China De Xiao Quan Care Group Co., Ltd - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934

For the fiscal year ended May 31, 2016

¨ 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

Registrant's telephone number, including area code: (719) 219-6336

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

Securities registered pursuant to Section 12(g) of the Act: None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 o

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

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 o No x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant computed by reference to the price at which the common equity was last sold, or the average bid and asked prices of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (November 30, 2015) was $5,200,000.

The number of shares of the registrant’s common stock outstanding as of October 12, 2016: 30,000,000.

IMPORTANT INFORMATION REGARDING THIS FORM 10-K

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

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

Forward-Looking Statements

The statements contained or incorporated by reference in this Annual Report on Form 10-K that are not historical facts are “forward-looking statements” 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,” “will,” “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 Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K 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 Annual Report on Form 10-K, 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.

INDEX TO FORM 10-K ANNUAL REPORT

PART I

Item 1. Business

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 Rhode 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.

OUR PRODUCT

Nhale is an 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.

BUSINESS STRATEGY

The company recognizes two major trends: The increasing adoption of vaporizing and electronic cigarettes, or ecigs, by the world’s 1billion+ smokers, and the decriminalization of marijuana for medical use. Our efforts are centered on introducing innovative new technologies focusing on both of these market trends.

SALES and MARKETING STRATEGY

Nhale is committed to developing key partnerships and relationships to help it establish market presence and provided full service marketing, including Internet and social media marketing in support of the product rollout. We are currently working with established retail distributors who will perform the majority of the direct product marketing as part of our agreement with them. The major distributor is Evaps Distribution and Promotions, who has signed several retailers, including 12 retail locations in Houston, Texas.

CHARACTERISTICS AND MAKE UP OF TARGET MARKET

Our current market is made up of smokers who are looking for an alternative to traditional cigarettes. In addition, there are currently 23 states that have decriminalized medical marijuana in the U.S. Both trends provide us a large pool of potential customers within two market segments.

BRAND RECOGNITION AND CHARACTERISTICS

The Nhale vaporizer is pen comes in a convenient, easy to use multi-use kit. This all-purpose set includes everything needed to vaporize dry herd, waxes, e-liquids, and oils in a convenient carrying case.

Comparable to much higher priced vape pens the Nhale vaporizer features interchangeable parts for dry leaf herbs and a glass chamber for essential oils and concentrates in an elegant, lightweight pen-style vape.

COMPETITION

There are many ecig companies on the market, many of which are made in China that compete directly in the U.S. market. This creates challenging issues as the manufacturers of these devices are also directly marketing to the customers in our market sector.

Major tobacco companies are currently moving to get ahead of the potential shift in the market by selling e-cigarettes themselves. With deep pockets, intimate knowledge of the market, powerful research and development capability and massive sales and distribution networks, they are in a position to quickly seize the majority of the market. Experts believe that the big companies will market devices that will be likely to win over more smokers.

Examples of the major competitive brands that Nhale competes against are:

Atmos

Grenco Science

Vaped

Cloud

EMPLOYEES AND EMPLOYMENT AGREEMENT

As of the date of this report, we have no employees other than Mr. Williams, our sole officer and director

Mr. Williams entered into an employment agreement with the Company on May 13, 2014 that has been ratified by the Majority Shareholder. Under the employment agreement, Mr. Williams will receive $7,500 per month to serve in the capacities of Sole Director, Chief Executive Officer and President of the Company. Mr. Williams does not own any securities of the Company, and has not entered into any compensation agreements with the Company that would provide for the issuance of common stock or stock options in exchange for services rendered.

We do not presently have pension, health, annuity, insurance, stock options, profit sharing, or similar benefit plans; however, we may adopt plans in the future. There are presently no personal benefits available to our sole director and officer.

In the early stages of our business, we intend to hire independent consultants to assist in its development and execution.

GOVERNMENT REGULATIONS

The Food and Drug Administration (FDA)’s Center for Tobacco Products currently does not have authority to regulate the sale or use of e-cigarette devices as tobacco products.

Even though the FDA is not regulating e-cigarettes, local and state governments may still adopt laws regulating e-cigarettes, including restrictions on their sale or use.

Item 1A. Risk Factors

Our business involves a high degree of risk. The following risk factors should be considered carefully in addition to the other information contained in this Form 10-K.

Risks Related to Our Business

We Are An Early Stage Company, Our Business Is Evolving And Our Business Prospects Are Difficult To Evaluate.

We are an early stage company with a limited operating history. We have a limited operating history that you can rely on in evaluating the Company. Our prospects must be carefully considered in light of our history, our high capital costs, our exposure to operating losses and the other risks, uncertainties and difficulties that are typically encountered by companies that are implementing new business models. Some of the principal risks and difficulties we expect to encounter include our ability to:

Because of our lack of operating history and our early stage of development, we have limited insight into trends and conditions that may exist or might emerge and affect our business. There is no assurance that our business strategy will be successful or that we can or will successfully address these risks.

We Will Need To Raise Additional Capital To Continue Our Business Operations.

We need to raise additional capital to implement our business plan over the next 24 months. If we are unable to obtain additional financing, our future growth, if any, could be impaired. If we fail to raise additional funding in the future, we may not have enough money to pay our legal and accounting expenses and we could be forced to curtail or abandon our business plan, causing our securities to become worthless. Additionally, even if we do raise additional funding, there can be no assurance that additional capital from outside sources will be available for our marketing and future growth, if any, or if such financing is available, that it will not involve issuing securities senior to our common stock or equity financings which are dilutive to holders of our common stock. In addition, in the event we do not raise additional capital, we may be limited in our ability to grow our Company.

The Repayment Of Our Notes Payable Is Secured By A Security Interest In Substantially All Of Our Assets.

Private investors have loaned us $1,085,000 which was evidenced by promissory notes. These notes range in interest from 12% to 15% per annum. Of this amount $600,000 is currently in default and we are incurring default interest rates from 18% to 25%% on these notes. The notes are secured by security interests in substantially all of our assets and we do not currently have sufficient funds to repay the notes. Holders of these notes may enforce the security interest over the assets of the Company, which if enforced could leave us without any assets, and as a result, we could be forced to curtail or abandon our current business plans and operations. If that were to happen, the value of our shares may decline or become worthless.

