Item 1. Business
THE COMPANY
Gratitude Health, Inc., (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 development. The Gratitude mission is to disrupt 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 health of our customer. The Gratitude vision is to work with research partners to develop functional drinks that can easily be incorporated into one’s daily lifestyle and fit their nutritional goals.
THE PRODUCTS AND PACKAGING:
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 increasingly 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 their growth is solid year-over-year but barely above flat. We believe this is due to two factors:
● The category is staid and boring and,
● RTD teas are not delivering on their health promises.
We are addressing these issues with unique varieties of tea that not only have interesting and curious names but also health research that supports their benefits. Naturally, we will be calorie and carb free and always strive for maximum antioxidant delivery. Our teas are sourced from Dragon Well in China. Our initial five flavors are:
● Wildberry
● Blood Orange
● Mint
● Original
● Peach
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 have engaged 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:
1. Direct-to-Retail sales (grocery, big box, and drug chains).
2. Direct Store Delivery (DSD) with shelf management for C-stores, specialty accounts, and such institutions as colleges and universities.
3. Direct-to-Consumer sales via the internet. We will partner with Amazon for fulfillment.
·	 ● Value chain for channel one includes delivered pricing from Gratitude direct to the retailer. We will target a suggested retail price in these accounts. Knowing that these accounts demand net delivery to their warehouses and a SET gross margin, Gratitude will price cases at wholesale to this channel of trade at a set price per bottle per cost of goods sold as calculated so that the Company has already calculated its margin less cost of freight for delivery.
·	 ● Sales to DSD delivery systems require a more competitive wholesale price and higher retail price, which enables a structure where a distributor can earn a meaningful margin in an extremely competitive environment. The DSD retail customer is often a C-Store or Specialty store that requires regular deliveries and in-store management of inventory in “reaches”, meaning that often the DSD merchandises the shelf for his customer. This service cost is passed to the wholesaler. Therefore, to accommodate this pricing model, Gratitude must be more competitively priced to the DSD. The retailer also needs room to mark up the brand to accommodate their gross margin goals. So, Gratitude will reduce its gross margin in this channel and the DSD distributor will expect a set gross margin. The C-Store retailer usually expects a minimum set gross margin at his level.
·	 ● The third sales model is direct consumer sales through the internet. These sales are always made by the case with an added delivery fee to the individual. We will partner with Amazon to handle orders and fulfillment and simply deliver to their regional warehouses. These sales provide great opportunity for gross margin having eliminated the distributor and retailer margin, but require significant digital marketing programs and advertising. We will use this channel immediately to service consumers that have heard of the brand but can’t find it at their local store yet. We know this channel will not be a large business initially but, as the brand grows, we plan to build this segment aggressively.
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 acquire 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 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 the promotion and sale of merchandise and the operation of stores and warehouse facilities. In the United States, we are subject to the regulatory 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, we will be required to raise additional capital to cover the expected increase in costs to hire and train additional internal and 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 PROPERTY
Licensed Patents
US Patent # 6,713,605 Tea Polyphenols Esters and Analogs
In January 2018, we entered into a Standard 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 enforceable patent, or the date on which Company’s obligation to pay royalties expires pursuant to the License Agreement. If the Company has not pursued a market or territory respecting the licensed patents within one year of the date of execution of this License Agreement and Licensor has received notice that a third party wishes to negotiate a license for such market or territory, Licensor may terminate the license granted in with respect to such market or territory upon sixty (60) days written notice to Licensee. See Note 9 to the consolidated financial statements included elsewhere in this report.
Trademarks
We own trademarks on certain of our products, including:
Trademark serial number 87943839, “Gratitude®”	
KetoFuel™ (trademark registration in progress)
EMPLOYEES
As of December 31, 2018, we have four full-time and 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.
OUR 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 former business was focused on inventing, developing and producing aromatherapy devices and vaporizers before the merger. We are 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.
Item 1A.
Item 1A. Risk Factors
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.
We incurred significant losses in 2018 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 2018 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.
We incurred approximately $1,019,000 in net losses for the year ended December 31, 2018, and we anticipate these losses 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.
Item 2.
Item 2. Properties
The Company’s corporate headquarters is located in Florida at 11770 US Highway One, suite E303, Palm Beach Gardens, FL 33408. Our telephone number, including area code, is (561) 227-2727
Item 3.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation matters relating to claims arising from the ordinary course of business. While the results of such claims and legal actions cannot be predicted with certainty, the Company’s management does not believe that there are claims or actions, pending or threatened against the Company, the ultimate disposition of which would have a material adverse effect on our business, results of operations, financial condition or cash flows.
Item 4.
Item 4. Mine Safety Disclosure
Not Applicable
PART II
Item 5.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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 “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 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 March 22, 2019, there were approximately 63 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.
●During the three months ended December 31, 2018, the Company sold 1,500 shares of Series C Preferred, pursuant to a stock purchase agreement dated between October 2018 and December 2018, in exchange for consideration of $300,000 and the Company used the proceeds as working capital for its business operations.
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.
Item 6.
Item 6. Selected Financial Data
Not Applicable as we are a smaller reporting company.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for the historical information, the following discussion contains forward-looking statements that are subject to risks and uncertainties. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. Our actual results or actions may differ materially from these forward-looking statements for many reasons. Our discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and related notes and with the understanding that our actual future results may be materially different from what we currently expect.
