UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarter ended September 30, 2019

¨ 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: 333-172850

GRAND HAVANA INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		27-0631947
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

761 NW 23^rd Street, Miami, Florida 33127

(Address of Principal Executive Offices, including Zip Code)

Tel No.: 800-608-5441

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

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 ¨ No þ

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes þ No ¨

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

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company þ

Emerging growth company þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

The number of shares outstanding of the registrant’s classes of common stock as of November 4, 2020 was 132,224,189 shares.

INDEX

		Page
	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements		F-1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		4
Item 4.	Controls and Procedures		4

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		5
Item 1A.	Risk Factors		5
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		5
Item 3.	Defaults Upon Senior Securities		5
Item 4.	Mine Safety Disclosures		5
Item 5.	Other Information		5
Item 6.	Exhibits		6
SIGNATURES			7

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

The information contained in this Report, including in the documents incorporated by reference into this Report, includes some statements that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our Company and management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations, and the expected impact of the offering on the parties’ individual and combined financial performance. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.

The forward-looking statements contained in this Report are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date hereof.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. The following discussion should be read in conjunction with our unaudited financial statements and the related notes included in this Report.

PART I. FINANCIAL INFORMATION

ITEM 1. Unaudited Financial Statements

Index To Unaudited Consolidated Financial Statements


Unaudited Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018			F-2
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018			F-3
Unaudited Consolidated Statement of Changes in Stockholders’ Deficit for the Three and Nine Months Ended September 30, 2019 and 2018			F-4
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018			F-6
Notes to Unaudited Consolidated Financial Statements			F-7

F-1

Index

Grand Havana, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
	September 30,			December 31
	2019			2018
ASSETS

CURRENT ASSETS:
Cash	$	263,222		$	1,463
Accounts receivable, net		11,978		$	4,302
Inventory, net		20,314		$	1,549
Prepaid expenses and other current assets		10,900		$	10,514
Total Current Assets		306,414			17,828

Property and equipment, net		314,638		$	224,219
Right-of-use asset - operating lease		36,384			—
Security deposits		1,400		$	1,400
Intangible assets, net		16,024		$	16,978
Certificate of deposit		5,300		$	5,300
TOTAL ASSETS	$	680,160		$	265,725

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	444,504		$	390,569
Accrued interest		357,548		$	180,684
Convertible notes, net		1,077,066		$	755,043
Notes payable		153,426		$	102,188
Loans payable - related parties		433,418		$	417,018
Right-of-use liabilities - operating lease		30,318		$	—
Line of credit		4,886		$	4,995
Derivative liabilities		10,681,415		$	12,244,301
Payroll liabilities - related parties		345,915		$	282,543
Payroll liabilities		44,053		$	52,160
Preferred stock liability		—		$	125,000
Total Current Liabilities		13,572,549			14,554,501

Long term portion of convertible loans, net		230,000		$	170,000
Long term portion of notes payable		72,603		$	83,486
Long term Right-of-use liabilities - operating lease		6,423
TOTAL LIABILITIES		13,881,575			14,807,987

STOCKHOLDERS' DEFICIT:
Undesignated Preferred stock, $0.001 par value, 19,999,800 and 19,999,900 shares authorized; no shares issued and outstanding, as of September 30, and December 31, 2018, respectively		—			—
Preferred Series A stock, $0.001 par value, 200 and 100 shares authorized, respectively; 151 and 100 shares issued and outstanding, respectively		1		$	1
Preferred Series B stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding, respectively		—		$	—
Common stock, $0.001 par value, 400,000,000 shares authorized; 101,028,648 and 74,116,845 shares issued and outstanding, respectively		101,029		$	74,117
Additional paid-in capital		10,785,656		$	2,567,250
Accumulated deficit		(24,250,362	)	$	(17,347,076	)
Total Grand Havana stockholders' deficit		(13,363,676	)		(14,705,708	)

Non-controlling interest		162,261		$	163,446

TOTAL STOCKHOLDERS' DEFICIT		(13,201,415	)		(14,542,262	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	680,160		$	265,725

The accompanying notes are an integral part of these unaudited consolidated financial statements

F-2

Index

Grand Havana, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
	For the three months						For the nine months
	ended September 30,						ended September 30,
	2019			2018			2019			2018

NET REVENUES:
Revenues, net	$	63,585		$	33,349		$	166,685		$	132,257
TOTAL NET REVENUES		63,585			33,349			166,685			132,257

COST OF GOODS SOLD:
Cost of goods sold		47,961			12,340			125,816			64,054
TOTAL COST OF GOODS SOLD		47,961			12,340			125,816			64,054

GROSS PROFIT		15,624			21,009			40,869			68,203

OPERATING EXPENSES:
General and administrative expenses		603,474			234,463			1,557,419			408,503
Depreciation and amortization		15,622			5,675			42,189			13,350
Payroll and related expenses		206,537			144,107			6,263,105			424,292
TOTAL OPERATING EXPENSES		825,633			384,245			7,862,713			846,145

LOSS FROM OPERATIONS		(810,009	)		(363,236	)		(7,821,844	)		(777,942	)

OTHER INCOME (EXPENSE):
Interest expense, net		(211,957	)		(169,264	)		(631,264	)		(600,359	)
Change in derivative liabilities		3,847,256			(818,267	)		1,548,691			2,768,315
Other expense		—			(1,852	)		(54	)		(1,425	)
TOTAL OTHER INCOME (EXPENSE)		3,635,299			(989,383	)		917,373			2,166,531

NET INCOME (LOSS)		2,825,290			(1,352,619	)		(6,904,471	)		1,388,589

LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST		65			(1,141	)		(1,185	)		(1,141	)

NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS	$	2,825,225		$	(1,351,478	)	$	(6,903,286	)	$	1,389,730

NET INCOME (LOSS) PER COMMON SHARE:
Basic	$	0.03		$	(0.02	)	$	(0.08	)	$	0.02
Diluted		(0.00	)		(0.02	)		(0.08	)		(0.00	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic		97,613,068			68,034,353			86,435,941			66,727,567
Diluted		517,228,519			68,034,353			86,435,941			273,589,102


The accompanying notes are an integral part of these unaudited consolidated financial statements

F-3

Index

Grand Havana, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)

	Preferred Stock												Additional						Non-
	Class A				Class B				Common Stock				Paid in			Accumulated			controlling
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Interest			Total