Our Business And The Success Of Our Services Could Be Harmed If We Are Unable To Establish And Maintain A Brand Image.

We believe that establishing a brand is critical to achieving acceptance of our product and to establishing key strategic relationships. As a new company with a new brand, we believe that we have little to no brand recognition with the public. We may experience difficulty in establishing a brand name that is well-known and regarded, and any brand image that we may be able to create may be quickly impaired. The importance of brand recognition will increase when and if our competitors create services that are similar to our services. Even if we are able to establish a brand image and react appropriately to changes in customer preferences, customers may consider our brand image to be less prestigious or trustworthy than those of our larger competitors. Our results of operations may be affected in the future from our brand image.

We May Not Be Able To Keep Up With Rapid Technological And Other Changes.

The markets in which we will compete are characterized by rapidly changing technology, evolving industry standards, consolidation, frequent new service announcements, introductions and enhancements and changing consumer demands. We may not be able to keep up with these rapid changes.

Our Lack Of An Operating History Gives No Assurance That Our Future Operations Will Result In Material Revenues, Which Could Result In The Suspension Or End Of Our Operations.

We were incorporated on March 8, 2012, and although we have realized minimal operating revenues to date, we have very little operating history upon which an evaluation of our future success or failure can be made. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues in excess of our expenses in the future.

Based upon current plans, we expect to incur operating losses in future periods because we will likely incur expenses that exceed our revenues. We cannot guarantee that we will be successful in generating a profit in the future. Failure to generate a profit may cause us to go out of business.

We Are A New Company With A Limited Operating History And We Face A High Risk Of Business Failure.

We are a early stage company formed recently to carry out the activities described in this report and thus have only a limited operating history upon which an evaluation of our prospects can be made. We were incorporated on March 8, 2012, and to date have been involved primarily in the development of our business plan and early-stage operations. Because we have a limited operating history there is little internal or industry-based historical financial data upon which to estimate our planned operating expenses.

We expect that our results of operations may also fluctuate significantly in the future as a result of a variety of market factors including, among others, the entry of new competitors; the availability of motivated and qualified personnel; the initiation, renewal or expiration of our customer base; pricing changes by the Company or its competitors, specific economic conditions in retail markets and general economic conditions. Accordingly, our future sales and operating results are difficult to forecast.

Adverse Developments In The Global Economy Restricting The Credit Markets May Materially And Negatively Impact Our Business.

The recent downturn in the world's major economies and the constraints in the credit markets have heightened or could continue to heighten a number of material risks to our business, cash flows and financial condition, as well as our future prospects. Continued issues involving liquidity and capital adequacy affecting lenders could affect our ability to access credit facilities or obtain debt financing and could affect the ability of lenders to meet their funding requirements when we need to borrow. Further, in the uncertain event that a public market for our stock develops, the volatility in the equity markets may make it difficult in the future for us to access the equity markets for additional capital at attractive prices, if at all. The recent credit crisis in other countries, for example, and concerns over debt levels of certain other European Union member states, has increased volatility in global credit and equity markets. If we are unable to obtain credit or access capital markets, our business could be negatively impacted.

Because We Are Small And Do Not Have Much Capital, We Must Limit Our Marketing Activities. As A Result, Our Sales May Not Be Enough To Operate Profitably. If We Do Not Make A Profit, We May Have To Suspend Or Cease Operations.

Due to the fact we are small and do not have much capital, we must limit our marketing and advertising activities. We intend to increase our marketing and advertising efforts provided that we have ample working capital to invest in such activities. Because we will be limiting the duration of our marketing and advertising activities, due to a constrained budget, we may not be able to generate enough sales to operate profitably. If we cannot operate profitably, we may have to suspend or cease operations.

We Have Generated Limited Revenues From Our Operations Which Poses Substantial Risk To Any Investor.

An investment in our Company is characterized by a high degree of risk. Investors should take caution when considering our limited revenues, lack of earnings, and lengthy plans for business development and expansion. Our current operations reside entirely in the development of our products which has generated limited revenue to date (none in the case of the e-cigarette business). Although we believe that future capital investment in our website will grow our business, there can be no assurance that we will be able to effectively develop our business in a profitable manner. The success of our business depends on the ability of management to successfully develop, market, and sell new products; and generate revenues and earnings therefrom. The inability of our website to generate net income may adversely affect our financial performance and stock price.

We Have Limited Assets That May Be Used To Execute Our Business Plan. Our Lack Of Assets May Have An Adverse Impact On Our Ability To Grow Our Business And Generate Revenues And Earnings.

We have limited financial and operational assets as well as limited long-term assets such as property, facilities and equipment to fully develop our business plan. We will need to raise additional capital to provide for a facility, purchase equipment and inventory, and fund the labor required to appropriately develop our website. Our lack of financial and operational assets may impair our ability to generate future revenues and earnings which could cause the value of our securities to decline.

We Face Significant Inventory Risk

We may be exposed to significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid changes in product cycles and pricing, defective merchandise, changes in consumer demand and consumer spending patterns, changes in consumer tastes with respect to products we offer for sale and for auction on our website. We plan to endeavor to accurately predict these trends and avoid overstocking or understocking products. Demand for products, however, can change significantly between the time inventory is ordered and the date of sale. In addition, when we begin selling a new product, it may be difficult to determine appropriate product selection, and accurately forecast demand. The acquisition of certain types of inventory in the future may not be returnable. Any one of the inventory risk factors set forth above may adversely affect our operating results.

We Do Not Collect Sales or Consumption Taxes in Some Jurisdictions

U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local sales taxes with respect to remote sales. However, an increasing number of states have considered or adopted laws that attempt to impose obligations on out-of-state retailers to collect taxes on their behalf. Currently, we do not collect sales or consumption taxes in some jurisdictions. A successful assertion by one or more states or foreign countries requiring us to collect taxes where we do not do so could result in substantial tax liabilities, including for past sales, as well as penalties and interest.

We May Incur Substantial Losses In The Future As We Expand Our Operations And Invest In Our Inventory.

