SECURITIES AND EXCHANGE COMMISSION 

WASHINGTON, D.C. 20549

Form 10-Q

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

For the quarterly period ended November 30, 2014

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

For the transition period from ________to _________

Commission File Number: 333-182761

NHALE, INC. 

(Formerly Gankit Corporation)

(Exact name of small business issuer as specified in its charter)

Registrant's telephone number, including area code: (281) 671-6877

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

There were 30,000,000 shares of the registrant’s common stock issued and outstanding as of January 15, 2015.

IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

Unless otherwise indicated, references to “we,” “us,” and “our” in this Quarterly Report on Form 10-Q refer to Nhale, Inc.

Readers should consider the following information as they review this Quarterly Report:

Forward-Looking Statements

The statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” (as such term is defined in the Private Securities Litigation Reform Act of 1995), within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. Forward-looking statements include any statement that may project, indicate or imply future results, events, performance or achievements. The forward-looking statements contained herein are based on current expectations that involve a number of risks and uncertainties. These statements can be identified by the use of forward-looking terminology such as “believes,” “expect,” “may,” “should,” “intend,” “plan,” “could,” “estimate” or “anticipate” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.

Given the risks and uncertainties relating to forward-looking statements, investors should not place undue reliance on such statements. Forward-looking statements included in this Quarterly Report on Form 10-Q speak only as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such expectations may prove to have been incorrect. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements.

Except to the extent required by applicable securities laws, we expressly disclaim any obligation or undertakings to release publicly any updates or revisions to any statement or information contained in this Quarterly Report on Form 10-Q, including the forward-looking statements discussed above, to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any statement or information is based.

NHALE, INC. 

(Formerly Gankit Corporation) 

FINANCIAL STATEMENTS ON FORM 10-Q 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NHALE, INC. 

(Formerly Gankit Corporation) 

BALANCE SHEETS

The accompanying notes are an integral part of these financial statements.

NHALE, INC. 

(Formerly Gankit Corporation) 

STATEMENTS OF OPERATIONS 

(Unaudited)

The accompanying notes are an integral part of these financial statements.

NHALE, INC. 

(Formerly Gankit Corporation) 

STATEMENTS OF CASH FLOWS 

(Unaudited)

The accompanying notes are an integral part of these financial statements.

NHALE, INC. 

(Formerly Gankit Corporation) 

Notes to Financial Statements 

(Unaudited)

Note 1. Basis of Presentation

The accompanying unaudited interim financial statements of Nhale, Inc. (formerly Gankit Corporation) (“NHLE” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual report on Form 10-K filed with the SEC on September 15, 2014. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for our interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the fiscal year ended May 31, 2014, as reported in our annual report on Form 10-K, have been omitted.

Nhale, Inc. (“Nhale” or the “Company”) was incorporated in Nevada on March 8, 2012 as Gankit Corporation, an e-commerce website selling a multitude of consumer products including electronics, appliances, clothing, accessories, sporting goods and gift cards.

On May 12, 2014, Riverview Heights, LLC (the “Majority Shareholder”) purchased 20,000,000 shares of common stock of the 30,000,000 total issued and outstanding shares representing 66.67% of the total equity of the Company. On May 13, 2014, John Arnold resigned as Chief Executive Officer and Sole Director and the majority shareholder appointed Lance Williams as Sole Director, Chief Executive Officer and President of the Company.

The Company then ceased to operate its e-commerce website and abandoned that business model, and re-focused on the development, branding and distribution of non-flame smoking devices.

Summary of Significant Accounting Policies

BASIS OF PRESENTATION – The Company’s financial statements are presented in accordance with accounting principles generally accepted (GAAP) in the United States. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein.

USE OF ESTIMATES – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ.

CASH AND CASH EQUIVALENTS – The Company considers all highly liquid debt instruments and other short-term investments with maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash and cash equivalent balances at one financial institution that is insured by the FDIC.

INTANGIBLE ASSETS – As Gankit Corporation, the Company’s policy was to capitalize intellectual property related to its website. Upon change of control and change in business model, the Company’s intangible assets were impaired during the year ended May 31, 2014 to zero.

