95051. Product design occurs at this location.11770 US Highway One, suite E303, Palm Beach Gardens, FL 33408. Our telephone number, including area code, is (561) 227-2727

Our devices are manufactured in Guang Dong, China. We do not have a written manufacturing contract with our manufacturer. We use purchase orders to memorialize the terms of order placements.

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.

Not Applicable

PART II

Market Information

Our common stock is currently approved for quotation on the OTC Bulletin Board (OTCQB) maintained by the Financial Industry Regulatory Authority, Inc. under the symbol “VAPI”“GRTD”. There were no trades of our stock prior to April 6, 2015. The table below sets forth the high and low closing price per share of our common stock for each quarter during 2016.2017 and 2018. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

Holders

As of April 18, 2017,March 22, 2019, there were approximately 7463 holders of record of our common stock, and an indeterminate number of holders of unrestricted shares.

Dividends

We have not declared cash dividends on our common stock since our inception and we do not anticipate paying any cash dividends in the foreseeable future. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

Recent Sales of Unregistered Securities

Except for provided below, all unregistered sales of our securities during the year ended December 31, 2018, were previously disclosed in a Quarterly Report on Form 10-Q.  

The shares of common stock referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).

Authorized Capital Stock

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.

Common Stock

  The holders of common stock are entitled to one vote per share on all matters submitted to a vote of shareholders, including the election of directors. There is no right to cumulate votes in the election of directors. The holders of common stock are entitled to any dividends that may be declared by the board of directors out of funds legally available for payment of dividends subject to the prior rights of holders of preferred stock and any contractual restrictions we have against the payment of dividends on common stock. In the event of our liquidation or dissolution, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of common stock have no preemptive rights and have no right to convert their common stock into any other securities.

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 conversion price of $0.10 per share, subject to adjustment in the event of stock split, stock dividends, and recapitalization or otherwise. 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 conversion price of $0.10 per share, subject to adjustment in the event of stock split, stock dividends, and recapitalization or otherwise. 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 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. 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.

Not Applicable as we are a smaller reporting company.

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 Annual Report on Form 10-K, 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'sCompany’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 Annual Report on Form 10-K, 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'sCompany’s financial statements, including the notes thereto, included in this Annual Report on Form 10-K.

As used herein, the terms “we,” “us,” and “the Company” refers to Vapir Enterprises,Gratitude Health, Inc., a Nevada corporation and its subsidiaries.

On March 26, 2018, Gratitude Health, Inc. f/ka Vapir Enterprises, Inc., a corporation organized under the laws of Nevada (the “Acquiror” or “Company”), Hamid Emarlou, the principal shareholder of the Acquiror (the “Acquiror Principal Shareholder”), Gratitude Health, Inc. (FL), a corporation organized under the laws of Florida (the “Acquiree” or “Gratitude Subsidiary”), and each of the Persons who are shareholders of the Acquiree (collectively, the “Acquiree Shareholders,” and individually an “Acquiree Shareholder”) entered into a Share Exchange Agreement (the “Exchange Agreement”) pursuant to which the Acquiree Shareholders (who are the holders of all of the issued and outstanding shares of common stock of the Acquiree (the “Acquiree Interests”)) have agreed to transfer to the Acquiror, and the Acquiror has agreed to acquire from the Acquiree Shareholders, all of the Acquiree Interests, 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 Acquiree Shareholders the “Acquiror Shares”), which Acquiror Shares shall, upon conversion into 102,000,000 shares of common stock of the Acquiror, constitute approximately 85.84% on a fully diluted basis of the issued and outstanding shares of Acquiror Common Stock immediately after the closing of the transactions contemplated herein, in each case, on the terms and conditions as set forth in the Agreement. For accounting purposes, the Share Exchange was treated as an acquisition of Acquiror and a recapitalization of Acquiree. Acquiree is the accounting acquirer, and the result is of its operations carryover. 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.

As a result of the Exchange Agreement, for financial statement reporting purposes, the business combination between the Company and Acquiree has been treated as a reverse acquisition and recapitalization with the Acquiree deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with FASB ASC Section 805-10-55. At the time of the Exchange Agreement, both the Company and Acquiror have their own separate operating segments. Accordingly, the assets and liabilities and the historical operations that are reflected in the consolidated financial statements after the Exchange Agreement are those of the Acquiree and are recorded at the historical cost basis of the Acquiree. The acquisition process utilizes the capital structure of the Company and the assets and liabilities of the Acquiree which are recorded at historical cost. The results of operations of the Company are consolidated with results of operations of the Acquiree starting on the date of the Exchange Agreement. 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.