We will incur costs related to advertising our new product lines for sale. When making investments to grow our membership base and to expand our website's capabilities, it is likely that we will incur costs for a prolonged period prior to generating revenues, if any. The foregoing costs and expenses will likely give rise to substantial near-term operating losses and may prevent the Company from achieving profitability for an extended period of time. We expect to rely on equity and debt financing to fund potential operating losses and other cash requirements until we are able to generate larger profits from operations. We may experience negative cash flow, which will hamper current operations and prevent the Company from expanding. We may be unable to attain, sustain or increase profitability on a quarterly or annual basis in the future, which could require us to scale back or terminate our operations.

We Will Be A Small Player In An Intensely Competitive Industry And May Be Unable To Compete.

The e-cigarette industry is large and intensely competitive. Many of our competitors have substantially more financial and operational resources than we do.

Our Business May Be Subject To New Laws And Regulations, A Reinterpretation of Existing Laws, Or Face Permitting, Certification, or Approval Mandates From Regulatory Agencies.

The methods we use to sell and distribute products may be subject to oversight and/or approval from certain regulatory agencies. Should we fail to meet future regulatory standards our ability to operate may be impaired, our financial and operational performance could be adversely affected and you could lose your entire investment. The value of our shares may decline in value or become worthless.

If The Company Is Dissolved, It Is Unlikely That There Will Be Sufficient Assets Remaining To Distribute To Our Shareholders.

In the event of the dissolution of the Company, the proceeds realized from the liquidation of our assets, if any, will be used primarily to pay the claims of our creditors, if any, before there can be any distribution to the shareholders. In that case, the ability of equity investors to recover all or any portion of their investment will depend on the amount of funds realized and the claims to be satisfied therefrom.

If We Are Forced To Incur Unanticipated Costs Or Expenses, We May Have To Suspend Or Cease Our Activities Entirely Which Could Result In A Total Loss Of Your Investment.

Because we are a small business, with limited assets, we are not in a position to bear unanticipated costs and expenses. If we have to make changes in our structure or are faced with circumstances that are beyond our ability to afford, we may have to suspend or cease our activities entirely which could result in a total loss of your investment the value of our shares declining in value or becoming worthless.

Key Management Personnel May Leave The Company Which Could Adversely Affect The Ability Of The Company To Continue Its Development.

Because we are almost entirely dependent on the efforts of our sole officer and director, Lance Williams, his departure or the loss of other key personnel in the future, could have a material adverse effect on our business. We do not maintain key man life insurance on Mr. Williams. Mr. Williams may terminate his employment with us at any time for any reason.

Riverview Heights, LLC (the “Majority Shareholder”) owns 66.67% Of the Outstanding Shares of Common Stock and Has Considerable Influence over the Board of Directors of the Company. Shareholders May Find That the Majority Shareholder’s Decisions Are Contrary To Their Interests And You Should Not Purchase Shares Unless You Are Willing To Entrust All Aspects Of Management To Our Largest Shareholder or His Successors.

Riverview Heights, LLC (the “Majority Shareholder”) owns 20,000,000 shares of common stock representing 66.67% of our outstanding common stock. As such, the Majority Shareholder will have significant control over who serves as directors of the Company and subsequently who serves as officers of the Company and in determining the outcome of all corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. His interests may differ from the interests of other stockholders. All decisions regarding the management of our affairs will be made by our sole officer and director Lance Williams. Accordingly, no person should invest in the Company’s shares unless they are willing to entrust all aspects of management and control of the Company to Lance Williams and/or the Majority Shareholder.

We Currently Do Not Have Agreements With Any Product Vendors To Sell Products. In The Event That We Are Not Able To Purchase Inventory From Suppliers With Favorable Prices And Terms, It Could Adversely Affect Our Operations.

In the event that we are unable to develop relationships and favorable agreements with product suppliers, we may not be able to operate our business. Even if we do establish these relationships, we may be subject to supplier price increases, unfavorable trade terms, problems with quality control, lack of scalability, inadequate shipping and logistics, or simply a vendor's refusal to sell its products to us. In the event that we face any of these common vendor problems, our financial and operational results could be materially, adversely affected.

Because We Only Have One Primary Supplier of Products, We Have A Concentration In Our Supply Chain. In The Event That We Are Not Able To Continue To Purchase Inventory From Our Supplier, It Could Adversely Affect Our Operations.

In the event that our primary supplier increases its prices, presents unfavorable trade terms, experiences problems with quality control, becomes insolvent, or simply decides to no longer sell its products to us, our financial and operational results will be materially, adversely affected. As a result, the value of our securities may decline in value or become worthless.

A Reduction In Spending Due To Economic Downturns Could Result In A Decrease In Demand For Our Products.

If national retail sales levels decrease due to a broader economic downturn, discretionary spending and as a result, the demand for our services and products would likely decline. This decrease could reduce our opportunity for growth, increase our marketing and sales costs, and reduce our sales volume and force us to reduce the prices we can charge for products, which could reduce our revenue and operating results, if any.

We Face Corporate Governance Risks And Negative Perceptions Of Investors Associated With The Fact That We Currently Have Only One Officer And Director.

Lance Williams is our sole officer and director. As such, he has significant control over our business direction. Additionally, as he is our only director, there are no other members of the Board of Directors available to second and/or approve related party transactions involving Mr. Williams, including the compensation Mr. Williams may be paid and the employment agreements we may enter into with Mr. Williams. Additionally, there is no segregation of duties between officers because Mr. Williams is our sole officer, and as such, he is solely responsible for the oversight of our accounting functions. Therefore, investors may perceive that because no other directors are approving related party transactions involving Mr. Williams and no other officers are approving our financial statements that such transactions are not fair to the Company and/or that such financial statements may contain errors. The price of our common stock may be adversely affected and/or devalued compared to similarly sized companies with multiple officers and directors due to the investing public’s perception of limitations facing our Company due to the fact that we only have one officer and director.