Balances, December 31, 2018		100	$	1		—	$	—		74,116,845	$	74,117	$	2,567,250		$	(17,347,076	)		163,446		$	(14,542,262	)

Issuance of preferred class A shares for settlement of liability		5		—		—		—						125,000			—			—			125,000

Issuance of preferred class A shares for cash		5		—		—		—						28,000			—			—			28,000

Issuance of shares as settlement of accounts payable		—		—		—		—		100,000		100		9,900			—			—			10,000

Issuance of shares for cash		—		—		—		—		17,989,286		17,989		602,511			—			—			620,500

Conversion of debt and accrued interest into common stock		—		—		—		—		3,512,493		3,513		10,391			—			—			13,904

Resolution of derivative liability through APIC		—		—		—		—		—		—		379,570									379,570

Cashless warrant exercised		—		—		—		—		289,318		289		(289	)								—

Shares issued as compensation		41		—		—		—		5,020,706		5,021		7,063,323			—			—			7,068,344

Net (Loss)		—		—		—		—		—		—		—			(6,903,286	)		(1,185	)		(6,904,471	)

Balances, September 30, 2019		151	$	1		—	$	—		101,028,648	$	101,029	$	10,785,656		$	(24,250,362	)		162,261		$	(13,201,415	)

Balances, December 31, 2017		100	$	1		—	$	—		61,125,687	$	61,126	$	1,991,817		$	(8,776,179	)		167,435		$	(6,555,800	)

Issuance of shares for purchase of equipment		—		—		—		—		100,000		100		4,900			—			—			5,000

Issuance of shares for cash		—		—		—		—		3,852,000		3,852		89,248			—			—			93,100

Issuance of shares as settlement of accounts payable - related party		—		—		—		—		500,000		500		39,500			—			—			40,000

Shares issued as compensation		—		—		—		—		5,918,325		5,918		321,611			—			—			327,529

Net Income/(Loss)		—		—		—		—		—		—		—			1,389,730			(1,141	)		1,388,589

Balances, September 30, 2018		100	$	1		—	$	—		71,496,012	$	71,496	$	2,447,076		$	(7,386,449	)		166,294		$	(4,701,582	)

The accompanying notes are an integral part of these unaudited consolidated financial statements

Grand Havana, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the Three Months Ended September 30, 2019 and 2018
(Unaudited)

	Preferred Stock												Additional						Non-
	Class A				Class B				Common Stock				Paid in			Accumulated			controlling
	Shares		Amount		Shares		Amount		Shares		Amount		Capital			Deficit			Interest			Total

Balances, June 30, 2019		146	$	1		—	$	—		95,386,473	$	95,386	$	10,183,534		$	(27,075,587	)		162,196		$	(16,634,470	)

Issuance of preferred class A shares for cash		5		—		—		—		—		—		28,000			—			—			28,000

Issuance of shares as settlement of accounts payable		—		—		—		—		100,000		100		9,900			—			—			10,000

Issuance of shares for cash		—		—		—		—		2,321,428		2,322		67,679			—			—			70,001

Resolution of derivative liability through APIC														28,932									28,932

Cashless warrant exercised		—		—		—		—		289,318		289		(289	)								—

Shares issued as compensation				—		—		—		2,931,429		2,932		467,900			—			—			470,832

Net Income		—		—		—		—		—		—		—			2,825,225			65			2,825,290

Balances, September 30, 2019		151	$	1		—	$	—		101,028,648	$	101,029	$	10,785,656		$	(24,250,362	)		162,261		$	(13,201,415	)

Balances, June 30, 2018		100	$	1		—	$	—		65,641,687	$	65,642	$	2,244,351		$	(6,034,971	)		167,435		$	(3,557,542	)

Issuance of shares for purchase of equipment		—		—		—		—		100,000		100		4,900			—			—			5,000

Issuance of shares for cash		—		—		—		—		3,336,000		3,336		65,964			—			—			69,300

Shares issued as compensation		—		—		—		—		2,418,325		2,418		131,861			—			—			134,279

Net (Loss)		—		—		—		—		—		—		—			(1,351,478	)		(1,141	)		(1,352,619	)

Balances, September 30, 2018		100	$	1		—	$	—		71,496,012	$	71,496	$	2,447,076		$	(7,386,449	)		166,294		$	(4,701,582	)

The accompanying notes are an integral part of these unaudited consolidated financial statements

F-4

Index

Grand Havana, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
	For the nine months
	ended September 30,
	2019			2018

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) before non-controlling interest	$	(6,904,471	)	$	1,388,589
Adjustment to reconcile change in net (loss) income to net cash and cash equivalents used in operating activities:
Depreciation expense		41,235			11,547
Loss on sale of equipment		54			1,425
Amortization of intangibles		954			1,803
Loss on settlement of accounts payable - related party		—			2,000
Amortization of debt discount		394,390			512,774
Change in derivative liabilities		(1,548,691	)		(2,768,315	)
Default interest capitalized into convertible note payable		47,875			—
Convertible note issued for services rendered		—			70,000
Stock-based compensation		7,068,344			327,529
Amortization of right-of-use assets - operating lease		21,606

Changes in operating assets and liabilities:
Accounts receivable		(7,676	)		1,009
Inventory		(18,765	)		10,252
Prepaid expenses and other current assets		(386	)		(200	)
Accounts payable and accrued expenses		63,935			67,855
Lease Liability		(21,249	)
Accrued interest		179,027			33,622
Payroll and related liabilities		(8,107	)		(6,726	)
Payroll and related liabilities - related parties		63,372			90,258

NET CASH USED IN OPERATING ACTIVITIES		(628,553	)		(256,578	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(135,298	)		(57,281	)
Proceeds from sale of equipment		3,590			11,390

NET CASH USED IN INVESTING ACTIVITIES		(131,708	)		(45,891	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable		316,874			118,000
Proceeds of loans payable - related parties		16,400			—
Net proceeds (repayments) of notes payable		40,355			(597	)
Net repayments towards advances from line of credit		(109	)		(157	)
Proceeds from the sale of preferred stock		28,000			100,000
Proceeds from sale of common stock		620,500			93,100

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,022,020			310,346

Net increase in cash		261,759			7,877

Cash, beginning of year		1,463			30,185

Cash, end of period	$	263,222		$	38,062

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	5,517		$	—
Cash paid for taxes	$	—		$	—