For information on the new business of Gratitude Health, Inc. after the March 26, 2018 share exchange, please refer to Section 1 of this Annual Report on Form 10-K.

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. 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, 2016 Compared2018 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, 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 Year Ended December 30, 2015merger 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, 2016 and 2015 were $1,086,971 and $2,157,929 respectively, a decrease of $1,070,958 or approximately 50%. The decrease in sales duringCompany began operations on September 14, 2017. For the year ended December 31, 2016 was primarily attributable2018 and for the period from inception (September 14, 2017) to a decrease inDecember 31, 2017, the Company generated revenues from the sales of our Prima vaporizer product.

Management views future sales level with a fair degree of uncertainty in that management has not been ableready to identify whether our sales level are trending up or down over the near term. As a result, we believed our sales level are subjectdrink beverages amounted to high level of uncertainty.$18,672 and $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, 20162018 and 2015for the period from inception (September 14, 2017) to December 31, 2017, the Company’s cost of sales amounted to $15,588 and $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 $678,056at 17% and $1,199,461, respectively, a decrease of $521,405 or approximately 43%. 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, 20162018 and 2015for the period from inception (September 14, 2017) to December 31, 2017 were $1,944,309$988,166 and $1,456,539, respectively, an increase of $487,770 or approximately 33%.$89,488, respectively. The increase 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, 2016 is primarily2018 due to an increase 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 approximately $228,000 offset by a decrease in Legal Fees of approximately $67,000. Additionally, an increase in$53,000 to our CEO and COO and stock based compensation through the issuance of approximately $413,000 in connection with commonpreferred stock and stock options granted to our CEO, Directors, employees and consultants of the Company offset by a decrease in Payroll Expenses of approximately $217,000 as a result of cost cutting measures resulted in an additional increase of approximately $196,000 during the year ended December 31, 2016.founders.

We continue to evaluate its operating cost with an aim of reducing its 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 could 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.

Other Income (Expense), net

Total otherInterest expense, net for the year ended December 31, 20162018 and 2015 were $451,467for the period from inception (September 14, 2017) to December 31, 2017 was $33,518 and $16,735,$6,936, respectively an increase of $434,732. The increase in other expense is the primary result of the decreased gain resulting from the decrease in fair value of derivative liabilities offset byprimarily related to interest expense from related party advances and convertible debentures and also includes amortization of debt discount and deferred financing cost of approximately $264,000 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, 20162018 and 2015for the period from inception (September 14, 2017) to December 31, 2017 was $1,986,861$1,018,600 and $514,806,$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, 2016, 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, 2016, we had a cash balance of approximately $12,000 and working capital deficit of $1,623,000. Our cash increased duringFor the year ended December 31, 2016 by approximately $4,2002018 and for the period from our cash balance atinception (September 14, 2017) to December 31, 2015 of $7,900. 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 fund2017

The 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: 

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, 2016 were $1,661,799inception and our Total Current Assets were only $288,493, we are and remain insolvent in that as of December 31, 2016 our Current Ratio (defined as Total Current Assets divided by Total Current Liabilities) was only .15. 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 a 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.

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 allfinancial 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 their investment.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, 20162018 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, 2016,2018 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 may not be limited to, accounts receivable allowances, inventory, derivatives,valuation of deferred tax assets, useful life of property and evaluationequipment, valuation of impairmentdebt discount, the assumptions used to calculate fair value of long lived assetsstock warrants granted, the value of stock-based compensation and intangible assetsfees 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

AsWe revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers, which requires revenue to be recognized in a smaller reporting company, wemanner 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 not requiredsatisfied at the point in time when products are shipped or delivered to provide this information.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.

VAPIR ENTERPRISES,GRATITUDE HEALTH, INC. AND SUBSIDIARY

DECEMBERFINANCIAL STATEMENTS

December 31, 2016 and 20152018

GRATITUDE HEALTH, INC. AND SUBSIDIARY 

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2018 and 2017

CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

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

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Vapir Enterprises,Gratitude Health, Inc. (the Company) as of December 31, 20162018 and 2015,2017, and the related consolidated statements of operations, changes in stockholders’ deficit,equity (deficit), and cash flows for each of the years in the two year period ended December 31, 2016. Vapir Enterprises, Inc.’s management is responsible2018 and period from September 14, 2017 (Inception) through December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for thesethe year ended December 31, 2018 and period from 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.statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe 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 Public Company Accounting Oversight Board (United States).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.misstatement, whether due to error or fraud. The companyCompany is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits, included considerationwe are required to obtain an understanding of internal control over financial reporting, as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’sCompany’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

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 supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. 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 statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vapir Enterprises, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

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.