Risks Related To Our Industry

Competition from New and Existing Competitors within our Industry Could Have an Adverse Effect on our Results of Operation

The e-cigarette and vaporizer industry is highly competitive. Our principal competitors include local and international companies capable of competing effectively in our markets; many of them possess substantially greater financial and other resources than we do. Additionally, our larger competitors may be able to devote greater resources to developing, promoting and selling their products and services. We may also face increased competition due to the entry of new competitors. As a result of this competition, we may experience lower sales if our prices are undercut or advanced technology is brought to market, which would likely have an adverse effect on our results of operations and force us to curtail or abandon our current business plan.

Our Results of Operations May Be Negatively Affected by Sustained Downturns or Sluggishness in the Economy, Which Are Beyond our Control

Declines in demand for consumer products as a result of economic downturns may reduce our potential cash flows, especially if our customers experience a reduction in disposable income or a shift in their spending patterns.

Demand for retail goods can change as a result of a number of microeconomic and macroeconomic factors:

The Long-Term Financial Condition of Our Businesses Is Dependent on the Continued and Secure Use of the Internet

Our business is dependent upon the continued availability of the internet to users in a secure environment. Should the infrastructure that provides the essential functions necessary for the operation of the internet experience temporary or prolonged failure, our business will not be able to operate. Furthermore, should the security of making online purchases become compromised, consumer confidence in making online transactions could decrease, and as a result, our business operations and financial condition could be adversely affected.

Risks Related to Our Financial Condition

There Is Substantial Uncertainty About Our Ability To Continue As A Going Concern.

In their audit report, our auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. We have limited revenues and continue to require substantial capital to develop our business. Because our activities have been financed from a small group of private investors, we have a concentration of sources of funding. Failure to receive future capital from our private investors, or to replace that funding with new investment capital, may require us to suspend or cease our activities altogether which could result in the loss of your investment.

We Have Significant Weaknesses In Our System Of Internal Controls That Could Subject Us To Regulatory Scrutiny Or Impair Investor Confidence, Which Could Adversely Affect Our Business.

We have insufficient personnel to allow us to segregate duties, a limitation we have deemed a “material weakness”.

Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to perform a comprehensive evaluation of their internal controls. In connection with our on-going assessment of the effectiveness of our internal control over financial reporting, we have and may in the future discover "material weaknesses" in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines "significant deficiency" as a deficiency that results in more than a remote likelihood that a misstatement of the financial statements that is more than inconsequential will not be prevented or detected.

In the event that a material weakness is identified, we will attempt to adopt and implement policies and procedures to address any material weaknesses that we identify. However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you that the measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequate controls over our financial process and reporting in the future. We may not have the financial or other resources to maintain effective internal control.

Future efforts to bring our system of internal controls into compliance with Section 404 and related regulations will likely require the commitment of significant financial and managerial resources. If we fail in that effort, we could be subject to regulatory scrutiny or suffer a loss of investor confidence, which could adversely affect our business.

Risks Related to Our Securities

We Do Not Anticipate Paying Dividends In The Foreseeable Future.

We have never paid dividends and do not intend to pay any dividends for the foreseeable future. To the extent that we may require additional funding currently not provided for in our financing plan, our funding sources may prohibit the declaration of dividends.

We May Issue Additional Shares Of Common Stock Or Derivative Securities That Will Dilute The Percentage Ownership Interest Of Our Existing Shareholders And May Dilute The Book Value Per Share Of Our Common Stock And Adversely Affect The Terms On Which The Company May Obtain Additional Capital.

Our authorized capital consists of 100,000,000 shares of common stock. Our sole director has the authority, without action by or vote of our shareholders, to issue all or part of the authorized shares of common and preferred stock for any corporate purpose, including for the conversion or retirement of debt. We are likely to seek additional equity capital in the future as we develop our business and expand our operations. Any issuance of additional shares of common stock or derivative securities, such as convertible promissory notes, will dilute the percentage ownership interest of our shareholders and may dilute the book value per share of our common stock. Additionally, the exercise or conversion of derivative securities could adversely affect the terms on which the Company can obtain additional capital. Holders of derivative securities are most likely to voluntarily exercise or convert their derivative securities when the exercise or conversion price is less than the market price for the underlying common stock. Holders of derivative securities will have the opportunity to profit from any rise in the market value of our common stock or any increase in our net worth without assuming the risks of ownership of the underlying shares of our common stock. It is possible that, due to additional share issuance, the value of our securities may decline in value or become worthless.

Our sole director may attempt to use non-cash consideration to satisfy obligations, which would likely consist of restricted shares of our common stock. Our sole director has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.

Our Shares Trade under $5.00 per Share and Thus are Considered to be a Penny Stock. Trading in Penny Stocks Has Many Restrictions and These Restrictions Could Severely Affect the Price and Liquidity of our Shares.

As our stock trades below $5.00 per share, our stock is known as a "penny stock," which is subject to various regulations involving disclosures to be given to you prior to the purchase of any penny stock. The U.S. Securities and Exchange Commission (the "SEC") has adopted regulations which generally define a "penny stock" to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. Depending on market fluctuations, our common stock could be considered to be a "penny stock." A penny stock is subject to rules that impose additional sales practice requirements on broker/dealers who sell these securities to persons other than established customers and accredited investors. For transactions covered by these rules, the broker/dealer must make a special suitability determination for the purchase of these securities. In addition, he must receive the purchaser's written consent to the transaction prior to the purchase. He must also provide certain written disclosures to the purchaser. Consequently, the "penny stock" rules may restrict the ability of broker/dealers to sell our securities, and may negatively affect the ability of holders of shares of our common stock to resell them. Penny stocks are low priced securities that do not have a very high trading volume. Consequently, the price of the stock is often volatile and you may not be able to buy or sell the stock when you want to.

Financial Industry Regulatory Authority ("FINRA") Sales Practice Requirements May Also Limit Your Ability To Buy And Sell Our Common Stock, Which Could Depress The Price Of Our Shares.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our shares, have an adverse effect on the market for our shares, and thereby depress our share price.

We Incur Significant Increased Costs As A Result Of Operating As A Fully Reporting Company As Well As In Connection With Section 404 Of The Sarbanes Oxley Act.