Forward-Looking Statements
Certain information contained in this 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’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’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 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
Gratitude Health Inc. was originally incorporated under the laws of the State of Nevada on December 17, 2009 under the name Apps Genius Corp. Our original business was to develop, market, publish and distribute social games and software applications that consumers could use on a variety of platforms, including social networks, wireless devices and stand-alone websites. We were unsuccessful in operating our business and on October 7, 2013 we entered into a Membership Interest Purchase Agreement with FAL Minerals LLC and we changed our name to FAL Exploration Corp. The agreement with FAL Minerals LLC has since been terminated and we entered into an Exchange Agreement with Vapir, Inc. and its shareholders. In December 2014, the Company changed its name into Vapir Enterprises, Inc. Effective March 23, 2018, the Company changed its legal name to Gratitude Health, Inc. from Vapir Enterprises Inc. The Company’s principal business was focused on inventing, developing and producing aromatherapy devices and vaporizers. On March 26, 2018, the Company merged with Gratitude Health Inc. (“Gratitude Subsidiary”), a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange, and the business of Gratitude Subsidiary became the business of the Company. On March 26, 2018, Gratitude Subsidiary, which is the historical business of the Company’s wholly-owned subsidiary, entered into a Share Exchange Agreement with the Company, Gratitude Subsidiary, all of the stockholders of Gratitude Subsidiary, and the Company’s principal stockholder whereby the Company agreed to acquire all of the issued and outstanding capital stock of Gratitude Subsidiary in exchange for the issuance of 520,000 shares of Series A Preferred Stock and 500,000 shares of Series B Preferred Stock, to the stockholders of Gratitude Subsidiary, upon conversion into 102,000,000 shares of the Company’s common stock. On March 26, 2018, the transaction closed and Gratitude Subsidiary is now a wholly-owned subsidiary of the Company. The number of shares issued represented approximately 86% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement. In addition, Gratitude Subsidiary’s board of directors and management obtained the board and management control of the combined entity stock immediately after the consummation of the Share Exchange Agreement.
The Company is now engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the Company’s trademark.
Results of Operations
For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017
On March 26, 2018, the Company merged with Gratitude Subsidiary, a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange, and the business of Gratitude Subsidiary became the business of the Company. The consolidated financial statements are those of Gratitude Subsidiary (the accounting acquirer) prior to the merger and include the activity of the Company (the legal acquirer) from the date of the merger. Accordingly, we do not have comparable transactions from the prior periods.
Net Revenues
As previously stated, the Company began operations on September 14, 2017. For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, the Company generated revenues from the sales of ready to drink beverages amounted to $18,672 and $0, respectively.
Cost of Sales
The primary components of cost of sales include the cost of the product, production cost and shipping fees. For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, the Company’s cost of sales amounted to $15,588 and $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 at 17% and 0%, respectively.
Operating Expenses
Total operating expenses for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 were $988,166 and $89,488, respectively. The increase in operating expenses of $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, 2018 due to increase in travel expenses, license fees, inventory spoilage expense and office expenses. Total operating expenses for the period from inception (September 14, 2017) to December 31, 2017 was $89,488 and was primarily related to compensation of $53,000 to our CEO and COO and stock based compensation through the issuance of preferred stock to our founders.
Other Income (Expense), net
Interest expense, net for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 was $33,518 and $6,936, respectively primarily related to interest expense and amortization of debt discount in connection with convertible notes which were paid off during fiscal 2018.
Net loss
Our net loss for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017 was $1,018,600 and $96,424, respectively, as a result of the items discussed above.
Liquidity and Capital Resources
For the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017
The following table provides detailed information about our net cash flows:
We have an accumulated deficit and have incurred operating losses since our inception and expect losses to continue during 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 generate 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 and preferred stock to maintain operations. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans, and/or financial guarantees.
If we are unable to raise the funds required to fund our operations, we will seek alternative financing through other means, such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds, we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.
Inflation and Changing Prices
Neither inflation nor changing prices for the year ended December 31, 2018 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 our audited financial statements for the year ended December 31, 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, valuation of deferred tax assets, useful life of property and equipment, valuation of debt discount, the assumptions used to calculate fair value of stock warrants granted, the value of stock-based compensation and fees and the fair value of the common stock issued. Management believes that its estimates and assumptions are reasonable, based on information that is available at the time they are made.
Revenue Recognition
We revenue in accordance with ASC Topic 606 Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, our contracts have a single performance obligation (shipment of product). We primarily receive fixed consideration for sales of product.
Item 8.
Item 8. Financial Statements and Supplementary Data
GRATITUDE HEALTH, INC. AND SUBSIDIARY
FINANCIAL STATEMENTS
December 31, 2018
GRATITUDE HEALTH, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2018 and 2017
CONTENTS
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Gratitude Health, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Gratitude Health, Inc. (the Company) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2018 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 the 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 are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying 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 an accumulated deficit. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 3 to the consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
D. Brooks and Associates CPA’s, P.A.
We have served as the Company’s auditor since 2018. Palm Beach Gardens, Florida
March 22, 2019
GRATITUDE HEALTH, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
See accompanying notes to the consolidated financial statements.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
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
Notes to Consolidated Financial Statements
December 31, 2018
Note 1 - Organization and Operations
Gratitude Health, Inc., (the “Company”, formerly Vapir Enterprises, Inc.) was incorporated in the State of Nevada on December 17, 2009. Effective March 23, 2018, the Company changed its legal name to Gratitude Health, Inc. from Vapir Enterprises Inc. On March 26, 2018, the Company merged with Gratitude Health Inc. (“Gratitude Subsidiary”), a private company incorporated in Florida on September 14, 2017, in a transaction treated as a reverse acquisition and recapitalization effected by a share exchange. The consolidated financial statements are those of Gratitude Subsidiary (the accounting acquirer) prior to the merger and reflect the consolidated operations of the Company (the legal acquirer) from the date of the merger (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 former business was focused on inventing, developing and producing aromatherapy devices and vaporizers before the merger. The Company is now engaged in manufacturing, selling and marketing functional RTD (Ready to Drink) beverages sold under the Company’s trademark.
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.
Note 2 - Significant and Critical Accounting Policies and Practices
Basis of Presentation and principles of consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and in accordance with Regulation S-X of the Securities and Exchange Commission (the “SEC”). The consolidated financial statements present the consolidated financial statements of the Company and its wholly-owned subsidiary as of December 31, 2018. All intercompany transactions and balances have been eliminated.
Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet, and revenues and expenses for the period then ended. Actual results may differ significantly from those estimates. Significant estimates made by management include, but are not limited to valuation of deferred tax assets, useful life of property and equipment, inventory reserves, and valuation of debt discounts.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 2 - Significant and Critical Accounting Policies and Practices (continued)
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, 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.
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
The Company values inventory, consisting of finished goods and raw materials, at the lower of cost or net realizable value. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventory for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated net realizable value. Factors utilized in the determination of the estimated net realizable value include (i) estimates of future demand, and (ii) competitive pricing pressures. The Company did not record any allowance for slow moving inventory as of December 31, 2018.
