ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in connection with the Company's financial statements and related notes thereto, as included in this report on Form 10-Q, as well as the Company's annual report on Form 10-K, filed June 22, 2016.
Organization and Basis of Presentation
Nhale Inc. ("NHLE" or the "Company") was incorporated as GankIt Corporation in the state of Nevada on March 8, 2012, with a fiscal year end of May 31. Until May 12, 2014, we were an e-commerce business focused on selling a diverse set of products through a website that could either be won through a bidding process or purchased at a discount to the suggested retail price.
On May 12, 2014, Riverview Heights, LLC purchased 20,000,000 shares of common stock of the 30,000,000 total issued and outstanding shares common stock of Company, thus becoming the Majority Shareholder (hereafter the "Majority Shareholder"). The Majority Shareholder purchased 12,500,000 shares of common stock from Clark Rohde and 7,500,000 shares of common stock from John Arnold.
On May 13, 2014 the Majority Shareholder appointed Lance Williams as Sole Director, Chief Executive Officer and President of the Company; and concurrently therewith accepted the resignation of John Arnold from his positions of Sole Director, Chief Executive Officer and President of the Company. Concurrently the Company filed with the State of Nevada to change its name to Nhale, Inc. to better reflect its revised business model.
We have refocused the business plan to production of herbal vaporizer pens and other legal products in the consumer space focusing on the decriminalization of marijuana for medicinal purposes, a significant trend occurring in the U.S. and around the world.
Plan of Operations
Our plan of operation revolves around the development and commercialization of technologies related to the medical marijuana market. As more states legalize medical marijuana there will be increasing opportunities for us to commercialize new technologies designed to for this sector. The first product we have commercialized is the Nhale.
The Nhale is a herbal vaporizer pen in a convenient multi-use kit. The multi-purpose kit includes everything needed for vaporizing dry leaf herbs, waxes, oils and e-liquids.
The company began development of the Nhale brand in June 2014, obtaining the product through and outsourced manufacturer selected and engaged by the Company.
Results of Operations
We have not generated any revenues from operations and we cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of an early stage business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies (See "Risk Factors", below). To become profitable and competitive over the long run, we must develop our business and marketing plan and execute it.
Six Months Ended November 30, 2015 versus 2014
Sales and marketing
Our sales and marketing expenses were significantly down for the six months ended November 30, 2015 versus 2014: $6,050 versus $42,334, respectively. In 2014, we gave much of our initial purchase of vaporizer pens to distributors and retail outlets. Additionally in 2014, we had expenditures related to product and company promotional activities which we had very little of in the six months ended November 30, 2015.
General and administrative expenses
Our general and administrative costs were down $92,815 ($293,501 for the six months ended November 30, 2014 versus $200,686 in 2015), mostly due to a reduction in the salary of our Chief Executive Officer (a $30,000 reduction), reduced compliance costs from reduced business activity levels (a reduction of $36,737) and reduced office and travel costs (a $15,291 reduction).
Interest expense
Interest expense went from $53,235 for the six months ended November 30, 2014 to $77,484 for the same period in 2015, owing to higher debt levels.
Forgiveness of debt and other
As described in Note 4 to the financial statements, we recorded a forgiveness of debt income of $140,376 when we agreed with our previous Chief Executive Officer to settle our outstanding debt to him. We had no such item in 2014.
During the six months ended November 30, 2014, we recorded $16,157 of income associated with the expiration of certain bid deposits from Gankit Corporation, the predecessor operation.
Three Months Ended November 30, 2015 versus 2014
Sales and marketing
Our sales and marketing expenses were significantly down for the three months ended November 30, 2015 versus 2014: $5,000 versus $23,849, respectively. In 2014, we gave much of our initial purchase of vaporizer pens to distributors and retail outlets. Additionally in 2014, we had expenditures related to product and company promotional activities which we had very little of in the three months ended November 30, 2015.
General and administrative expenses
Our general and administrative costs were down $50,012 ($148,200 for the three months ended November 30, 2014 versus $98,188 in 2015), mostly due to a reduction in the salary of our Chief Executive Officer, reduced compliance costs from reduced business activity levels and reduced office and travel costs.
Interest expense
Interest expense went from $29,988 for the three months ended November 30, 2014 to $39,046 for the same period in 2015, owing to higher debt levels.
Other income
During the three months ended November 30, 2014, we recorded $16,157 of income associated with the expiration of certain bid deposits from Gankit Corporation, the predecessor operation. We had no such item in 2015.
Liquidity and Capital Resources
As of November 30, 2015, the Company had current assets of $11,077, comprised of cash and cash equivalents of $10,764 and other current assets of $313.
We had negative working capital of $1,355,951 and a deficit accumulated of $1,694,201 as of November 30, 2015.
Cash Flows from Operating Activities
During the six months ended November 30, 2015 and 2014 the Company used cash in operating activities of $39,897 and $356,391, respectively. For the same period in 2014, the Company used $356,391 in operating activities. The majority of this difference arises from differences in the net loss for the two periods.
Cash Flows from Investing Activities
There were no cash flows provided or used in investing activities for the three months ended November 30, 2015 nor 2014.
Cash Flows from Financing Activities
During the three months ended November 30, 2015, we received $50,000 in proceeds from three promissory notes. For the same period in 2014, we received $350,000 in such proceeds.
Capital Requirements
If we do not raise any additional capital we will not be able to implement any facets of our business plan.
We intend to pursue capital through public or private financing as well as borrowings and other sources, such as our equity backed loans in order to finance our business activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.
We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of an early stage business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies (See "Risk Factors", above). To become profitable and competitive over the long run, we must develop our business and marketing plan and execute such plan. Our management will attempt to secure financing through various means including borrowing and investment from institutions and private individuals.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.