We incur legal, accounting and other expenses in connection with our status as a fully reporting public company. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and rules subsequently implemented by the SEC have imposed various requirements on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and make some activities more time-consuming and costly. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure of controls and procedures. In particular, we must perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting. Our testing may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses. Our compliance with Section 404 and our status as a publicly reporting company will require that we incur substantial accounting, legal and filing expenses and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, the market price of our stock, if any, could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

Item 2. Properties

We maintain our business office at 422 E. Vermijo Ave. Suite 19, Colorado Springs, CO 80903. Our telephone number is (719) 219-06336.

On February 17, 2016, we entered into a lease agreement for our business office with 422 East Vermijo Investments, LLC (the “Landlord”). The material terms of the lease agreement are as follows:

Item 3. Legal Proceedings

We currently have no legal proceedings pending nor have any legal proceeding been threatened against us or any of our officers, directors or control persons of which we are aware.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is quoted on the Over the Counter Bulletin Board under the symbol “NHLE”. From June 3, 2013 to June 12, 2014 our stock traded under the symbol GANK. The following table sets forth, for the respective periods indicated, the prices of the common stock in the over-the-counter market, as reported and summarized by the OTC Bulletin Board. Such prices are based on inter-dealer bid and asked prices, without markup, markdown, commissions, or adjustments and may not represent actual transactions.

The Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange Act (the “Rules”). The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally persons with net worth in excess of $1,000,000, exclusive of their residence, or an annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Thus the Rules affect the ability of broker-dealers to sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account. As a result of the penny stock rules, the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the securities to resell them.

Holders

As of the date of this report, we had 3 shareholders of record, not including shares held at brokerage firms, and 30,000,000 shares of common stock issued and outstanding.

Dividend Policy

We have not declared or paid any dividends on our common stock to date. We anticipate that any future earnings will be retained as working capital and used for business purposes. Accordingly, it is unlikely that we will declare or pay any such dividends in the foreseeable future.

Recent Sales of Unregistered Securities

None

Stock Plans

The Company does not have any stock plans or outstanding options or warrants.

Use of Proceeds From Sale of Registered Securities

Not applicable.

Item 6. Selected Financial Data

Because the Company is a smaller reporting company, it is not required to provide the information required by this Item 6.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: "believe", "expect", "estimate", "anticipate", "intend", "project" and similar expressions, or words that, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.

Overview

We are an early-stage company, incorporated in the State of Nevada on March 8, 2012, as a for-profit company, and an established fiscal year of May 31. We previously operated under the name Gankit Corporation while we operated a retail penny auction site. 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 Gankit Corporation becoming the Majority Shareholder and changed the nature of the business from a penny auction site to a seller of e-cigarettes.

Plan of Operation

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.

BUSINESS STRATEGY

The company recognizes two major trends: The increasing adoption of vaporizing and electronic cigarettes, or ecigs, by the world’s 1billion+ smokers, and the decriminalization of marijuana for medical use. Our efforts are centered on introducing innovative new technologies focusing on both of these market trends.

SALES and MARKETING STRATEGY

Nhale is committed to developing key partnerships and relationships to help it establish market presence and provided full service marketing, including Internet and social media marketing in support of the product rollout. We are currently working with established retail distributors who will perform the majority of the direct product marketing as part of our agreement with them. The major distributor is Evaps Distribution and Promotions, who has signed several retailers, including 12 retail locations in Houston, Texas.

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.

Results of Operations

For the Year Ended May 31, 2016 versus 2015

Generally, all categories of expense are reduced (except interest expense) during the fiscal year ended May 31, 2016 as compared with the same period in 2015. During the current year, the company was evaluating which of its products to focus on or whether to further pursue the products at all, and in so doing, reduced all categories of spending, including the salary of our Chief Executive Officer and Board Chairman. Subsequent to May 31, 2016, the Company decided to resume activities.

Sales and marketing expenses - amounted to $13,850 for the fiscal year ended May 31, 2016 and was comprised of company promotional activities. The $84,749 spent during the fiscal year ended May 31, 2015 was various activities promoting our company and products. The reduction in sales and marketing expenses was due to the aforementioned decrease in activity.

General and administrative expenses - amounted to $275,648 in 2016 versus $506,737 in 2015. The reduction is principally due to reductions in Mr. Williams’ salary ($55,000), consulting expenses ($110,500) and compliance costs ($60,565).

Interest expense – increased from $129,748 in 2015 to $167,397 in 2016. The increase is a result of additional debts accumulated during the current year, and from penalty rates associated with our promissory notes in default.

Other income – we had two events during the current year of forgiveness of debts. First, from our previous Chief Executive Officer, John Arnold: we recorded other income of $140,376 when we settled our debt with him (see Note 8 to the financial statements). Secondly, we recorded other income of $300,000 when we settled an outstanding obligation with a consultant. In the previous year, we recorded other income of $4,021 when we paid off a promissory note to Teton Global LLC whereupon they forgave the outstanding accrued interest. Also in the previous year, we had other income of $16,157 related to the expiration of certain bid deposits from the previous operations of the Company, Gankit Corporation.

Liquidity and Capital Resources

As of May 31, 2016

As of May 31, 2016, the Company had total assets of $5,425, comprised of cash of $25, and prepaid expenses of $5,400.

Our current liabilities consists of accounts payable and accrued liabilities of $370,144; accounts payable – related party of $3,907, notes payable in default of $600,000 and short-term notes payable of $400,000. In addition, we have $85,000 of debt due in one year or greater and are classified as long-term.

Cash flows from Operating Activities

For the years ended May 31, 2016 and 2015, we had net cash used in operations of $85,636 and $492,132, respectively.

Cash flows from Investing Activities

We had no cash flows from investing activities for either year presented.

Cash flows from Financing Activities

For the years ended May 31, 2016 and 2015, we had net cash provided by financing activities of $85,000 and $475,836.

Capital Requirements

Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status we believe that we may be able to issue debt and equity in order to continue executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.