Advances to suppliers
Advances to a supplier represents the cash paid in advance for the purchase of inventory. The advances to a 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 are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets of 3 years. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired, or disposed of, the cost and accumulated depreciation are removed, and any resulting gains or losses are included in the consolidated statement of operations.
Revenue Recognition
On January 1, 2018, the Company adopted the Accounting Standard Codification (“ASC”) Topic 606 and the related amendments Revenue from Contracts with Customers, which requires revenue to be recognized in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company recognizes revenue by applying the following steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
The Company’s performance obligations are satisfied at the point in time when products are shipped or delivered to the customer, which is when the customer has title and the significant risks and rewards of ownership. Therefore, the Company’s contracts have a single performance obligation (shipment of product). The Company primarily receives fixed consideration for sales of product.
Cost of Sales
The primary components of cost of sales include the cost of the product, production cost and shipping fees.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 2 - Significant and Critical Accounting Policies and Practices (continued)
Shipping and Handling Costs
The Company accounts for shipping and handling fees in accordance with ASC 606. While amounts charged to customers for shipping products are included in revenues, the related costs of shipping products to customers are classified in general and administrative expenses as incurred. Shipping costs included in general and administrative expense were $1,500 and $0 for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, respectively.
Advertising Costs
The Company applies ASC 720 “Other Expenses” to account for advertising related costs. Pursuant to ASC 720-35-25-1, the Company expenses the advertising costs when the first time the advertising takes place. Advertising costs were $13,089 and $0 for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, respectively, and was included in general and administrative expenses.
Income Taxes
The Company accounts for income taxes pursuant to the provision of ASC 740-10, “Accounting for Income Taxes” (“ASC 740-10”), which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized.
The Company follows the provision of ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, there may be uncertainty about the merits of positions taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions.
Tax positions that meet the more likely than not recognition threshold are measured at the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefit associated with tax positions taken that exceed the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all more likely than not to be upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.
The Company has adopted ASC 740-10-25, “Definition of Settlement”, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion and examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The federal and state income tax returns of the Company are subject to examination by the IRS and state taxing authorities, generally for three years after they are filed.
Basic and diluted net loss per share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares during the period. Diluted net loss per share is computed using the weighted average number of common shares and potentially dilutive securities outstanding during the period.
The potentially dilutive common stock equivalents during the year ended December 31, 2018 were excluded from the dilutive loss per share calculation as they would be antidilutive due to the net loss.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 2 - Significant and Critical Accounting Policies and Practices (continued)
The following is a reconciliation of the numerator and denominator used in the basic and diluted earnings per share ("EPS") calculations for the period from inception (September 14, 2017) to December 31, 2017.
The following were the computation of diluted shares outstanding and in periods where the Company has a net loss, all dilutive securities are excluded.
Recent accounting pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for fiscal years beginning after December 15, 2018, and interim periods within those annual periods and is applied retrospectively. Early adoption is permitted. The Company does not believe the guidance will have a material impact on its financial statements.
In July 2017, the FASB issued ASU 2017-11 “Earnings Per Share (Topic 260)”. The amendments in the update change the classification of certain equity-linked financial instruments (or embedded features) with down round features. The amendments also clarify existing disclosure requirements for equity-classified instruments. For freestanding equity-classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260, Earnings Per Share, to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features would be subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). For public business entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this pronouncement as of fiscal 2017.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 2 - Significant and Critical Accounting Policies and Practices (continued)
In June 2018, the FASB issued ASU No. 2018-07 “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company is assessing ASU 2018-07 and does not expect it to have a material impact on its accounting and disclosures.
In August 2018, the FASB issued ASU 2018-13, “Changes to Disclosure Requirements for Fair Value Measurements”, which will improve the effectiveness of disclosure requirements for recurring and nonrecurring fair value measurements. The standard removes, modifies, and adds certain disclosure requirements, and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company will be evaluating the impact this standard will have on the Company’s consolidated financial statements.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Note 3 - Going Concern
The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in the consolidated financial statements, the Company has an accumulated deficit of approximately $1,115,000 at December 31, 2018, and incurred a net loss of approximately $1,019,000 and net cash used in operating activities of approximately $759,000 for the year ended December 31, 2018. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the date of this report. The ability of the Company to continue as a going concern is dependent on the Company’s ability to implement its business plan, raise capital, and generate sufficient revenues. Currently, management is seeking capital to implement its business plan and generate sufficient revenues. There is no guarantee that the Company will be able to raise sufficient capital or generate a level of revenues to sustain its operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 4 - Inventory
Inventory consisted of the following:
At December 31, 2018, inventory held at third party locations amounted to $60,116. During the year ended December 31, 2018, the Company wrote down inventory for spoilage of $22,648 which is included in general and administrative expenses on the statements of operations.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 5 - Property and Equipment
Property and equipment, stated at cost, less accumulated depreciation consisted of the following:
Depreciation expense amounted to $12,083 and $778 for the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017, respectively.
Note 6 - Convertible Notes Payable
Convertible notes payable consisted of the following:
Between October 2017 to December 2017, the Company issued 12% convertible notes payable of $120,000 and 5 year warrants to acquire an aggregate of 12,000,000 shares of the Company’s common stock at an exercise price of $0.02 per share. The notes were due one year from the date of issuance. The annual interest rate for the notes were 12%. The notes were convertible any time after the issuance date of the note at $0.01 per share. The Company accounted for the warrants by using the relative fair value method. The debt discount consisted of relative fair value of the warrants of $9,992 using a Black-Scholes model with the following assumptions: dividend yield of zero, years to maturity of 5.00, a risk free rate of 2.00%, and expected volatility of 200% using volatilities of similar companies. The Company also paid financing costs of $15,000 in connection with these notes which was initially recorded as debt discount and was amortized over the term of these notes.
Between January 2018 to March 2018, the Company through the Company’s wholly owned subsidiary, Gratitude Subsidiary, entered into promissory note agreements, providing for the issuance of notes in the principal amount of $120,000 to an unrelated party pursuant to a Securities Purchase Agreement. The notes were due one year from the date of issuance. The annual interest rate for the notes were 12%. The notes were convertible any time after the issuance date of the note at $0.01 per share. The Company granted the note holder an aggregate of 12,000,000 warrants in connection with the issuance of these notes. The warrants had a term of 5 years from the date of grant and was exercisable at an exercise price of $0.02. The Company accounted for the warrants by using the relative fair value method. The debt discount consisted of relative fair value of the warrants of $9,992 using a Black-Scholes model with the following assumptions: dividend yield of zero, years to maturity of 5.00, a risk free rate of 2.00%, and expected volatility of 200% using volatilities of similar companies.