NON-CASH ACTIVITIES:
Initial recognition of right-of-use asset and lease liability	$	57,990			—
Debt discounts on convertible notes payable	$	365,374		$	492,112
Resolution of derivative liability through APIC	$	379,570			—
Conversion of debt and accrued interest into common stock	$	13,904			—
Cashless warrant exercised	$	289
Common stock issued for settlement of accounts payable	$	10,000			—
Issuance of preferred stock for settlement of preferred stock liability	$	125,000			—
Financing for purchase of vehicles		—		$	46,261
Common stock issued for settlement of accounts payable - related party		—			38,000
Common stock issued for purchase of equipment		—			5,000
Increase in principal of convertible notes due to default provisions					53,362

The accompanying notes are an integral part of these unaudited consolidated financial statements

F-5

Index

GRAND HAVANA, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1 – ORGANIZATION

Grand Havana Inc. f/k/a Junkiedog.com, Inc. (the “Company”) was incorporated in the State of Texas in 2009 as Unique Underwriters, Inc.

On April 25, 2017, the Company entered into an agreement to purchase 70% of the issued and outstanding capital stock of Cafesa Co., a Florida corporation that is a coffee wholesaler. Cafesa became a majority owned subsidiary of Grand Havana Master LLC. During the fourth quarter of 2019, the Company determined to shut down Cafesa Co. and started to build up customer base on its own effort for the same coffee distribution business in the same geographical area. After analyzing the affect by the criteria provided by ASC 205-20-55, the Company has concluded that the abandonment of Cafesa Co. should not be considered as “discontinued operations” since the abandonment does not represent a strategic shift that has (or will have) a major affect on the Company’s operations and financial results.

On June 3, 2019, the Company filed Articles of Organization as a Domestic Limited Liability Company with the Florida Secretary of State creating a new wholly-owned subsidiary, Grand Master Brands LLC (“GMB”). The business purpose of GMB is to provide marketing and sales services for the Company’s products to retail businesses.

Grand Havana, Inc. and its subsidiaries, Grand Havana Master LLC, Cafesa Co., Grand Master Brands LLC, Unique Underwriters, Inc., are hereinafter referred to as the “Company”.

F-6

Index

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The interim unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and should be read in conjunction with the audited financial statements and notes thereto for the years ended December 31, 2018 and 2017 which are included on a Form 10-K filed on February 10, 2020. In the opinion of management, all adjustments which include normal recurring adjustments, necessary to fairly present the Company’s financial position, results of operations and cash flows for the periods shown have been reflected herein. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for years ended December 31, 2018 have been omitted.

PRINCIPLES OF CONSOLIDATION

The accompanying unaudited financial statements reflect the consolidation of the individual unaudited financial statements of Grand Havana, Inc., Grand Havana Master LLC, Unique Underwriters, Inc. and Cafesa Co. All significant intercompany accounts and transactions have been eliminated.

RECLASSIFICATION

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and the financial position of the Company.

FAIR VALUE OF FINANCIAL INSTRUMENTS

GAAP requires certain disclosures regarding the fair value of financial instruments. The fair value of financial instruments is made as of a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair values.

GAAP defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal, or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.

GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the degree of subjectivity that is necessary to estimate the fair value of a financial instrument. GAAP establishes three levels of inputs that may be used to measure fair value:

Level 1 – Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2 – Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3 – Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

F-7

Index

The following table presents the derivative financial instruments, recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of September 30, 2019 and December 31, 2018:

	Fair Value Measurements as of September 30, 2019
	Total		Level 1		Level 2		Level 3
Convertible notes payable	$	10,112,697	$	—	$	—	$	10,112,697
Warrants	$	568,718	$	—	$	—	$	568,718

	Fair Value Measurements at December 31, 2018
	Total		Level 1		Level 2		Level 3
Convertible notes payable	$	11,418,125	$	—	$	—	$	11,418,125
Warrants	$	826,176	$	—	$	—	$	826,176

The Company uses a multinomial lattice model that values the derivative liability within the convertible notes and warrants based on probability weighted discounted cash flow model. The fair values of the conversion option and the attached warrants were estimated using a binomial model with the following assumptions:

	September 30, 2019
	Conversion		Warrants
	Option		Warrants
Volatility		156.55%-200.73%		156.55%-756.65%
Dividend Yield		0%		0%
Risk-free rate		1.75%-1.88%		1.56%-1.83%
Expected term		0.25-1.07 years		0.37-3.48 years
Stock price	$	0.10	$	0.10
Exercise price	$	0.0047-0.0550	$	0.012-0.16
Derivative liability fair value	$	10,112,697	$	568,718

	December 31, 2018
	Conversion		Warrants
	Option		Warrants
Volatility		207.03%-699.96%		339.96%-982.13%
Dividend Yield		0%		0%
Risk-free rate		2.48%-2.63%		2.46%-2.63%
Expected term		0.18-1.82 years		1.12-4.23 years
Stock price	$	0.13	$	0.13
Exercise price	$	0.005-0.083	$	0.012-0.10
Derivative liability fair value	$	11,418,125	$	826,176

The following table presents a summary of the Company’s derivative liabilities as of September 30, 2019 and 2018:

	September 30,			September 30,
Description	2019			2018
Beginning balance	$	12,244,301		$	4,960,740
Proceeds, payments and conversions		(14,195	)		492,113
Total change in fair value		(1,548,691	)		(2,768,315	)
Ending balance	$	10,681,415		$	2,684,538

F-8

Index

LEASES

On January 1, 2019, the Company adopted ASU 2016-02(Topic 842) using the modified retrospective method. The Company leases approximately 1,800 square feet of office and warehouse space located at 2300 NW 7th Place, Miami, LF 33127. We have a 2-year lease at a cost of $1,495 per month for the first year and $1,548 per month for the second year of the lease. The lease expires in June 2020. On January 13, 2019, the Company entered into a two-year lease for office and warehouse space located at 761 NW 23 Street, Miami, FL 33127, effective February 1, 2019 through January 31, 2021. The monthly rental payments are $1,607 per month for the first year and $1,657 per month for the second year of the lease. At the time of adoption, the Company recognized a right of use asset and corresponding liability in the amount of $57,990, respectively. The incremental borrowing rate, used for this calculation, which is the rate of interest that a lessee would have to pay to borrow the fund to acquire similar underlying asset, is 15.27%. The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption under which leases with a lease term of 12 months or less are not recorded on the Consolidated Balance Sheet, but rather, lease expense is recognized over the lease term on a straight-line basis. The Company also made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes. As of September 30, 2019, the ROU asset is $36,384. As of September 30, 2019, the current and long-term portion of lease liabilities are $30,318, and $6,423, respectively. For the nine months ended September 31, 2019, the Company recognized amortization of ROU assets of $21,606 and reduction of lease related liability in the amount of $21,249.