If the Company is unable to raise the funds needed to support its operations, the Company will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that the Company will be able to keep costs from being more than these estimated amounts or that the Company will be able to raise such funds. The Company 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, the Company may be forced to seek a buyer for our business or another entity with which we could create a joint venture

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.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements

We are evaluating the impact that recently adopted accounting pronouncements discussed in the notes to the financial statements will have on our financial statements but do not believe their adoption will have a significant impact.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a “smaller reporting company,” as defined by Rule 229.10(f)(1).

Item 8. Financial Statements and Supplementary Data

Our financial statements for the years ended May 31, 2016 and 2015 and the reports thereon of MaloneBailey, LLP are included following the signature page of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time period specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including to our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15 under the Exchange Act, our chief executive officer Lance Williams, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of May 31, 2016. Based on that evaluation, Mr. Williams concluded that as of May 31, 2016, our internal controls over financial reporting were not effective to satisfy the objectives for which they are intended, because we do not have adequate personnel to properly segregate duties which result in a material weakness. We also don’t have a formal process to identify, authorize and approve related-party transactions, the lack of which results in a material weakness. Presuming that the Company is able to raise adequate capital for its needs (see Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of estimated capital requirements), management will endeavor to take the necessary steps to correct deficiencies over the next six months including deploying an adequate system of internal controls.

This annual report does not include a report of management's assessment regarding internal control over financial reporting or an attestation report of the Company's registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for emerging growth companies.

There were no changes in our internal control over financial reporting during our most recent fiscal quarter that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table sets forth the name and age of our current sole officer and director. Our Board of Directors, currently consisting solely of Mr. Williams. Our director will serve until the earlier occurrence of the election of his successor at the next meeting of stockholders, death, resignation or removal by the majority consent of our shareholders.

Lance Williams, age 46, Chief Executive Officer, President, and Sole Director

As President and CEO of Nhale, Inc., Lance Williams is responsible for all aspects of the company’s operations, including strategic planning, sales and sales channel creation, product development, customer care, cost control/reduction and technology strategies.

Prior to joining Nhale, Williams was engaged in executive roles at leading companies with responsibility for financial administration, sales growth, marketing, and corporate strategy and planning. During his 13-year management career, Williams successfully led a variety of projects that created long-term growth and profitability in the fields of financial operations, marketing and sales.

In earlier experiences, Williams was a partner in a construction firm where he joined the management team with responsibility for financial operations.

Williams attended University of Houston Downtown and Houston Baptist University, focusing on Accounting and Business Administration.

Qualifications as Director

The Company believes that Mr. Williams' 13 plus years of experience in business development and operational management make him an extremely valuable member of our Board of Directors.

Involvement in Certain Legal Proceedings

Our sole director and executive officer has not been involved in any of the following events during the past ten years:

Risk Oversight

Effective risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision, the Board of Directors discusses risks throughout the year generally or in connection with specific proposed actions. The Board of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy, evaluating the Company’s risk management processes, allocating responsibilities for risk oversight among the Board of Directors, and fostering an appropriate culture of integrity and compliance with legal responsibilities.

Conflicts of Interest

As of the date of this filing, we have no employees, other than Mr. Williams, who currently devotes approximately 40 hours per week to our business as required from time to time.

In general, officers and directors of a corporation are required to present business opportunities to the corporation if:

Board of Directors Meetings

The Company had zero formal meetings of the Board of Directors of the Company during the last fiscal year ending May 31, 2016 and instead took all actions via written consent of the sole director.

Committees of the Board of Directors

Our sole director has not established any committees, including an Audit Committee, a Compensation Committee or a Nominating Committee, or any committee performing similar functions. The functions of those committees are being undertaken by our sole director. Because we do not have any independent directors, our sole director believes that the establishment of committees of the Board would not provide any benefits to our Company and could be considered more form than substance.

We do not have a policy regarding the consideration of any director candidates that may be recommended by our stockholders, including the minimum qualifications for Director Candidates, nor has our sole director established a process for identifying and evaluating director nominees. We have not adopted a policy regarding the handling of any potential recommendation of Director Candidates by our stockholders, including the procedures to be followed. Our sole director has not considered or adopted any of these policies as we have never received a recommendation from any stockholder for any candidate to serve on our Board of Directors.

Given our relative size and lack of directors and officers insurance coverage, we do not anticipate that any of our stockholders will make such a recommendation in the near future. While there have been no nominations of additional directors proposed, in the event such a proposal is made, all current members of our Board will participate in the consideration of Director Nominees.

Our sole director is not an "audit committee financial expert" within the meaning of Item 407(d) of Regulation S-K. In general, an "audit committee financial expert" is an individual member of the audit committee or Board of Directors who:

Our Board of Directors is comprised solely of Mr. Williams who was integral to our development and who is involved in our day to day operations. While we would prefer to have an audit committee financial expert on our Board of Directors, Mr. Williams does not have a professional background in finance or accounting. He does however have considerable education in finance. As with most small, early stage companies, until such time as our Company further develops its business, achieves a stronger revenue base and has sufficient working capital to purchase directors and officers insurance, the Company does not have any immediate prospects to attract independent directors. When the Company is able to expand its Board of Directors to include one or more independent directors, the Company intends to establish an Audit Committee of our Board of Directors. It is our intention that one or more of these independent directors will also qualify as an audit committee financial expert. Our securities are not quoted on an exchange that has requirements that a majority of our Board members be independent and the Company is not currently otherwise subject to any law, rule or regulation requiring that all or any portion of our Board of Directors include "independent" directors, nor are we required to establish or maintain an Audit Committee or other committee of our Board of Directors.

Term of Office

Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the Board of Directors.

There are no agreements or understandings for any director or officer to resign at the request of another person and none of the directors or officers is acting on behalf of or will act at the direction of any other person. The activities of each director and officer are material to the operation of the Company. No other person’s activities are material to the operation of the Company.

WE DO NOT HAVE ANY INDEPENDENT DIRECTORS AND THE COMPANY HAS NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR MATTERS.

CORPORATE GOVERNANCE

The Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with the Securities and Exchange Commission (the “SEC”) and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations. On July 13, 2012, the Board of Directors of the Company adopted a Code of Ethics for the Company’s senior officers (currently consisting solely of Mr. Williams). Mr. Williams, as the sole director, believes that these individuals must set an exemplary standard of conduct, particularly in the areas of accounting, internal accounting control, auditing and finance. This code sets forth ethical standards to which the designated officers must adhere and other aspects of accounting, auditing and financial compliance.