In connection with the merger, the Company entered into a Surrender and Exchange Agreement with these note holders whereby the note holders agreed to surrender the 12% convertible notes including accrued interest of $5,479 and the total principal amount of $240,000 and the cancellation of all the stock warrants granted to the note holders in exchange for Series A Preferred Stock. Such surrender of notes and warrants was done in connection with the Exchange Agreement which closed on March 26, 2018 (see Note 8). Accordingly, the Company fully amortized the debt discount of $29,703 for the year ended December 31, 2018 and such 24,000,000 warrants granted by Gratitude Subsidiary were cancelled as of December 31, 2018. As of December 31, 2018, principal amount of the notes and accrued interest outstanding was $0.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 7 - Related Party Transactions
The Company’s chief executive officer, Mr. Roy Warren, from time to time, provided advances to the Company for working capital purposes. At December 31, 2018, and December 31, 2017, the Company had a payable to the officer of $0 and $345. These advances were short-term in nature and non-interest bearing.
In connection with the Exchange Agreement (see Note 8), the Company issued 500,000 shares of Series B Preferred Stock to the founders who are the CEO and COO of the Company.
In April 2018, the Company granted 100,000 shares of the Company’s common stock to the son of the CEO of the Company for services rendered (see Note 8). The Company valued these common shares at the fair value of $9,000 or $0.09 per common share based on the closing trading price on the date of grant. The Company recorded stock-based compensation of $9,000 during the year ended December 31, 2018. These shares were to be issued as of December 31, 2018.
Note 8 - Stockholders’ Equity (Deficit)
Shares Authorized
The authorized capital of the Company consists of 300,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.
Preferred stock
On March 19, 2018, the Company designated 520,000 shares of Series A Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”) Each share of Series A Preferred Stock is convertible into shares of the Company’s common stock with a stated value of $10 per share of Series A Preferred Stock and the 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 of common stock, 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 of common stock, 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.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 8 - Stockholders’ Equity (Deficit) (continued)
Share Exchange Agreement
On March 26, 2018, Gratitude Health, Inc. f/ka Vapir Enterprises, Inc., a corporation organized under the laws of Nevada (the “Acquiror” or the “Company”), Hamid Emarlou, the principal shareholder of the Acquiror (the “Acquiror Principal Shareholder”), Gratitude Health, Inc., 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 pursuant to which the Acquiree Shareholders (who are the holders of all 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 on the terms and conditions as set forth in the Exchange Agreement and the closing of the Spin Off Agreement as described below.
Effective March 26, 2018, the Company acquired all the issued and outstanding shares of the Acquiree pursuant to the Exchange Agreement and the Acquiree became the Company’s wholly-owned subsidiary. 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 Accounting Standards Codification (“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.
The Merger has constituted a change of control or change in control, the majority of the Board of Directors changed with the consummation of the Merger. The Company issued to Acquiree 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 Acquiror 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. As such, the Company recognized the disposition of the Vapir business on the date of merger.
In March 2018, in connection with the Exchange Agreement, the Company issued 20,000 Series A Preferred stock for purchase price of $2,000.
In March 2018, in connection with the Exchange Agreement, the Company issued 500,000 Series A Preferred Stock for a purchase price of (i) $3,000 cash, (ii) the satisfaction of the convertible notes including accrued interest of $5,479 and total principal amount of $240,000 and the cancellation of all the stock warrants granted to the note holder pursuant to the Surrender and Exchange Agreement, (see Note 6) (iii) $260,000 additional funding in cash after the closing of an Exchange Agreement which is recorded as subscription receivable and (iv) the surrender and cancellation of certain notes and warrants owed by the Company prior to the merger pursuant to the Surrender and Exchange Agreement dated in March 2018 for a principal amount of $172,500 and accrued interest of $76,157. The subscription receivable of $260,000 was collected in April 2018. Such surrender of notes and warrants were done in connection with the Exchange Agreement which closed on March 26, 2018.
In connection with the Exchange Agreement, the Company issued 500,000 shares of Series B Preferred Stock to the founders who are the CEO and COO of the Company.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 8 - Stockholders’ Equity (Deficit) (continued)
Sale of Preferred Stock
In March 2018, in connection with the Exchange Agreement, the Company issued 20,000 Series A Preferred stock for purchase price of $2,000.
In March 2018, in connection with the Exchange Agreement, the Company received gross proceeds for a total of $263,000 for the issuance of 490,000 Series A Preferred Stock (see note above).
In August 2018, the Company sold 750 shares of Series C Preferred stock for total proceeds of $150,000.
In October 2018, the Company sold 750 shares of Series C Preferred stock for total proceeds of $150,000.
In December 2018, the Company sold 750 shares of Series C Preferred stock for total proceeds of $150,000.
Common Stock
In connection with the Exchange Agreement, the Company is deemed to have issued 53,141,833 shares of common stock which represents the outstanding common shares of the Company prior to the closing of the Merger.
In connection with the Spin Off Agreement which closed on April 14, 2018, the Company cancelled the 36,309,768 shares.
In April 2018, the Company granted an aggregate of 2,600,000 shares of the Company’s common stock to various consultants and service providers for services rendered. The Company valued these common shares at the fair value of $234,000 or $0.09 per common share based on the closing trading price on the date of grant. The Company recorded stock-based compensation of $234,000 during the year ended December 31, 2018. In connection with these transactions, there were 2,600,000 shares of common stock to be issued as of December 31, 2018.
Common Stock Warrants
A summary of the Company’s outstanding stock warrants as of December 31, 2018 and changes during the period presented below:
In March 2018 in connection with the merger, the Company entered into Surrender and Exchange Agreements with note holders whereby the note holders agreed to surrender the 12% convertible notes including accrued interest of $5,479 and a total principal amount of $240,000 and the cancellation of all the stock warrants granted to the note holders. Such surrender of notes and warrants was done in connection with the Exchange Agreement which closed on March 26, 2018 (see Note 6).