The Company reviews the recoverability of it long-lived assets on a periodic basis whenever events and changes in circumstances have occurred which may indicate a possible impairment. The assessment for potential impairment will be based primarily on the Company’s ability to recover the carrying value of its long-lived assets from expected future cash flows from its operations on an undiscounted basis. If such assets are determined to be impaired, the impairment recognized is the amount by which the carrying value of the assets exceeds the fair value of the assets.

FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying amount reported in the balance sheet for cash and cash equivalents, accounts payable, and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The Company does not utilize derivative instruments.

INCOME TAXES – Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled as prescribed in FASB ASC 740, Income Taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that a deferred tax asset will not be realized.

The Company applies the authoritative guidance in accounting for uncertainty in income taxes recognized in the financial statements. This guidance prescribes a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination. If the tax position is deemed “more-likely-than-not” to be sustained, the tax position is then assessed to determine the amount of benefit to recognize in the financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement.

BASIC AND DILUTED LOSS PER COMMON SHARE – We report both basic and diluted net loss per share. Basic net loss per common share is computed by dividing net loss for the period by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is computed by dividing the net loss for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive.

REVENUE RECOGNITION – The Company recognizes revenues when:

In some cases, we intend to send product free of charge for promotional reasons and to place portions of our inventory with retail outlets on consignment. For promotional shipments, we will charge the cost of products to Promotional Expense when shipped. In the case of consignments of our inventories, we will count sales as revenues when cash payments are received.

RECENTLY ADOPTED AND RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS – Recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.

Note 2. Going Concern

The Company realized a loss of $372,913 for the six months ended November 30, 2014 and has an accumulated deficit of $1,222,214. As a result, the Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

In addition to operational expenses, as the Company executes its business plan, it is incurring expenses related to complying with its public reporting requirements. In order to finance these expenditures, the Company has raised capital in the form of debt, which will have to be repaid, as discussed in detail below. The Company has depended on loans from private investors and outside investors for most of its operating capital. The Company will need to raise capital in the next twelve months in order to remain in business.

Management anticipates that significant dilution will occur as a result of any future sales of the Company’s common stock and this will reduce the value of its outstanding shares. The Company cannot project the future level of dilution that will be experienced by investors as a result of its future financings, but it will significantly affect the value of its shares.

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

Note 3. Notes Payable

Discussions of promissory notes issued prior to May 31, 2014 are included in our Form 10-K as of May 31, 2014 filed with the Securities and Exchange Commission on September 15, 2014 and are incorporated here by reference. Unpaid principal on these promissory notes amounted to $525,000 at May 31, 2014, with accrued but unpaid interest of $42,152. No principal or interest payments have been made on these debts for the six months ended November 30, 2014. During the six months ended November 30, 2014, we have accrued an additional $37,125 of interest on these debts existing at May 31, 2014. At November 30, 2014, unpaid interest on debts existing at May 31, 2014 was $79,277.

During the six months ended November 30, 2014, we issued six new promissory notes with an aggregate nominal value of $350,000. These promissory notes mature between May 19, 2016 and November 14, 2016. Each has a nominal interest rate of 15% with default rates (upon default) of 25%. During the six months ended November 30, 2014 we accrued $16,110 on interest on these new debts.

Also during the six months ended November 30, 2014, we received extensions on $150,000 of debt, $100,000 of which was due August 31, 2014 and $50,000 of which was due November 30, 2014. Both these amounts have been extended until December 31, 2015.

Note 4. Capital Structure

The Company has authorized capital consisting of 100,000,000 shares of common stock with a par value of $0.0001 per shares. We had 30,000,000 shares issued and outstanding at May 31 and November 30, 2014. There are no convertible instruments or any other potentially dilutive securities outstanding.

Note 5. Income Taxes

At May 31, 2014, there was no provision for income taxes, current or deferred. Components of deferred tax assets are as follows:

As of May 31, 2014, the Company had net operating loss carry forwards in the amount of approximately $849,301. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

Because of the change in control described in Note 5 to the financial statements of Form 10-K as of May 31, 2014, Internal Revenue Code Section 382 limits the amount of net operating loss carry-forwards that can be used in periods subsequent to the change in control. Specifically, Section 382(c) limits the carry-forward to zero if the new corporation does not continue the business enterprise of the old corporation. We believe that Nhale, Inc. does not satisfy the criteria of continuity of business requirements set forth in IRC 382(c). We have therefore reset the carry-forwards to zero as of May 31, 2014 and have considered only losses occurring after that.

