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 March 31, 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 March 31, 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 $42,835 and $50,627 for the three months periods ended March
31, 2019 and 2018, respectively. The change was mainly due to the decreases in
sales volume of wholesale coffee.
Cost of Sales
Costs of sales was $28,637 for the three months period ended March 31, 2019
or 66.85% of revenues. The cost of sales was $27,026, or 53.38% of revenues for
the three months period ended March 31, 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 $10,445 increase in delivery cost, offset by $5,416 and $3,821 decreases in
cost of coffee and cost of equipment, respectively.
Operating Expenses
We had operating expenses of $293,818 for the three months period ended March
31, 2019 compared to operating expenses of $337,985 for the three months period
ended March 31, 2018. The decreases in operating expense was mainly due to
$91,405 decrease in payroll expense, offset by $33,149 increase in professional
fees.
Other Expenses/ Income
We had other expense of $1,187,303 for the three months period ended March 31,
2019 compared to other income of $3,221,685 during the for the three months
period ended March 31, 2018. The increase in other expense was mainly due to the
change in fair value of derivative liabilities. For the three months ended March
31, 2019 the Company recorded a loss in change in fair value of derivative
liabilities of $950,570 compared to a gain in change in fair value of derivative
liabilities of $3,503,047 for the three months ended March 31, 2018.
Liquidity and Capital Resources
Operating Activities
Net cash used in operating activities was $122,242 for the three months period
ended March 31, 2019, compared to $59,066 during the same period in 2018. During
the first quarter of 2019, the net cash used in operating activities was due to
the net loss of $1,466,923, which was increased by $6,148 change in inventory,
$5,778 change in prepaid expense and other current asset, $5,973 change in lease
liability, and was offset by $11,678 in depreciation expense, $318 in
amortization of intangible assets, $47,875 in default interest capitalized into
convertible note payable, $138,974 in amortization of debt discount, $950,570 in
change in derivative liabilities, $68,977 in stock based compensation, $6,128 in
amortization of right of use assets of operating lease, $519 change in accounts
receivable, $72,088 change in accounts payable and accrued expense, $47,996
change in accrued interest, $12,005 change in payroll and related liabilities
and $5,452 change in related party payroll and related liabilities.
During the three months ended 2018, the net cash used in operating activities
was due to the net income of $2,907,304, which was increased by $3,102 in
depreciation expense, $1,167 in amortization of intangible assets, $2,000 in
loss on settlement of related party account payable, $266,269 in amortization of
debt discount, $193,250 in stock based compensation, $1,909 change in accounts
receivable, $9,766 change in inventory, $57,047 change in accounts payable and
accrued expense, $43,877 to change in related party payroll and related
liabilities and was offset by $3,503,047 in change in derivative liabilities,
$190 in gain on sale of equipment, $38,108 change in accrued interest and $3,412
change in payroll and related liabilities.
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Index
Investing Activities
During the first quarter of 2019, net cash used in investing activities was
$$42,734 due to purchase of property and equipment. During the first quarter of
2018, net cash used in investing activities was $4,523 due to purchase of
property and equipment for $5,022 offset by proceeds from sale of equipment for
$499.
Financing Activities
During the first quarter of 2019, net cash provided by financing activities was
$164,864. During this period, the Company received $98,309 in proceeds from
issuance of convertible notes payable, $47,104 in net proceeds from loans
payable and $19,500 in proceeds from sale of common stock offset by $49 in
repayments toward line of credit.
During the first quarter of 2018, net cash provided by financing activities was
$34,554. During this period, the Company received $13,500 in proceeds from
issuance of convertible notes payable, $21,000 in proceeds from sale of common
stock and $54 in net advances from line of credit.
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