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 8 - Stockholders’ Equity (Deficit) (continued)
Common Stock Options
Stock option activity for the year ended December 31, 2018 is summarized as follows:
As of December 31, 2018, all outstanding options are fully vested and there were $0 unrecognized compensation expense in connection with unvested stock options.
Note 9 - Commitments and Contingencies
License Agreement
In January 2018, the Company entered into a Standard Exclusive License Agreement (the “License Agreement”) whereby the licensor agreed to grant exclusive license to the Company for licensed patent owned or controlled by licensor. The licensed patent is related to tea polyphenols esters and analogs for cancer prevention and treatment. The term of this license shall begin on the effective date of this License Agreement and continue until the later of the date that no licensed patent remains a pending application or an enforceable patent, or the date on which Company’s obligation to pay royalties expires pursuant to the License Agreement. If the Company has not pursued a market or territory respecting the licensed patents within one year of the date of execution of this License Agreement and Licensor has received notice that a third party wishes to negotiate a license for such market or territory, Licensor may terminate the license granted in with respect to such market or territory upon sixty (60) days written notice to Licensee. The Company agreed to pay license issue fee of $5,000 within 30 days of the effective date which was paid in March 2018.
Additionally, the Company agreed to pay certain royalty payments as follows:
(i) three percent (3%) for Net Sales of Licensed Products, and Licensed Processes (all as defined in the License Agreement), for each product or process, on a country-by-country basis, for cumulative Net Sales up to one million dollars ($1,000,000); and
(ii) four percent (4%) for Net Sales of Licensed Products and Licensed Processes, for each product or process, on a country-by-country basis, for cumulative Net Sales from one million dollars ($1,000,000) to five million dollars ($5,000,000); and
(iii) five percent (5%) for Net Sales of Licensed Products and Licensed Processes, for each product or process, on a country-by-country basis, Net Sales over five million dollars ($5,000,000).
Furthermore, the Company agrees to pay Licensor minimum royalty payments, as follows:
The minimum royalty shall be paid in advance on a quarterly basis for each year in which this License Agreement is in effect. The first minimum royalty payment shall be due on March 31st, 2018 and shall be in the amount of $5,000. The minimum royalty for a given year shall be due in advance and shall be paid in quarterly installments on March 31, June 30, September 30, and December 31 for the following quarters. As of December 31, 2018, the Company has accrued royalty of $10,000 which is included in accounts payable and accrued expenses on the consolidated balance sheets.
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 9 - Commitments and Contingencies (continued)
In April 2018, the Company entered into a lease agreement for its corporate facility in Palm Beach Gardens, Florida. The lease is for a period of 36 months commencing in July 2018 and expiring in July 2021. Pursuant to the lease agreement, the lease requires the Company to pay a monthly base rent of $2,154 plus a pro rata share of operating expenses beginning July 2018. The base rent is subject to annual increases beginning the 2nd and 3rd lease year as defined in the lease agreement.
Future minimum rental payments required under operating leases are as follows:
Note 10 - Concentrations of Revenue and Supplier
During the year ended December 31, 2018, beverage sales to a customer represented approximately 99% of the Company’s net sales. There was no revenues generated during the period from inception (September 14, 2017) to December 31, 2017.
As of December 31, 2018, accounts receivable from one customer represented approximately 98% of total accounts receivable. There was no accounts receivable as of December 31, 2017.
The Company purchased inventories and products from two vendors totaling approximately $65,900 (45% of the purchases at 12% and 33%). There was no purchases during the period from inception (September 14, 2017) to December 31, 2017.
Note 11 - Income Taxes
The Company has incurred aggregate net operating losses of approximately $834,656 for income tax purposes as of December 31, 2017. The net operating loss carries forward for United States income taxes, which may be available to reduce future years’ taxable income. These carry forwards will expire, if not utilized, through 2037. Management believes that the realization of the benefits from these losses appears not more than likely due to the Company’s limited operating history and continuing losses for United States income tax purposes. Accordingly, the Company has provided a 100% valuation allowance on the deferred tax asset to reduce the asset to zero. Management will review this valuation allowance periodically and make adjustments as necessary.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. The Act decreases the U.S. corporate federal income tax rate from a maximum of 35% to a flat 21% effective January 1, 2018. The Act also includes a number of other provisions including, among others, the elimination of net operating loss carrybacks and limitations on the use of future losses, the repeal of the Alternative Minimum Tax regime and the repeal of the domestic production activities deduction. These provisions are not expected to have a material effect on the Corporation. Given the significant complexity of the Act and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the Act may be identified in future periods.
The items accounting for the difference between income taxes at the effective statutory rate and the provision for income taxes were as follows:
GRATITUDE HEALTH, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 2018
Note 11 - Income Taxes (continued)
The Company’s approximate net deferred tax asset was as follows:
The Company provided a valuation allowance equal to the deferred income tax asset for the year ended December 31, 2018 because it was not known whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $158,528 in fiscal 2018. Additionally, the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of the recent tax law and ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance. The Company does not have any uncertain tax positions or events leading to uncertainty in a tax position. The Company’s 2018 Corporate Income Tax Returns are subject to Internal Revenue Service examination.
Note 12 - Subsequent events
On February 13, 2019, the Company issued an unsecured promissory note for principal borrowings of $50,000. The 10% promissory note and all accrued interest were due on February 22, 2019. Any amount of principal or interest on this promissory note which was not paid when due shall bear interest at the rate of 20% per annum from the due date. In March 2019, this note was repaid in full using proceeds from the issuance of convertible notes as discussed below.
On March 7, 2019, the Company closed a financing transaction by entering into a Securities Purchase Agreement (the “ Securities Purchase Agreement ”) with an accredited investor for purchase of a promissory note (the “Note” and with other notes issued under the Securities Purchase Agreement, the “Notes”) an aggregate principal amount of $275,000 and gross cash proceeds of $250,000 (out of an aggregate of up to $550,000 principal amount of Notes representing $1.10 of note principal for each $1.00 of proceeds which can be purchased in subsequent closings in minimum amounts of $25,000). The Notes are convertible into common stock of the Company at a $0.05 conversion price, which is subject to standard anti-dilution adjustments and price protection, whereby upon any issuance of securities of the Company at a price below $0.05, the conversion price of the Notes is adjusted to the new lower issuance price. The Notes have a term of one year from the date of issuance. The Company received gross proceeds of $250,000 of which $50,000 was used to pay the promissory note issued in February 2019 (see above).