EARNINGS (LOSS) PER SHARE

The Company utilizes the guidance per ASC 260, Earnings Per Share. Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding and is calculated by dividing net income(loss) available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share is calculated by dividing net income(loss) available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding. For the three months ended September 30, 2019, there were 110,765,917 shares issuable upon exercise of outstanding convertible notes, 3,743,017 shares issuable upon exercise of outstanding warrants, and 305,106,517 shares issuable upon exercise of outstanding Series A preferred stock that were considered for their dilutive effects, while the potentially issuable shares upon exercise of outstanding convertible notes, warrants, and Series A Preferred stock for the nine months ended September 30, 2019 are not presented as their effects are anti-dilutive. For the nine months ended September 30, 2018, there were 59,901,468 shares issuable upon exercise of outstanding convertible notes, 1,968,042 shares issuable upon exercise of outstanding warrants, and 144,992,025 shares issuable upon exercise of outstanding Series A Preferred stock that were considered for their dilutive effects, while the potentially issuable shares upon exercise of outstanding convertible notes, warrants, and Series A Preferred stock for the three months ended September 30, 2018 are not presented as their effects are anti-dilutive.

The reconciliations of basic and diluted earnings (loss) per share are as follow:

	For three months ended
	September 30,
	2019			2018
Basic net income (loss)	$	2,825,225		$	(1,351,478	)
(Less): Change in derivative liabilities		(3,847,255	)		—
Add Back: Amortization of Debt discount		131,878			—
Diluted Net (loss)	$	(890,152	)	$	(1,351,478	)

Basic and dilutive shares
Weight average basic shares outstanding		97,613,068			68,034,353
Shares issuable from Convertible notes		110,765,917			—
Shares issuable from Warrants		3,743,017			—
Shares issuable from Series A Preferred Stock		305,106,517			—
Dilutive Shares		517,228,519			68,034,353

Income (loss) Per Share:
Basic	$	0.03		$	(0.02	)
Diluted	$	(0.00	)	$	(0.02	)

	For nine months ended
	September 30,
	2019			2018
Basic net income (loss)	$	(6,903,286	)	$	1,389,730
(Less): Change in derivative liabilities		—			(2,768,315	)
Add Back: Amortization of Debt discount		—			512,774
Diluted Net (loss)	$	(6,903,286	)	$	(865,811	)

Basic and dilutive shares
Weight average basic shares outstanding		86,435,941			66,727,567
Shares issuable from Convertible notes		—			59,901,468
Shares issuable from Warrants		—			1,968,042
Shares issuable from Series A Preferred Stock		—			144,992,025
Dilutive Shares		86,435,941			273,589,102

Income (loss) Per Share:
Basic	$	(0.08	)	$	0.02
Diluted	$	(0.08	)	$	(0.00	)

NEW ACCOUNTING PRONOUNCEMENTS

In January 2017, the FASB issued guidance within ASU 2017-04, Intangibles-Goodwill and Other. The amendments in ASU 2017-04 simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in ASU 2018-13 provide for increased effectiveness of the disclosures made around fair value measurements while including consideration for costs and benefits. The ASU is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those periods. The Company is currently evaluating the impact the adoption of ASU 2018-13 may have on its consolidated financial statements.

Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or are not expected to be significant to our financial position, results of operations or cash flows.

F-9

Index

NOTE 3 – GOING CONCERN

The Company’s unaudited consolidated financial statements have been prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred net loss of $6,903,286 for the nine months ended September 30, 2019. Cash on hand will not be sufficient to cover debt repayments, operating expenses and capital expenditure requirements for at least twelve months from the date of these financial statements. As of September 30, 2019 and December 31, 2018, the Company had working capital deficits $13,266,135 and $14,536,673, respectively. Our historical operating results raise substantial doubt related to the Company’s ability to continue as a going concern. In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to seek equity and/or debt financing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placements, public offerings and/or bank financing necessary to support the Company's working capital requirements. To the extent that funds generated from operations, any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – FIXED ASSET

Property and equipment consisted of the following As of September 30, 2019 and December 31, 2018:

	September 30,			December 31,
	2019			2018
Equipment	$	282,108		$	151,177
Vehicles		106,080			106,080
Less: Accumulated depreciation		(73,550	)		(33,038	)
Property and equipment, net	$	314,638		$	224,219

Depreciation expense for the three and nine months ended September 30, 2019 and 2018 were $15,304 and $41,235, and $5,357 and 11,547, respectively. During the first three quarters of 2019, the Company sold equipment for $3,590 and recognized a loss on sale of equipment for $54. During the first three quarters of 2019, the Company purchased property and equipment for $135,298. During the first three quarters of 2018, the Company sold equipment for $11,390 and recognized a loss on sale of equipment for $1,425. During the first three quarters of 2018, the Company purchased property and equipment for $57,281.

F-10

Index

NOTE 5 –CONVERTIBLE NOTES

On February 13, 2017, the Company entered into an unsecured convertible promissory note for $25,000, due on February 13, 2018, bearing interest at 8% per annum. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal increased by $2,500 as a result of default penalty, and the Company converted $7,000 principal and $2,162 accrued interest to 2,395,231 shares of common stock at a conversion price of $0.003825 per share, please see Note 8 for further discussion. As of September 30, 2019 and December 31, 2018, the outstanding balance of the note was $20,500 and $25,000, respectively and the related accrued interest was $9,148 and $7,200, respectively. This note is currently in default bearing a default interest rate of 24%.

On February 13, 2017, the Company entered into an unsecured convertible promissory note for $95,000, due on February 13, 2018, bearing interest at 8% per annum. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal increased by $9,500 as a result of default penalty. As of September 30, 2019 and December 31, 2018, the outstanding balance of the note was $104,500 and $95,000, respectively, and the related accrued interest was $44,143 and $25,333, respectively. This note is currently in default bearing a default interest rate of 24%.