Note 6. Subsequent Events

This report evaluates events for inclusion herein through the date the report is filed.

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 September 15, 2014.

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.

The Nhale vaporizer pen uses vaporizer technology. The unit is discreet, and we believe it may be a healthier alternative to traditional smoking. The Nhale vaporizer pen allows the user to consumer to consume the herbal product without the harmful effects and toxins produced by combustion, and eliminates the danger of second hand smoke. It produces much less odor and can be used in public places. The major benefit of the pen is that it allows the consumer to receive the effects or benefits of smoking the herbal product without the health and social risks involved with smoking. Oils and other viscous liquids can also be used with the optional glass chamber that comes with the kit. The parts are contained in an attractive case for maximum portability.

Vaporizer pens consist of three components: A battery, an atomizer and a loadable cartridge or chamber. The battery transfers energy to the atomizer. The atomizer heats the air drawn into the electronic device to a temperature high enough that it vaporizes the active ingredient in the chamber. The vapor is then inhaled into the mouth and lungs simulating the smoking experience and delivering the essential components. The simulated “smoke” is simply water vapor that evaporates in a few seconds with little lingering odor.

The Nhale vaporizer pen kit is priced competitively with the industry.

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, 2014 versus 2013

Net Loss from Operations - During the six months ended November 30, 2014, we expended $42,334 on sales and marketing efforts, $293,501 on general and administrative activities and had a net loss from continuing operations of $335,835. We cannot compare the result of our operation with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Interest expense – during the six months ended November 30, 2014, we incurred $53,235 of interest charges on our outstanding promissory notes payable. We cannot compare interest expense with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Net loss from continuing operations for the six months ended November 30, 2014 was $372,913 versus that from discontinued operations (Gankit Corporation) during the same period in 2013 of $262,137.

Three Months Ended November 30, 2014 versus 2013

Net Loss from Operations - During the three months ended November 30, 2014, we expended $23,849 on sales and marketing efforts, $148,200 on general and administrative activities and had a net loss from continuing operations of $172,049. We cannot compare the result of our operation with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Interest expense – during the three months ended November 30, 2014, we incurred $29,988 of interest charges on our outstanding promissory notes payable. We cannot compare interest expense with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Net loss from continuing operations for the three months ended November 30, 2014 was $185,880 versus that from discontinued operations (Gankit Corporation) during the same period in 2013 of $126,843.

Liquidity and Capital Resources

As of November 30, 2014, the Company had current assets of $19,826, comprised of cash and cash equivalents of $10,566 and prepaid expenses and other current assets of $9,260.

We had negative working capital of $633,964 and a deficit accumulated of $1,222,214 as of November 30, 2014.

Cash Flows from Operating Activities

During the six months ended November 30, 2014 the Company used cash in operating activities of $356,391. The use of cash from operating activities is predominantly attributed to our net loss. We cannot compare cash flows from operating activities with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Cash Flows from Investing Activities

During the three months ended November 30, 2014, the Company had no cash flow from investing activities, either negative or positive. We cannot compare cash flows from investing activities with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

Cash Flows from Financing Activities

During the three months ended November 30, 2014, we received $350,000 in proceeds from promissory notes. We cannot compare cash flows from investing activities with the same period in 2013 because during that period, we operated as Gankit Corporation which has since been discontinued.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 

As a smaller reporting company, we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES
 

Our principal executive officer evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our principal executive officer as appropriate, to allow for timely decisions regarding required disclosure as of the end of the period covered by this report. Based on this evaluation, our principal executive officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report due to a lack of segregation of duties and an absence of written policies and procedures for accounting and financial reporting.

Change in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarter ended November 30, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
 

ITEM 1. LEGAL PROCEEDINGS
 

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business. We are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.

ITEM 1A. RISK FACTORS
 

There have been no material changes from the risk factors previously disclosed in the Company’s annual report on Form 10-K, filed with the Commission on September 15, 2014, and investors are encouraged to review such risk factors prior to making an investment in the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 

There were no unregistered sales of equity securities during the quarter ended November 30, 2014.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 

None.

ITEM 4. MINE SAFETY DISCLOSURES
 

Not applicable.

ITEM 5. OTHER INFORMATION
 

Not applicable.

ITEM 6. EXHIBITS
 

____________

* Filed herewith. 

** Furnished herewith.

++ XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES
 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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