The Securities Purchase Agreement contains customary and usual provisions for a transaction of this type including, but not limited to, representations and warranties by the Company regarding its business and financial condition and jurisdiction and choice of governing law in New York. Under the Securities Purchase Agreement, for three years from the closing date, each Purchaser that still owns outstanding Securities shall have the right to participate in any Subsequent Financing up to an amount equal to 100% of the Subsequent Financing, on the same terms, conditions and price provided for in the Subsequent Financing. The Purchasers also are granted piggyback registration rights on all future registration statements. During the Protection Period (as defined in the Securities Purchase Agreement), there are prohibitions limiting the ability to issue any variable rate debt or equity instruments (or enter into an agreement which has a variable rate feature for the purchase price of any such instrument) and for so long as there Shares outstanding, the investors holders have most favored nations protection for future issuances of securities as well as there being certain prohibitions against issuance of indebtedness by the Company. The Company shall also reserve the number of shares of stock at all times for issuance into which the Notes can be converted.
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A.
Item 9A. Controls and Procedures.
Management’s Report on Internal Control over Financial Reporting
As of the end of the period covered by this Annual Report, our Chief Executive Officer and Chief Financial Officer performed an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based on the evaluation and the identification of the material weaknesses in internal control over financial reporting described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, the Company’s disclosure controls and procedures were not effective.
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with US GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projection of any evaluation of effectiveness to future periods is subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our Chief Executive Officer and Chief Financial Officer have assessed our internal control over financial reporting as of December 31, 2018. Management’s assessment of internal control over financial reporting was conducted using the criteria in Internal Control over Financial Reporting (“ICFR”) - Guidance for Smaller Public Companies (2006) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and Management has determined that the ICFR was not effective due to the material weaknesses.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In connection with management’s assessment of our internal control over financial reporting as required under Section 404 of the Sarbanes-Oxley Act of 2002, we identified the following material weaknesses in our internal control over financial reporting as of December 31, 2018:
(1) Lack of an independent audit committee or audit committee financial expert. Although our board of directors serves as the audit committee it has no independent directors. These factors are counter to corporate governance practices as defined by the various stock exchanges and may lead to less supervision over management.
(2) We do not have sufficient experience from our accounting personnel with the requisite U.S. GAAP public company reporting experience that is necessary for adequate controls and procedures due to our limited resources with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles.
(3) Need for greater integration, oversight, communication and financial reporting of the books and records of our office.
(4) Lack of sufficient segregation of duties such that the design over these areas relies primarily on detective controls and could be strengthened by adding preventative controls to properly safeguard company assets.
Remediation of Material Weaknesses in Internal Control over Financial Reporting
As a smaller reporting company, the Company does not have the resources to install a dedicated staff with deep expertise in all facets of SEC disclosure and US GAAP compliance. As is the case with many small businesses, the Company will continue to work with its external consultants and attorneys as it relates to new accounting principles and changes to SEC disclosure requirements. The Company has found that this approach worked well in the past and believes it to be the most cost effective solution available for the foreseeable future. We are seeking mitigating measures commencing with our recent appointment of a majority independent board of directors.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules that permit the Company to provide only management’s report in this annual report.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal controls over financial reporting or in other factors during the fourth fiscal quarter ended December 31, 2018, that materially affected, or is likely to materially affect, our internal control over financial reporting.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth the names, positions and ages of our directors and executive officers as of the date of this report.
Set forth below are brief accounts of the business experience during the past five years of each director and executive officer of the Company.
Roy G. Warren, Chairman and CEO
Roy Warren was founder and CEO of a public company called Bravo Brands from 1997 to 2007. There, he developed America’s first vitamin-fortified, branded consumer friendly flavored milk line. Having introduced shelf stable bottled flavored milk in 2003, Roy led the company to a market capitalization that increased from approximately $20mm to over $300mm. Roy left Bravo after 10 years and immediately, in late 2007, founded Attitude Drinks to develop functional protein delivery drinks made with ultra-filtered milk with which he was involved until 2015, when he temporarily stepped back from business pursuits for personal reasons. After this temporary hiatus, in 2017, Roy began his quest to develop drinks specifically intended to promote healthy aging and, thus, Gratitude Health, Inc. was born.
Andrew Schamisso, President and COO
Andy Schamisso was the President and Founder of Inko’s Tea from 2002 to 2015, creating that brand for the health-conscious consumer and focusing on low carb/calorie and totally unsweetened teas. He was the first to introduce RTD white tea to the beverage market and his drive to provide great-tasting, organic and healthy alternative drinks is evident in every offering Gratitude provides. Andy successfully commercialized the line of all natural RTD white teas and sold the company and drink brand to a private brand developer in 2015. He created the brand for the discerning consumer and the entire offerings (17 skus in all) were low carb/calorie and/or totally unsweetened. Andy was the first to introduce RTD white tea to the beverage market and white tea is now offered by all “Big Three” companies.
Jack Shea, Independent Director
Jack Shea has been involved in the sales and marketing of food and beverages for over 35 years. Mr. Shea has directed the sales and marketing efforts of soft drink bottlers, RTD tea brewers, beer, wine and spirits importers and shelf stable milk companies. He has also led the US divisions of companies from China, Israel and the United Kingdom. Since 2009, Mr. Shea has been Director of Parish Ministries of Religious education at Saints John and Paul Parish and School in Mamaroneck, NY. Mr. Shea was ordained a Deacon in the Catholic Church in 2010 and now devotes his talents and abilities to taking care of the poor and the sick and also teaching in a Catholic School. Deacon Shea is well suited to be our director as a result of his long experience in the food and beverage industry.
Mike Edwards, Independent Director
Mike Edwards, who is the current owner of Car Pro Auto Spa in Stuart, Florida, a position he has held since 2008, is a self-motivated, results-oriented entrepreneur and has extensive executive and marketing professional experience with over 26 years in business development, promotion, strategic planning, and finance. He previously worked as the Executive Vice President of International Sales and Marketing at the Bravo Brands International Corporation, an international functional drink marketing firm operational in the Americas, Australia, Europe, and Asia. He also has more than two decades of experience in private financial banking.