On March 15, 2017, the Company entered into a secured convertible promissory note for $60,000, due on March 15, 2018, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal increased by $6,000 as a result of default penalty. As of June 2019, the note holder converted $2,742 of principal to 716,862 shares of common stock at $0.00383 per share, please refer to Note 8 for further discussion. As of September 30, 2019 and December 31, 2018, the outstanding balance of the note was $63,258 and $60,000, respectively, and the related accrued interest was $27,626 and $16,240, respectively. This note is currently in default bearing a default interest rate of 24%.

On March 17, 2017, the Company entered into an unsecured convertible promissory note for $60,000, due on March 17, 2018, bearing interest at 8% per annum. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $6,000 as a result of default penalty. As of September 30, 2019 and December 31, 2018, the outstanding balance of the note was $66,000 and $60,000, respectively, and the related accrued interest was $20,920 and $9,040, respectively. This note is currently in default bearing a default interest rate of 24%.

On April 7, 2017, the Company entered into an unsecured convertible promissory note for $20,000, due on April 7, 2018, bearing interest at 8% per annum. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $2,000 as a result of default penalty. As of September 30, 2019, and December 31, 2018, the outstanding balance of the note was $22,000 and $20,000, respectively, and the related accrued interest was $9,053 and $5,093, respectively. This note is currently in default bearing a default interest rate of 24%.

On May 3, 2017, the Company entered into an unsecured convertible promissory note for $20,000, due on May 3, 2018, bearing interest at 8% per annum. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $2,000 as a result of default penalty. As of September 30, 2019, and December 31, 2018, the outstanding balance of the note was $22,000 and $20,000, and the related accrued interest was $7,004 and $4,524, respectively. This note is currently in default bearing a default interest rate of 24%.

On May 3, 2017, the Company entered into a secured convertible promissory note for $60,000, due on May 3, 2018, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $6,000 as a result of default penalty. As of September 30, 2019, and December 31, 2018, the outstanding balance of the note was $66,000 and $60,000, respectively, and the related accrued interest was $21,011 and $13,573, respectively. This note is currently in default bearing a default interest rate of 24%.

F-11

Index

On August 7, 2017, the Company entered into a secured convertible promissory note for $78,750, due on August 7, 2018, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $7,875 as a result of default penalty and the company converted $2,000 of the principal to 400,400 shares of common stock at $0.005 per shares. Please refer to Note 8 for further discussion. As of September 30, 2019, and December 31, 2018, the outstanding balance of the note was $84,625 and $78,750, respectively, and the related accrued interest was $23,674 and $12,600, respectively. This note is currently in default bearing a default interest rate of 24%.

On December 13, 2017, the Company entered into a secured convertible promissory note for $60,000, due on September 14, 2018, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. During the first three quarters of 2019, the principal was increased by $6,000 as a result of default penalty. As of September 30, 2019, and December 31, 2018, the outstanding balance of the note was $66,000 and $60,000, respectively, and the related accrued interest was $14,531 and $5,520, respectively. This note is currently in default bearing a default interest rate of 24%.

On January 3, 2019, the Company entered into a secured convertible promissory note for $63,309, due on January 3, 2020, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. In connection with the issuance of convertible notes, the Company also granted 73,046 warrants to acquire common stock at $0.13 per share, please refer to Note 9 for further discussion. As of September 30, 2019, the outstanding balance of the note was $63,309, and the related accrued interest was $3,760. As of filling date, this note is in default bearing a default interest rate of 16%.

On January 8, 2019, the Company entered into a secured convertible promissory note for $35,000, due on December 31, 2019, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last fifteen trading day period, including the date of conversion. As of September 30, 2019, the outstanding balance of the note was $35,000, and the related accrued interest was $2,071. As of filling date, this note is in default bearing a default interest rate of 16%.

On April 12, 2019, the Company entered into a secured convertible promissory note for $100,000 due on October 26, 2020, bearing interest at 12% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of $0.02 per share. As of September 30, 2019, the outstanding balance of the note was $100,000, and the related accrued interest was $6,674.

F-12

Index

On April 25, 2019, the Company entered into a secured convertible promissory note for $33,000 due on April 25, 2020, bearing interest at 12% per annum and secured by the assets of the Company. This convertible promissory note contains $3,000 original issue discount and a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of the lesser of $0.11 or 50% of the lowest trading price during the last twenty trading day period prior to date of conversion, including the date of conversion. In connection with the issuance of convertible notes, the Company also granted 75,000 warrants to acquire common stock at $0.11 per share, please refer to Note 9 for further discussion. As of September 30, 2019, the outstanding balance of the note was $33,000, and the related accrued interest was $2,601. As of filling date, this note is in default bearing a default interest rate of 16%.

On April 25, 2019, the Company entered into a secured convertible promissory note for $33,000 due on April 25, 2020, bearing interest at 12% per annum and secured by the assets of the Company. This convertible promissory note contains $3,000 original issue discount and a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of the lesser of $0.11 or 50% of the lowest trading price during the last twenty trading day period prior to date of conversion, including the date of conversion. In connection with the issuance of convertible notes, the Company also granted 75,000 warrants to acquire common stock at $0.11 per share, please refer to Note 9 for further discussion. As of September 30, 2019, the outstanding balance of the note was $33,000, and the related accrued interest was $2,601, respectively. As of filling date, this note is in default bearing a default interest rate of 16%.

On August 16, 2019, the Company entered into a secured convertible promissory note for $30,565 due on August 16, 2020, bearing interest at 8% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last twenty trading day period prior to date of conversion, including the date of conversion. In connection with the issuance of convertible notes, the Company also granted 28,654 warrants to acquire common stock at $0.16 per share, please refer to Note 8 for further discussion. As of September 30, 2019, the outstanding balance of the note was $30,565, and the related accrued interest was $516, respectively. As of filling date, this note is in default bearing a default interest rate of 16%.

On September 16, 2019, the Company entered into a secured convertible promissory note for $28,000 due on September 16, 2020, bearing interest at 12% per annum and secured by the assets of the Company. This convertible promissory note contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate of 55% of the lowest trading price during the last twenty trading day period prior to date of conversion, including the date of conversion. In connection with the issuance of convertible notes, the Company also granted 42,000 warrants to acquire common stock at $0.10 per share, please refer to Note 8 for further discussion. As of September 30, 2019, the outstanding balance of the note was $28,000, and the related accrued interest was $282.

