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 June 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 June 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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Index
Revenues
We had revenue of $60,265 and $48,281 for the three months periods ended June
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 $49,218 for the three months period ended June 30, 2019
or 81.67% of revenues. The cost of sales was $24,688, or 51.14% of revenues for
the three months period ended June 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 $13,433, $5,112, and $4,064 increases in cost of sales of coffee, delivery
cost, and cost of equipment, respectively.
Operating Expenses
We had operating expenses of $6,743,262 for the three months period ended June
30, 2019 compared to operating expenses of $123,918 during the three months
period ended June 30, 2018. The increase in operating expense was mainly due to
$5,817,440 increase in equity compensation and $714,743 increase in professional
fees, respectively.
Other Expenses/ Income
We had other expense of $1,530,623 for the three months period ended June 30,
2019 compared to other expense of $65,771 for the three-month period ended June
30, 2018. The increase in other expense was mainly due to the change in fair
value of derivative liabilities. For the three months ended June 30, 2019 the
Company recorded a derivative loss of $1,347,995 compared to the derivative gain
of $83,535 recorded during the three months ended June 30, 2018.
Results of Operations for the Six months ended June 30, 2019 and 2018
Revenues
We had revenue of $103,100 and $98,908 for the six months periods ended June 30,
2019 and 2018, respectively. The change was mainly due to the $21,023 increase
in sales of equipment, which is offset by the $19,912 decrease in sales of
coffee.
Cost of Sales
Costs of sales was $77,855 for the six months period ended June 30, 2019
or 75.51% of revenues. The cost of sales was $51,714, or 52.29% of revenues for
the six months period ended June 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 $15,557 and $8,017 increase in cost of delivery as well as shipping and cost
of sales of coffee, respectively.
Operating Expenses
We had operating expenses of $7,037,080 for the six months period ended June 30,
2019 compared to operating expenses of $461,900 during the six months period
ended June 30, 2018. The increase in operating expense was mainly due to
$5,711,690 and $747,893 increases to stock-based compensation and professional
fees, respectively.
Other Expenses/ Income
We had other expense of $2,717,926 for the six months period ended June 30, 2019
compared to other income of $3,155,914 during the six months period ended June
30, 2018. The decrease in other income was mainly due to the change in fair
value of derivative liabilities. For the six months ended June 30, 2019 the
Company recorded a derivative loss of $2,298,565 compared to the derivative gain
of $3,586,582 recorded during the six months ended June 30, 2018.
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Index
Liquidity and Capital Resources
Operating Activities
Net cash used in operating activities was $343,564 the for the six months period
ended June 30, 2019, compared to $125,342 during the same period in 2018. During
the first two quarters of 2019, net cash used in operating activities was due to
net loss of $9,729,761, $10,417 change in accounts receivable, $9 change in
inventory, $5,778 change in prepaid expense and other current assets, $13,388
change in lease liability, $5,964 change in payroll and related liabilities, and
was offset by $25,931 in depreciation expense, $54 loss on sale of equipment,
$636 in amortization of intangible asset, $262,512 amortization of debt
discount, $2,298,565 change in derivative liabilities, $47,875 default interest
capitalized into convertible note payable, $6,597,512 stock-based compensation,
$13,722 amortization of right-of-use assets for operating lease, $35,608 change
in accounts payable and accrued expenses, $105,151 change in accrued interest,
and $34,187 change in related party payroll and
related.
During the six months ended 2018, net cash used in operating activities was due
to net income of $2,741,208, which was increased by $6,190 in depreciation
expense , $1,485 in amortization of intangible assets, $2,000 loss on
settlement of related party account payable, $383,748 amortization of debt
discount, $193,250 stock based compensation, $1,510 change in account
receivable, $10,606 change in inventory, $66,310 change in accounts payable and
accrued expenses, $73,957 change in related party payroll and related
liabilities, and was offset by $427 gain on sale of equipment, $3,586,582 change
in derivative liabilities, $4,171 change in prepaid expenses and other current
assets, and the $8,387 change in payroll and related
liabilities.
Investing Activities
During the first two quarters of 2019, net cash used in investing activities was
$102,652 due to purchase of property and equipment for $106,242 offset by
proceeds from sale of equipment for $3,590. During the first two quarters of
2018, net cash used in investing activities was $1,662 due to purchase of
property and equipment for $10,452 offset by proceeds from sale of equipment for
$8,790 and $6 in net advances from line of credit.
Financing Activities
During the first two quarters of 2019, net cash provided by financing activities
was $862,366. During this period, the Company received $258,308 in proceeds from
issuance of convertible notes payable, $9,900 in proceeds from loans payable
from related parties, $43,652 in net proceeds from notes payable, $550,500 in
proceeds from sale of common stock and $114 in repayments toward line of credit.
During the first two quarters of 2018, net cash provided by financing activities
was $112,186. During this period, the Company received $13,500 in proceeds from
issuance of convertible notes payable, $75,000 in proceeds from sale of
preferred stock and $23,800 in proceeds from sale of common stock.
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Index
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