Mr. Edwards also worked as an Executive for Peregrine Enterprises, a market research company that provided custom study design and implementation for a wide range of Fortune 500 clients. He holds a Bachelor of Science degree from Florida State University, and has completed training in market research, banking, sales management, commercial lending, and credit analysis. He also served in the United States Navy Reserve as a Lieutenant for five years. Mr. Edwards is suited to sit on the Company’s board due to his experience in private financial banking and his industry experience with Bravo Brands.
Bruce Zanca, Independent Director
Over the course of a career spanning more than 30 years, Bruce Zanca has developed a core competency in building award-winning “earned media campaigns” for companies to gain positive exposure in broadcast, print, and social media. He worked as a “C-Suite” communications executive at four publicly traded businesses; assisting three companies to complete initial public offerings and helping to bring one public company private. He served as a White House spokesperson and communications advisor for three presidential administrations. He has lead teams of PR experts to win numerous awards including four American Business Awards “Stevies” and a Telly award for video production. Bankrate, Inc (NASDAQ:RATE) in July 2004 Bruce Zanca joined Bankrate as Senior Vice President/Chief Marketing Communications Office. Among Zanca’s other responsibilities is managing the company’s communications and investor relations efforts. In July 2011 Bankrate once again became a public company by making an initial public offering New York Stock Exchange. (NYSE: RATE) Zanca continued to manage the company’s investor relations programs until he retired from the company as of December 31, 2014. Since he has retired, he has headed Zanca PR & Corporate Communications, a public relations and corporate communications firm, which has the ability to lead the public opinion for all aspects of external communications: Investor Relations, television including the major television networks and news shows (CNN, MSNBC, CSPAN, Fox News, etc.), internet, social media, and print. In 2011 Bruce J Zanca was recruited and elected as a board member/director to the charity Scenarios USA, (501(c)(3)). He was elected chairman of the board in 2013 and served in that position until his term ended at the end of 2015. Founded in 1999, scenarios usa is a national non-profit organization that uses writing and film to foster youth leadership, advocacy and self-expression in students across the country with a focus on marginalized populations and underserved communities. The Company believes that Mr. Zanca has the qualifications to act as a director for the Company due to his public relations and public company experience.
Involvement in Certain Legal Proceedings
To the best of our knowledge, neither of our sole director and executive officer or our promoter and control person (as identified under “Certain Relationships and Related Transactions”) has, during the past ten years:
●been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
●had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
●been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
●been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
●been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
●been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
Committees; Audit Committee Financial Expert
Our board does not have an Audit Committee or other committees.
Changes in Nominating Procedures
None.
Significant Employees
We have no employees who are not executive officers, but who are expected to make a significant contribution to our business. We intend in the future to hire independent contractors on an as needed basis.
Family Relationships
None of the directors and officers is related to any other director or officer of the Company.
Board Oversight in Risk Management
Our Chief Executive Officer, who is our principal executive officer, also serves as Chairman of the Board of Directors, and we do not have a lead director. In the context of risk oversight, we believe that our selection of one person to serve in both positions provides the Board with additional perspective which combines the operational experience of a member of management with the oversight focus of a member of the Board. The business and operations of our Company are managed by our Board as a whole, including oversight of various risks, such as operational and liquidity risks that our Company faces. Because our Board includes a member of our management, this individual is responsible for both the day-to-day management of the risks we face as well as the responsibility for the oversight of risk management.
Section 16(a) Beneficial Ownership Reporting Compliance
Not disclosed herein.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total compensation paid during the year ended December 31, 2018 and for the period from inception (September 14, 2017) to December 31, 2017.
(i)our principal executive officer or other individual serving in a similar capacity during the fiscal year 2018 and for the period from inception (September 14, 2017) to December 31, 2017 (“2017”);
(ii)our two most highly compensated executive officers other than our principal executive officers who were serving as executive officers at December 31, 2018 and 2017 whose compensation exceed $100,000; and
(iii)up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer at December 31, 2018. Compensation information is shown for the fiscal year ended December 31, 2018:
SUMMARY COMPENSATION TABLE
(1)
Mr. Warren was appointed as Chief Executive Officer, Chief Financial Officer and a director on March 29, 2018. We have no employment agreement with Mr. Warren.
(2) Mr. Schamisso was appointed as President and Chief Operating Officer on March 29, 2018. We have no employment agreement with Mr. Schamisso.
Employment Agreement with Executives
We have not entered into employment agreements with our officers and directors. Additionally, we have not approved any retirement benefit plan, termination or severance provisions for any of our named executive officers.
Outstanding Equity Awards at December 31, 2018
On September 23, 2010, the Company’s board of directors adopted, and the Company’s stockholders approved the Equity Incentive Plan (the “Plan”), which covers 5,000,000 shares of common stock. The purpose of the Plan is to advance the interests of the Company by enhancing the ability of the Company to (i) attract and retain employees and other persons or entities who are in a position to make significant contributions to the success of the Company and its subsidiaries; (ii) reward such persons for such contributions; and (iii) encourage such persons or entities to take into account the long-term interest of the Company through ownership of shares of the Company’s common stock, par value $0.0001 per share. The Plan became effective on September 23, 2010 and will terminate on September 23, 2020.
Subject to adjustment as provided in the Plan, the aggregate number of shares of common stock reserved for issuance pursuant to awards granted under the Plan shall be five million (5,000,000) shares; provided, however , that within sixty (60) days of the end of each fiscal year following the adoption of the Plan, the Board, in its discretion, may increase the aggregate number of shares of Common Stock available for issuance under the Plan by an amount not greater than the difference between (i) the number of shares of Common Stock available for issuance under the Plan on the last day of the immediately preceding fiscal year, and (ii) the number of shares of Common Stock equal to 15% of the shares of Common Stock outstanding on the last day of the immediately preceding fiscal year.
On January 12, 2016, the Company granted an aggregate of 2,480,000 five year options to purchase shares of common stock to the former CEO of the Company and six former employees of the Company. The options granted vest one third at the end of each of the first three years from the date of issuance and are exercisable at $0.10 per share. The 2,480,000 options were valued on the grant date at approximately $0.35 per option or a total of $728,000 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.35 per share (based on the quoted trading prices on the date of grant), volatility of 286% (based from volatilities of similar companies), expected term of 5 years, and a risk-free interest rate of 1.55%. In March, August, and September of 2016, 40,000, 100,000, and 400,000, respectively, of these unvested options were forfeited due to the termination of employees. There remains 1,940,000 options which are fully vested upon the change of ownership as of December 31, 2018.