As of September 30, 2019 and December 31, 2018, the Company has outstanding convertible notes, net of debt discount, in the amount of $1,307,066 and $925,043, respectively. During the nine months ended September 30, 2019, the Company amortized $394,390 of debt discount while recognizing $365,374 in additional debt discount on convertible notes payable.

F-13

Index

NOTE 6 – NOTES PAYABLES

During 2018, the Company entered into four loans for the purchase of and secured by vehicles with terms of 72 to 75 months and interest rates ranging from 6.99% to 8.94%. The combining outstanding balance on these notes is $87,072 and $96,717 as of September 30, 2019 and December 31, 2018, respectively.

On March 12, 2019, the Company entered into a secured promissory note for $50,000, due on October 11, 2019, bearing interest at 8% per annum and secured by the assets of the Company. As of September 30, 2019, the outstanding balance of the note was $50,000, and the related accrued interest was $2,258. This note was repaid subsequent to period end.

NOTE 7 – RELATED PARTIES TRANSACTIONS

During 2018, the Company entered into various stock purchase agreements with various members of the Board of Directors to issue a total of 137,000 share of common stock for $0.05 per share and 5 shares of Preferred Series A stock for $25,000 per share for a total of $131,850.

During the first three quarters of 2019, the Company entered into various stock purchase agreements with various members of the Board of Directors to issue a total of 325,000 share of common stock, and 5 shares of Preferred Series A stock for totaling $43,500.

During 2017, the Company received loans totaling $102,018, from related parties for working capital purposes. These unsecured loans bear interest at a rate of 6% per annum and have no repayment terms. During the first three quarters of 2019, the Company entered into two unsecured loans totaling $16,400 from related parties for working capital resources. These notes are due on demand and bear no interest. As of September 30, 2019 and December 31, 2018, the outstanding balance on these related party notes were $118,418 and $102,018, respectively, and the related accrued interest was $14,241, and $9,703, respectively.

As part of the Cafesa acquisition on April 25, 2017, the Company is required to make cash and stock payments totaling $315,000 to a related party. No repayments or borrowings were made during the first three quarters of 2019 and the full year of 2018. As of September 30, 2019 and December 31, 2018, the outstanding balance due to this related party was $315,000. The Company is currently involved in a lawsuit with the note holder. Please refer to Note 10 for further discussion.

F-14

Index

NOTE 8 – EQUITY

Preferred Stock

As of September 30, 2019, and December 31, 2018, the Company has 19,999,900 undesignated shares of preferred stock authorized, respectively. The preferred stock has no par value, of which nil shares are issued and outstanding.

During 2018, the Company entered stock purchase agreements to sell 5 Preferred Series A shares for $25,000 per share, totaling $125,000 to related parties. Payment for the shares was received during 2018. These shares of Preferred Series A were issued during the first quarter of 2019. During the first three quarters of 2019, the Company entered into stock purchase agreements with related parties to sell 5 Preferred Series A shares for $5,600 per share, totaling $28,000.

On March 4, 2019, the Company amended the Certificate of Designation of the Series A Preferred Stock of the Company to increase the number of authorized A Series Preferred Stock of the Company to 200 shares. During the first three quarters of 2019, the company issued 41 shares of Preferred Series A, with estimated valuation of $6,446,352 or $157,228 per shares, for compensation, of which 37 shares of Preferred Series A, totaling $5,817,440, were issued to related parties.

Common Stock

As of September 30, 2019, and December 31, 2018, the Company has 400,000,000 authorized shares of common stock, par value $0.001, of which 101,028,648 and 74,116,845 shares are issued and outstanding, respectively.

During 2018, the Company issued a total of 5,918,325 shares of common stock totaling $327,529 for services rendered. In addition, the Company issued 100,000 shares of common stock for the purchase of equipment valued at $5,000. The Company also issued 3,852,000 shares of common stock for cash totaling $93,100, of which 137,000 common shares were issued to related parties for $6,850. The Company issued 500,000 shares as settlement of $40,000 of accounts payable with a current director.

During the first three quarters of 2019, the Company issued 5,020,706 shares of common stock totaling $621,992 for services rendered, of which 1,961,029 shares totaling $282,247 were issued to related parties. In addition, 17,989,286 shares of common stock were issued in exchange for cash totaling $620,500, of which 325,000 shares were issued to a related party for $15,500. There were 3,512,493 shares of common stock issued for conversion of convertible notes and accrued interest totaling $13,904 and as a result settled $350,638 of derivative liabilities through additional paid in capital. Please refer to Note 5 for further details. The Company also issued 100,000 shares as settlement of $10,000 of accounts payable and 289,318 shares of common stock for cashless exercise of 431,818 warrants, and as a result settled $28,932 of derivative liabilities through additional paid in capital. Please refer to Note 9 for further discussion.

F-15

Index

NOTE 9 – WARRANTS

During the year ended December 31, 2018, the Company granted a total of 4,088,874 warrants to acquire shares of common stock at a range of $0.015 to $0.13 per share, respectively. All tranches of stock purchase warrants were issued to various note holders in connection with the issuance of convertible debt. During the first three quarter of September 30, 2019, the Company granted 293,700 warrants to acquire shares of common stock from $0.11 to $0.16 per share. These tranches of stock purchase warrants were issued to note holder in connection with the issuance of convertible notes. During the first three quarters of 2019, the Company issued 289,318 shares of common stock for cashless exercise of 431,818 warrants.

A summary of the status of the Company’s warrants as of September 30, 2019 is presented below:

	Number of Options and Warrants			Range of Exercise Prices		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
Outstanding at December 31, 2018		6,481,258			$0.01 to $0.10		2.27		0.05
Warrants granted		293,700			$0.10 to $0.16		2.58		0.12
Warrants exercised		(431,818	)	$	0.03		—		—
Warrants forfeited or expired		—			-		-		-
Outstanding as of September 30, 2019		6,343,140			$0.01 to $0.13		1.65		0.05
Exercisable as of September 30, 2019		6,343,140			$0.01 to $0.13		1.65		0.05

As of September 30, 2019, all of the 6,343,140 outstanding warrants are exercisable.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Luis Ravelo and Lucia Ravelo v. Grand Havana Inc. and Grand Havana Master LLC, Case No. 2018-035017-CA-01 11th Judicial Circuit in and for Miami-Dade County, Florida. In May 2017 the Company acquired a 70% interest in Cafesa.co, a Florida corporation and a distributor of coffee to gas stations and convenience stores. In conjunction with the acquisition, Luis Ravelo became an employee and director of the Company. In June 2018, it became apparent that Mr. Ravelo had been misusing Company assets and had been diverting customers to a new venture he had created. On July 10, 2018, Mr. Ravelo resigned as a director of the Company. On October 31, 2018, Luis and Lucia Ravelo sued the Company and its wholly owned subsidiary, Grand Havana Master LLC, alleging breach of the Stock Purchase Agreement for the acquisition of Cafesa.co and Mr. Ravelo’s employment agreement with the Company. The Company filed a counterclaim alleging breach of the employment agreement, breach of the stock purchase agreement, fraud in the inducement and breach of fiduciary duty. The litigation is currently in the discovery stage and is currently set for trial in early 2021. The court has also ordered the parties to mediation. No determination can be made at this time with regard to the outcome of the litigation. The Company intends to continue to vigorously defend the action and to vigorously prosecute its counterclaims.

William Graubard v. Grand Havana Inc., Case No. CACE – 19-0201073, 17^th Judicial Circuit in and for Broward County, Florida. Mr. Grabuard sued in the Company in October 2019 alleging breach of a consulting agreement. Mr. Graubard is claiming damages equal to the value of 250,000 shares of the Company’s common stock. The Company has filed a motion to dismiss the claim. At this early stage of the litigation, no determination can be made at this time with regard to the outcome of the litigation. The Company intends to continue to vigorously defend the action.

NOTE 11 – SUBSEQUENT EVENTS

The Company entered into various, convertible or promissory, notes totaling $142,850. The notes bear interest rate ranging from 0% to 12%. The due dates for these notes are range from due on demand to May 20, 2022.

The Company entered into various agreements to issue an aggregate of 7,289,894 shares of common stocks for services rendered to the Company. In addition, the Company entered into several subscription agreements to issue 1,858,333 shares of common stock for cash totaling $55,750. A total of 22,047,324 shares of common stock were also issued for various debt conversion.

On June 2, 2020, the Company entered into an agreement with third party to grant options to purchase up to 10 million shares of the Company’s common stock at $0.015 per share for an aggregate amount of $150,000. These options are granted in lieu of services rendered to the Company.

F-16

Index

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

INTRODUCTORY STATEMENT

The following discussion should be read in conjunction with our unaudited consolidated financial statements and the notes to those unaudited consolidated financial statements that are included elsewhere in this Report. For ease of reference, “the Company”, “we,” “us” or “us” refer to Grand Havana, Inc. and subsidiaries unless otherwise stated.

Cautionary Statement Concerning Forward-Looking Information

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing products, plans and objectives of management, markets for stock of Cardiff Lexington Corp. and other matters. Statements in this report that are not historical facts are hereby identified as “forward-looking statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Such forward-looking statements, including, without limitation, those relating to the future business prospects, revenue and income of Cardiff Lexington Corp., wherever they occur, are necessarily estimates reflecting the best judgment of the senior management of Cardiff Lexington Corp. on the date on which they were made, or if no date is stated, as of the date of this report. These forward-looking statements are subject to risks, uncertainties and assumptions, including those described in the “Risk Factors” in Item 1A of Part I of our most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”), that may affect the operations, performance, development and results of our business. Because the factors discussed in this report could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us or on our behalf, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. The Company assumes no obligation and does not intend to update these forward-looking statements, except as required by law.

Use of GAAP Financial Measures

We use GAAP financial measures in the section of this annual report captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All of the GAAP financial measures used by us in this report relate to the inclusion of financial information.

Off-Balance Sheet Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of September 30, 2019. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.

Results of Operations for the Three months ended September 30, 2019 and 2018

Our unaudited consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

We expect we will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

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Revenues

We had revenue of $63,585 and $33,349 for the three months periods ended September 30, 2019 and 2018, respectively. The change was mainly due to the increase in sales volume of wholesale coffee, services revenue, and parts.

Cost of Sales

Costs of sales was $47,961 for the three months period ended September 30, 2019 or 75.43% of revenues. The cost of sales was $12,340, or 37.00% of revenues for the three months period ended September 30, 2018. Cost of sales includes the costs directly attributable to revenue recognition, such as equipment costs, purchased costs, and payments to vendors. The increase in cost of sales was mainly due to the $14,666, $8,351, and $6,167 increases in cost of sales of equipment, cost of coffee sales, and delivery cost, respectively.

Operating Expenses

We had operating expenses of $825,633 for the three months period ended September 30, 2019 compared to operating expenses of $384,245 for the three months period ended September 30, 2018. The increase in operating expense was mainly due to $296,796 increase in advertising expense and $61,301 increase in professional fees, respectively.

Other Expenses/ Income

We had other income of $3,635,299 for the three months period ended September 30, 2019 compared to other expense of $989,383 for the for the three-month period ended September 30, 2018. The decrease in other expense was mainly due to the gain in the change in fair value of derivative liabilities of $3,847,256 as compared to the loss in change in the fair value of derivative liabilities of $818,267 during the three - months period ended September 30, 2018.”.

Results of Operations for the Nine months ended September 30, 2019 and 2018

Revenues

We had revenue of $166,685 and $132,257 for the nine months periods ended September 30, 2019 and 2018, respectively. The change was mainly due to the $21,463 increase in sales of equipment.

Cost of Sales

Costs of sales was $125,816 for the nine months period ended September 30, 2019 or 75.48% of revenues. The cost of sales was $64,054, or 48.43% of revenues for the nine months period ended September 30, 2018. Cost of sales includes the costs directly attributable to revenue recognition, such as equipment costs, purchase costs, and payments to vendors. The increase in cost of sales was mainly due to the $21,724, $18,931, and $16,368 increase in cost of delivery and shipping, cost of equipment of sales, and cost of sales of coffee, respectively.

Operating Expenses

We had operating expenses of $7,862,713 for the nine months period ended September 30, 2019 compared to operating expenses of $846,145 for the nine months period ended September 30, 2018. The increase in operating expense was mainly due to $5,708,190, $809,194, and $275,695 increases to stock-based compensation, professional fees, and advertising fee.