In lieu of an Audit Committee, the Company’s sole director is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company's financial statements and other services provided by the Company’s independent public accountants. The sole director reviews the Company's internal accounting controls, practices and policies.

Risk Oversight

Effective risk oversight is an important priority of the sole director. Because risks are considered in virtually every business decision, the sole director discusses risk throughout the year generally or in connection with specific proposed actions. The sole director’s approach to risk oversight includes understanding the critical risks in the Company’s business and strategy, evaluating the Company’s risk management processes, allocating responsibilities for risk oversight, and fostering an appropriate culture of integrity and compliance with legal responsibilities. The sole director exercises direct oversight of strategic risks to the Company.

Item 11. Executive Compensation

The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our officer and sole director for the fiscal years ended May 31, 2016 and 2015.

Does not include perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is more than $10,000. No executive officer earned any non-equity incentive plan compensation or nonqualified deferred compensation during the periods reported above. The value of the Stock Awards and Option Awards in the table above, if any, were calculated based on the aggregate grant date fair value of such securities calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. No other officers of the Company received any consideration for services rendered to the Company since incorporation, other than as described above presented. There are no annuity, pension or retirement benefits proposed to be paid to officers, directors or employees. No other officers of the Company received any consideration for services rendered to the Company since incorporation, other than as described above presented. There are no annuity, pension or retirement benefits proposed to be paid to officers, directors or employees. No other officers of the Company received any consideration for services rendered to the Company since incorporation, other than as described above. 

Employment Agreements

As of the date of this filing, we have no employees other than Mr. Williams, our sole officer and director. Mr. Williams works on our business approximately 40 hours per week. On May 13, 2014, we signed an employment agreement with Mr. Williams to serve as our President and Chief Executive Officer, which provided him with compensation of $7,500 per month. On May 1, 2015, that amount was changed to $2,500 per month.

Outstanding Equity Awards since Inception:

We have not issued any equity awards since inception.

Long-Term Incentive Plans

We have no Long-Term Incentive Plans.

Director Compensation

None of our directors have ever received compensation from the Company (other than executive directors who received consideration for serving as an executive officer of the Company, as described in greater detail above) for services to the Company as a director.

Code of Ethics

The Company has adopted a Code of Ethics applicable to its directors and officers (including its principal executive officer and principal financial officer). The Company’s Code of Ethics is incorporated by reference as an exhibit to this filing.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information at October 12, 2016, with respect to the beneficial ownership of shares of common stock by (i) each person known to us who owns beneficially more than 5% of the outstanding shares of common stock (based upon reports which have been filed and other information known to us), (ii) each of our directors, (iii) each of our Executive Officers and (iv) all of our Executive Officers and directors as a group. Unless otherwise indicated, each stockholder has sole voting and investment power with respect to the shares shown. As of October 12, 2016, we had 30,000,000 shares of common stock issued and outstanding.

Under Rule 13d-3 promulgated under the Exchange Act, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights.

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

There have been no other transactions, or any currently proposed transactions in which we are, or plan to be, a participant and in which any related person had or will have a direct or indirect material interest.

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer, director and significant stockholder. However, all of the transactions described above were approved and ratified by our sole director. In connection with the approval of the transactions described above, our director took into account various factors, including his fiduciary duty to the Company; the relationships of the related parties described above to the Company; the material facts underlying each transaction; the anticipated benefits to the Company and related costs associated with such benefits; whether comparable products or services were available; and the terms the Company could receive from an unrelated third party.

We intend to establish formal policies and procedures for the approval of related party transactions in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our sole director will continue to approve any related party transaction based on the criteria set forth above.

Director Independence

The Over-The-Counter Bulletin Board does not have rules regarding director independence. The Company will seek to appoint independent directors, if and when it is required to do so.

Item 14. Principal Accountant Fees and Services

Audit Fees

The aggregate fees billed by the Company’s auditors for professional services rendered in connection with the audit of the Company’s annual financial statements associated with the review of the financial statements included in the Company’s Form 10-K and Form 10-Qs and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the year ended May 31, 2016 and 2015 was $21,000.

Tax Compliance Services

None.

No other services were received or paid for to/by the Independent Auditor.

PART IV

Item 15. Exhibits and Financial Statement Schedules

__________

* Filed herewith.

XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of this report 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 the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, hereunto duly authorized.

In accordance with the Securities 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.

FINANCIAL STATEMENTS

NHALE, INC.

CONTENTS

Report of Independent Registered Public Accounting Firm

To the Board of Directors of Nhale, Inc.

Houston, Texas

We have audited the accompanying balance sheets of Nhale, Inc. (the “Company”) as of May 31, 2016 and 2015, and the related statements of operations, stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board

(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nhale, Inc. as of May 31, 2016 and 2015, and the related results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has historically suffered losses from operations which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP                                                        

www.malone-bailey.com

Houston, Texas

October 12, 2016 

NHALE, INC.

BALANCE SHEETS

The accompanying notes are an integral part of these financial statements

NHALE, INC.

STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these financial statements

NHALE, INC.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

The accompanying notes are an integral part of these financial statements

NHALE, INC.

STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these financial statements

NHALE, INC.

Notes to Financial Statements

NOTE 1. DESCRIPTION OF COMPANY

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.

NOTE 2. GOING CONCERN

The Company has a working capital deficit of $1,368,626 as of May 31, 2016 and negative cash flows from operations of $85,636 and $492,132 for the years ended May 31, 2016 and 2015, respectively, and 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 for much of its operating capital. The Company will need to raise capital or have positive cash flows from operations 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. 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS – The carrying amount reported in the balance sheet for cash and cash equivalents, prepaid expenses and other current assets, 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.

RELATED PARTIES – A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

RECENTLY ADOPTED AND RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS

Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

NOTE 4. NOTES PAYABLE

On April 5, 2013, the Company signed a promissory note with Hillsmere S.A. in the amount of $50,000. The note bears interest at a rate of 15%, and was due and payable on December 31, 2015, and is collateralized by all of the assets of the Company. The Company had paid no interest or principal on this note and it is currently in default. We accrued $8,125 and 7,500 in interest expense for the years ended May 31, 2016 and 2015, respectively.