Outstanding Equity Awards at 2018 Fiscal Year-End For Named Executive Officers
The following table sets forth certain information concerning the outstanding equity awards as of December 31, 2018, for each named executive officer.
Board of Directors
All directors hold office until the next annual meeting of shareholders and until their successors have been duly elected and qualified, or until their earlier death, resignation or removal. Officers are elected by and serve at the discretion of the board.
Our directors are reimbursed for expenses incurred by them in connection with attending board meetings, but they do not receive any other compensation for serving on the board.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding beneficial ownership of our common stock as of March 22, 2019 by (i) each person (or group of affiliated persons) who is known by us to own more than five percent of the outstanding shares of our common stock, (ii) each director, executive officer and director nominee, and (iii) all of our directors, executive officers and director nominees as a group.
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to securities. All share ownership figures include shares of our Common Stock issuable upon securities convertible or exchangeable into shares of our Common Stock within sixty (60) days of the share exchange, which are deemed outstanding and beneficially owned by such person for purposes of computing his or her percentage ownership, but not for purposes of computing the percentage ownership of any other person.
Combined Common Stock and Series A, Series B and Series C Preferred Stock on an as Converted Basis
(1)Based on shares of common stock outstanding and common stock issuable of 130,432,065 shares as of March 22, 2019 assuming all shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock were converted. All shares owned by Messrs. Warren and Schamisso are in the form of Series B Preferred Stock which is convertible into common stock in a ratio of 100 shares of common stock for each share of preferred stock converted. The Series B Preferred Stock votes with the common stock on a fully as converted basis.
(2)Based on footnote (1) with regard to the 9.99% beneficial ownership limitation, the number of shares issuable upon conversion would be limited to 13,030,163. Konrad Ackermann is the director of Alpha Capital Anstalt.
Series A Preferred Stock
(1)Based on 520,000 shares of Series A Preferred Stock issued and outstanding as of March 22, 2019. The Series A Preferred Stock is nonvoting and contains blocker provisions such that the Preferred Shares held by a holder shall not be convertible by such Holder to the extent (but only to the extent) that such Holder or any of its affiliates would beneficially own in excess of 9.99% of the Common Stock. Konrad Ackermann is the director of Alpha Capital Anstalt.
Series B Preferred Stock
Series C Preferred Stock
(1)Based on 2,250 shares of Series C Preferred Stock issued and outstanding as of March 22, 2019. The Series C Preferred Stock is convertible into common stock in a ratio of 4,000 shares of common stock for each share of preferred stock converted. The Series C Preferred Stock votes with the common stock on a fully as converted basis. The Series C Preferred Stock contains blocker provisions such that the Preferred Shares held by a holder shall not be convertible by such Holder to the extent (but only to the extent) that such Holder or any of its affiliates would beneficially own in excess of 9.99% of the Common Stock. Konrad Ackermann is the director of Alpha Capital Anstalt.
Change in Control
There are no present arrangements known to the Company, including any pledge by any person of the Company’s securities, the operation of which may at a subsequent date result in a change in control of the Company, except as disclosed in the subsequent event footnote to the audited financial statements accompanying this Annual Report on Form 10-K.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Director Independence
Currently, we have three independent directors. Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the company or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
●the director is, or at any time during the past three years was, an employee of the Company;
●the director or a family member of the director accepted any compensation from the Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
●a family member of the director is, or at any time during the past three years was, an executive officer of the Company;
●the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the Company made, or from which the Company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
●the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the Company served on the compensation committee of such other entity; or
●the director or a family member of the director is a current partner of the Company’s outside auditor, or at any time during the past three years was a partner or employee of the Company’s outside auditor, and who worked on the company’s audit.
Related Party Transactions
Our chief executive officer, Mr. Roy Warren, from time to time, provided advances to us for working capital purposes. At December 31, 2018, and December 31, 2017, we had a payable to the officer of $0 and $345. These advances were short-term in nature and non-interest bearing.
In connection with the Exchange Agreement, we issued 500,000 shares of Series B Preferred Stock to the founders who are the CEO and COO of the Company.
In April 2018, we granted 100,000 shares of the Company’s common stock to the son of our CEO for services rendered. The Company valued these common shares at the fair value of $9,000 or $0.09 per common share based on the closing trading price on the date of grant. The Company recorded stock-based compensation of $9,000 during the year ended December 31, 2018. These shares were to be issued as of December 31, 2018.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fees
Aggregate fees for professional services rendered to us by our independent registered public accounting firm engaged to provide accounting services for the years ended December 31, 2018 and 2017 were:
Policy on Pre-Approval of Audit and Permissible Non-audit Services of Independent Auditors
Consistent with the SEC policies regarding auditor independence, our Board of Directors has responsibility for appointing, setting compensation and overseeing the work of the independent auditor. In recognition of this responsibility, our Board of Directors has established a policy to pre-approve all audit and permissible non-audit services provided by the independent auditor.
Prior to engagement of the independent auditor for the next year’s audit, management will submit an aggregate of services expected to be rendered during that year for each of the following four categories of services to the Board of Directors for approval.
1. Audit services include audit work performed in the preparation of year-end financial statements, as well as work that generally only the independent auditor can reasonably be expected to provide, including comfort letters, statutory audits, and attest services, assistance reviewing our quarterly financial statements and SEC filings, and consultation regarding financial accounting and/or reporting standards.
2. Audit-Related services are for assurance and related services that are traditionally performed by the independent auditor, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3. Tax services include all services performed by the independent auditor’s tax personnel except those services specifically related to the audit of the financial statements, and includes fees in the areas of tax compliance, tax planning, and tax advice.
4. Other Fees are those associated with services not captured in the other categories.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Roy G. Warren
Roy G. Warren
CEO, Chairman and Director
March 25, 2019
/s/ Andy Schamisso
Andy Schamisso
President and COO
March 25, 2019
/s/ Jack Shea
Jack Shea
Director
March 25, 2019
/s/ Mike Edwards
Mike Edwards
Director
March 25, 2019
/s/ Bruce Zanca
Bruce Zanca
Director
March 25, 2019