Other Expenses/ Income

We had other income of $917,373 for the nine months period ended September 30, 2019 compared to $2,166,531 for the nine months period ended September 30, 2018. The decrease in other income was mainly due to the change in fair value of derivative liabilities. For the nine months ended September 30, 2019 the Company recorded a loss in change in fair value of derivative liabilities of $1,548,691 compared to a gain in change in fair value of derivative liabilities of $2,768,315 recorded during the nine months ended September 30, 2018.

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Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $628,553 for the nine months period ended September 30, 2019, compared to $256,578 during the same period in 2018. During the first three quarters of 2019, the net cash used in operating activities was due to net loss of $6,904,471, which was increased by $1,548,691 change in derivative liabilities, $7,676 change in accounts receivable, $18,765 change in inventory, $386 change in prepaid expense and other current assets, $21,249 to change in lease liability, $8,107 to change in payroll and related liabilities, and was offset by $7,068,344 in stock -based compensation, $41,235 in depreciation expense, $54 loss on sale of equipment, $954 in amortization of intangible asset, $394,390 in amortization of debt discount, $47,875 in default interest capitalized into convertible note payable, $21,606 in amortization of right-of-use assets for operating lease, $63,935 change in accounts payable and accrued expenses, $179,027 change in accrued interest, and $63,372 change in related party payroll and related.

During the nine months ended 2018, the net cash used in operating activities was due to net income of $1,388,589, which was increased by $11,547 in depreciation expense, $1,425 loss on sale of equipment, $1,803 in amortization of intangible assets, $2,000 loss on settlement of related party account payable, $512,774 in amortization of debt discount, $70,000 convertible note issued for services rendered, $327,529 in stock based compensation, $1,009 change in account receivable, $10,252 change in inventory, $67,855 change in accounts payable and accrued expenses, $33,622 change in accrued interest, $90,258 change in related party payroll and related liabilities, and was offset by $2,768,315 change in derivative liabilities, $200 change in prepaid expenses and other current assets, and $6,726 change in payroll and related liabilities.

Investing Activities

During the first three quarters of 2019, net cash used in investing activities was $131,708 due to purchase of property and equipment for $135,298 offset by proceeds from sale of equipment for $3,590. During the first three quarters of 2018, net cash used in investing activities was $45,891 due to purchase of property and equipment for $57,281 offset by proceeds from sale of equipment for $11,390.

Financing Activities

During the first three quarters of 2019, net cash provided by financing activities was $1,022,020. During this period, the Company received $316,874 in proceeds from issuance of convertible notes payable, $16,400 in proceeds from loans payable from related parties, $40,355 in net proceeds from notes payable, $28,000 in proceeds from sale of preferred stock and $620,500 in proceeds from sale of common stock and $109 in repayments toward line of credit.

During the first three quarters of 2018, net cash provided by financing activities was $310,346. During this period, the Company received $118,000 in net proceeds from issuance of convertible notes payable, $100,000 in proceeds from sale of preferred stock and $93,100 in proceeds from sale of common stock and $157 in repayments toward line of credit.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we carried out an evaluation under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2019. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures as of September 30, 2019 were not effective, for the same reasons as previously disclosed under Item 9A. “Controls and Procedures” in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018.

Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-(f) of the Exchange Act) that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Luis Ravelo and Lucia Ravelo v. Grand Havana Inc. and Grand Havana Master LLC, Case No. 2018-035017-CA-01 11^th Judicial Circuit in and for Miami-Dade County, Florida. In May 2017 the Company acquired a 70% interest in Cafesa.co, a Florida corporation and a distributor of coffee to gas stations and convenience stores. In conjunction with the acquisition, Luis Ravelo became an employee and director of the Company. In June 2018, it became apparent that Mr. Ravelo had been misusing Company assets and had been diverting customers to a new venture he had created. On July 10, 2018, Mr. Ravelo resigned as a director of the Company. On October 31, 2018, Luis and Lucia Ravelo sued the Company and its wholly owned subsidiary, Grand Havana Master LLC, alleging breach of the Stock Purchase Agreement for the acquisition of Cafesa.co and Mr. Ravelo’s employment agreement with the Company. The Company filed a counterclaim alleging breach of the employment agreement, breach of the stock purchase agreement, fraud in the inducement and breach of fiduciary duty. The litigation is currently in the discovery stage. No determination can be made at this time with regard to the outcome of the litigation. The Company intends to continue to vigorously defend the action and to vigorously prosecute its counterclaims.

William Graubard v. Grand Havana Inc., Case No. CACE – 19-0201073, 17^th Judicial Circuit in and for Broward County, Florida. Mr. Grabuard sued in the Company in October 2019 alleging breach of a consulting agreement. Mr. Graubard is claiming damages equal to the value of 250,000 shares of the Company’s common stock. The Company has filed its answer to Plaintiff’s amended complaint and a counterclaim. At this early stage of the litigation, no determination can be made at this time with regard to the outcome of the litigation. The Company intends to continue to vigorously defend the action.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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

The information set forth below relates to our issuances of securities without registration under the Securities Act of 1933 during the reporting period which were not previously included in an Annual Report on Form 10-K, Quarterly Report on Form 10-Q, or Current Report on Form 8-K.

During the first three quarter of 2019, the Company issued a total of 17,989,286 shares of common and 5 shares of preferred class A stock in exchange for cash. In addition, the company issued a total of 5,020,706 shares of common stock and 41 shares of preferred class A stock for services rendered to the Company. The Company also issued a total of 3,612,493 shares of common stock for conversion of convertible notes and settlement of accounts payable. The Company further issued 289,318 shares of common stock for cashless exercise of 431,818 warrants.

These securities were issued pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES

N/A

ITEM 5. OTHER INFORMATION

None

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ITEM 6. EXHIBITS

EXHIBIT INDEX

Incorporated by Reference

Filed or Furnished

Exhibit #

Exhibit Description

Form

Date Filed

Exhibit #

Herewith

3.3

Amend to Designation of Series A Preferred Stock

10.1

Secured Convertible Promissory Note dated January 3, 2019

10.2

Secured Convertible Promissory Note dated March 12, 2019

31.1

Certification of Principal Executive Officer (Section 302)

31.2

Certification of Principal Financial Officer (Section 302)

32.1

Certification of Principal Executive Officer and Principal Financial Officer (Section 906)

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SIGNATURES

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

		GRAND HAVANA INC.


Date: November 9, 2020		By: /s/ Robert Rico
		Robert Rico
		President and Chief Executive Officer (Principal Executive Officer)

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GRAND HAVANA INC. 10-Q