On June 21, 2013, the Company signed a Master Credit Agreement with Levantera, SA, a company formed under the laws of the Marshall Islands, to provide a lending facility of up to $1 million. Interest on current, un-matured amounts is 12% with matured unpaid balances subject to 18% per year. From signing this note through May 31, 2014, we borrowed $150,000 of principal on this facility and repaid none. This note is later assigned from Levantera to Cannon Investments on January 23, 2014, was due and payable on December 31, 2015 and is currently in default. At May 31, 2016, the outstanding unpaid principal and interest is $150,000 and $54,117, respectively. During the years ended May 31, 2016 and 2015, we accrued $21,750 and 18,000, respectively, in interest expense.

From November 17, 2013 to April 12, 2015, we signed fifteen separate promissory notes to Shield Investments, Inc. (the “Shield Notes”), the aggregate proceeds amount of which is $800,000. All of the Shield notes have interest rates of 15% with default rates of 25%. During the years ended May 31, 2016 and 2015, we borrowed $0 and $475,000, respectively. Of these fifteen notes, seven, which have an aggregate unpaid principal and interest balance of $400,000 and $137,705, respectively, are in default as of May 31, 2016. The remainder of the notes are classified as short-term, and have maturity dates which range from June 29, 2016 to April 12, 2017. These short-term notes have an aggregate unpaid principal and interest amounts at May 31, 2016 of $400,000 and $105,266, respectively. During the years ended May 31, 2016 and 2015, we accrued interest of $131,001 and $100,227, respectively.

On October 1, 2014, we issued a promissory note to Teton Global LLC in the amount of $50,000 for cash. The note bears interest at 15% (with a default rate of 25%) and matures on September 30, 2016. On March 12, 2015, we paid the principal amount in its entirety at the request of the creditor who, in consideration of prepayment, waived any accrued but unpaid interest. The amount accrued to that point, $4,021, was included in Other Income during the year ended May 31, 2015.

From July 31, 2015 through April 27, 2016, we borrowed an aggregate of $85,000 from Crystal Resources Corp, issuing six promissory notes with maturity dates ranging from July 31, 2017 to April 27, 2018. These notes all have interest rates of 15%, with default rates of 25%. During the year ended May 31, 2016, we accrued $6,475 of interest. All of these notes are included in long-term debt.

As of May 31, 2016 and 2015, the Company had $600,000 and $0 debt in default, $400,000 and $600,000 of short-term debt, and $85,000 and $400,000 of long-term debt, respectively.

NOTE 5. COMMON STOCK

The Company has authorized capital consisting of 100,000,000 shares of common stock with a par value of $0.0001 per shares. On May 31, 2016 and 2015, there were 30,000,000 shares of common stock issued and outstanding.

No shares were issued during the year ended May 31, 2016 or 2015.

NOTE 6. INCOME TAXES

Deferred income taxes reflect the tax consequences on future years of differences between the tax bases. Net operating loss carry-forwards and tax benefits arising therefore are as follows:

Our tax loss carry-forwards will begin to expire in 2030.

NOTE 7. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

Employment Agreement

Our Board Chairman and Chief Executive Officer, Lance Williams, is currently under an employment agreement by which he is compensated at $2,500 per month. His original agreement stipulates a $7,500 per-month salary which has been reduced to $2,500 pending the achievement of statutory reporting compliance.

Office Rent

On February 17, 2016, we signed on office lease agreement with 422 E. Vermijo Investments, LLC to lease office space in Colorado Springs, CO for $385 per month commencing March 1, 2016 and ending February 28, 2017.

Five-year payouts for the above two items is as follows:

The above table includes $3,465 in 2017 for rent at our office in Colorado Springs, CO and $30,000 per year for Lance Williams for all years.

NOTE 8. RELATED-PARTY TRANSACTIONS

During the year ended May 31, 2014, we incurred $84,000 in compensation to Mr. Arnold, our then CEO and Chairman, for compensation pursuant to our employment agreement with him. During that period, we paid Mr. Arnold $63,000 in cash, with $49,000 of compensation still due as of May 31, 2015. As of May 31, 2016 and 2015, total amounts due to John Arnold were $0 and $150,376, respectively. During the fiscal year ended May 31, 2015, we reclassified $836 of cash proceeds from Mr. Arnold and $49,040 of unpaid salary from accounts payable to “Advances from Related Parties”, the debt is 0% interest and due on demand.

On July 31, 2015, we signed an agreement with our former Chief Executive Officer, John Arnold, to settle our outstanding obligation to him of $150,376 in exchange for a cash payment of $10,000. The cash payment of $10,000 was made and we recorded a forgiveness of debt for the difference, or $140,376.

Lance Williams, our current CEO and Chairman was accrued $30,000 and $85,000 and paid $27,322 and $85,000 during the fiscal years ended May 31, 2016 and 2015, respectively. At May 31, 2016 we owed Mr. Williams $2,678 of unpaid salary and $1,229 of unreimbursed expense

NOTE 9. FORGIVENESS OF DEBT INCOME

During the year ended May 31, 2016, we recorded forgiveness of debt income of $440,376 arising from two separate settlements with creditors.

As described in Note 8, we recorded debt forgiveness of $140,376 upon settlement of our outstanding obligation to John Arnold, our former Chief Executive Officer.

On February 12, 2016, we recorded $300,000 in forgiveness of debt income related to our settlement with a major consultant. Up to the point of the termination of the arrangement, we had accrued but not paid $300,000 of fees, stretching back to February 1, 2015, on our contract. These amounts were forgiven. Subsequent to the settlement, we still owe the consulting company $20,908 of costs paid on our behalf.

NOTE 10. SUBSEQUENT EVENTS

Subsequent to May 31, 2016, we borrowed $80,000 at 15% interest, $10,000 of which is due June 2, 2018, $20,000 of which is due June 17, 2018 and $50,000 of which is due August 16, 2018.