West

We have served as the Company’s auditor since 2018.   Palm Beach Gardens, Florida

April 18, 2017

March 22, 2019

D. Brooks and Associates CPA’s, P.A. 319 Clematis Street, Suite 318, West Palm Beach, FL 33401 – (561) 429-6225

GRATITUDE HEALTH, INC. AND SUBSIDIARY 

CONSOLIDATED BALANCE SHEETS 

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS 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

CONSOLIDATED STATEMENTS OF CASH FLOWS

See accompanying notes to the consolidated financial statements.

GRATITUDE HEALTH, INC. AND SUBSIDIARY

Vapir Enterprises, Inc. and SubsidiaryNotes to Consolidated Financial Statements

December 31, 2016 and 20152018

Notes to the Consolidated Financial Statements

Note 1 –- Organization and Operations

Gratitude Health, Inc., (the “Company”, formerly Vapir Enterprises, Inc.

Vapir Enterprises Inc. (formerly FAL Exploration Corp.) (“Vapir Enterprises” or 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 iswas 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 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 vapor.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, and disclosure of contingent assets and liabilities at the date(s)date of the financial statements, and the reported amounts of revenues and expenses during the reporting period(s).

Critical accounting estimates are estimates for which (a)period. Actual results could differ from those estimates. In preparing the nature of the estimateconsolidated financial statements, management is material duerequired to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accountingmake estimates and assumptions affectingthat affect the financial statements were: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. 

GRATITUDE HEALTH, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

December 31, 2018

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

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

Principles of Consolidation

The Company applies the guidance of Topic 810“Consolidation”of the FASB Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity.

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

The consolidated financial statements include all accounts of Vapir Enterprises, Inc. and Vapir, Inc.

All inter-company balances and transactions have been eliminated.

Fair Value of Financial Instruments

The Company follows the FASB Accounting Standards Codification 820 (“ASC 820 – Fair Value Measurements and Disclosures”) to measure the fair value of its financial instruments and ASC 825 Codification for disclosures about fair value of its financial instruments. ASC 820 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820 are described below:

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Level 3 Financial Liabilities - Derivative Warrant Liabilities and Derivative Liability on Conversion Feature

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability and derivative liability on the conversion feature at every reporting period and recognizes gains or losses in the consolidated statements of operations that are attributable to the change in the fair value of the derivative liabilities.

The following table presents the derivative financial instruments, measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of December 31, 2016, and 2015:

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

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted ASC 360 – Property, Plant, and Equipment for evaluation of its long-lived assets. Pursuant to ASC 360 an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC 360 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

Pursuant to ASC 360-10-45-4 and 360-10-45-5 an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses. The Company did not consider it necessary to record any impairment charges during the years ended December 31, 2016 and 2015.

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, 2016,2018 and 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.

Accounts receivable and allowance for doubtful accounts

Pursuant to ASC 310 – Receivables, trade receivables that management has the intent and ability to hold for the foreseeable future shall be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts. The Company follows ASC 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts. Pursuant to ASC 310-10-35-9 Losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) Information available before the financial statements are issued or are available to be issued (as discussed in ASC 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) The amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses.

Pursuant to ASC 310-10-35-41 Credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received. The Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

As of December 31, 2016, and 2015, the Company recorded $2,009 and $1,373 in allowance for doubtful accounts, respectively. The Company recorded bad debt expense of $1,619 and $1,774 during the years ended December 31, 2016 and 2015, respectively.

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

Inventory

Fair value measurements and fair value of financial instruments

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

Inventory Obsolescence and Markdowns

The Company evaluates its current level of inventory considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the income statement as a component of cost of goods sold pursuant to ASC 420-10-S99 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 2016, the Company wrote down slow moving inventory in the amount of $39,734. The Company did not record any allowance for slow moving inventory during the year endedas of December 31, 2015. There was no lower of cost or market adjustments for the years ended December 31, 2016 or 2015.2018.

Advances to suppliers

Advances to suppliers representa supplier represents the cash paid in advance for the purchase of inventory. The advances to suppliersa supplier are interest free and unsecured. As of December 31, 2018 and 2017, advances to the Company’s major supplier amounted to $0 and $11,200, respectively. Upon shipment of the purchased inventory, the Company reclassifies or records such advances to the supplier into inventory.

Property and Equipment

Property and equipment is recordedare carried at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred.cost less accumulated depreciation.  Depreciation is computed byusing the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets of 3 years. The cost of repairs and maintenance is expensed as follows: