[X] ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Indicate by check mark if the registrant is
a well-known seasoned issuer as defined by Rule 405 of the Securities Act
Indicate by check mark if the registrant is
not required to file reports pursuant to Rule 13 or Section 15(d) of the Act
Indicate by checkmark whether the issuer:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [X]
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 and post
such files). Yes[ ] No [X]
Indicate by check mark if disclosure of delinquent
filers in response to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained,
to the best knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerate filer, a non-accelerated filer, a 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.
Indicate by checkmark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or
the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter: $4,731,858.
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the most practicable date:
Item 9A(T). Controls and Procedures
This annual report contains forward-looking
statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events
or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and
uncertainty.
A number of important factors could cause our
actual results to differ materially from those expressed in any forward-looking statements made in this report. Forward-looking
statements are often identified by words like: “believe”, “expect”, “estimate”, “anticipate”,
“intend”, “project” and similar expressions or words which, by their nature, refer to future events. In
some cases, you can also identify forward-looking statements by terminology such as “may”, “will”, “should”,
“plans”, “predicts”, “potential” or “continue” or the negative of these terms or
other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other
factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different
from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity 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 cautions outlined made in this statement
and elsewhere in this document should not be construed as complete or exhaustive. In many cases, we cannot predict factors
which could cause results to differ materially from those indicated by the forward-looking statements. Additionally, many
items or factors that could cause actual results to differ materially from forward-looking statements are beyond our ability to
control. The Company will not undertake an obligation to further update or change any forward-looking statement, whether
as a result of new information, future developments, or otherwise.
Our financial statements are stated in United
States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. References to
common shares refer to common shares in our capital stock.
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2017 and 2016
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 June 9, 2014, the Board of Directors and
consenting shareholders holding a majority of issued and outstanding Common Stock approved a change in domicile of the Company
from Texas to Nevada. The change of domicile, or reincorporation, was effected by means of a merger between the Company and a newly
formed wholly-owned Nevada subsidiary of the Company in name of JunkieDog.com Inc., in which the subsidiary was the surviving entity.
On September 19, 2014, a Plan of Exchange (the
“Exchange”) was executed between and among the Company and First Choice Apparel LLC (“First Choice”), a
limited liability company organized in the State of North Carolina on June 20, 2013, specializing in the online sales of clothing
and other quality items via a wholesale website. Pursuant to the Exchange, the Company acquired 100% of the membership interests
of First Choice in exchange for an issuance by the Company of 40,000,000 shares of Common Stock to First Choice Members, and/or
their assigns. The above issuance gave First Choice Members and/or their assigns a 'controlling interest' in the Company representing
approximately 98.1% of the then issued and outstanding shares of the Company’s Common Stock. The transaction resulted in
a change in control of the Company. The Company and First Choice were reorganized, such that the Company acquired 100% of the membership
interests of First Choice, and First Choice became a wholly-owned subsidiary of the Company.
As a result of the Exchange with First Choice
Apparel, the Company’s business model was changed from insurance sales to e-commerce
In March 2016, the Company’s management
decided to discontinue the operations of First Choice Apparel due to the significant adverse change in the business climate for
internet based retail and wholesale virtual stores. Accordingly, both segments with respect to insurance sales and e-commerce were
reported as discontinued operations.
On December 19, 2016, Grand Havana LLC, organized
as a Limited Liability Company under the laws of the State of Florida having its articles of organization filed and effective
on April 2, 2015, merged into Grand Havana Master LLC, (“GHM”) a Limited Liability Company organized and existing
under the laws of the State of Florida having its Articles of Organization filed and effective on August 20, 2015.
On February 5, 2017, an Agreement for the Exchange
of Stock (the “Exchange”) was entered into between the Company and GHM, and the members of GHM, pursuant to which 50,000,000 shares of the Company’s common stock were
issued to the members of GHM in exchange for 100% of the membership interests of GHM. Upon completion of the Exchange, Grand Havana
Master LLC became the Company’s wholly-owned subsidiary and the members of GHM own a controlling interest in the Company.
Simultaneously upon the Closing of the Exchange, Mr. Roberto Luciano, the Company’s Chief Executive Officer, returned his
39,500,000 shares of the Company’s common stock for cancellation in exchange for certain assets of the business. As a result,
the Company became GHM’s wholly owned subsidiary and assumed a total of $866,011 in net liabilities. This transaction is
being accounted for as a reverse merger and GHM is deemed to be the acquirer. Consequently, the assets and liabilities and the
historical operations that will be reflected in the consolidated financial statements prior to the Reverse Merger will be those
of GHM.
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.
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 are
hereinafter referred to as the “Company”.
NOTE 2 - SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company’s consolidated financial
statements and related disclosures for the periods ended December 31, 2017 and 2016, have been prepared using the accounting principles
generally accepted in the United States (“GAAP”).
PRINCIPLES OF CONSOLIDATION
The accompanying financial statements reflect
the consolidation of the individual 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.
USE OF ESTIMATES
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
which affect the reporting of assets and liabilities as of the dates of the financial statements and revenues and expenses during
the reporting period. These estimates primarily relate to the sales recognition, allowance for doubtful accounts, inventory obsolescence
and asset valuations. Actual results could differ from these estimates. Management’s estimates and assumptions are reviewed
periodically, and the effects of revisions are reflected in the consolidated financial statements in the periods they are determined
to be necessary.
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.
The following table summarizes our financial
instruments measured at fair value as of December 31, 2017:
|
|
|
Fair Value Measurements at December 31, 2017
|
|
Liabilities:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Convertible notes payable
|
|
$
|
1,619,049
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,619,049
|
|
|
Warrants
|
|
$
|
3,309,861
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,309,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016
|
|
Liabilities:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Convertible notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Warrants
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
Description
|
|
2017
|
|
2016
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Proceeds, payments and conversions
|
|
|
736,109
|
|
|
|
—
|
|
|
Total change in fair value
|
|
|
4,224,631
|
|
|
|
—
|
|
|
Ending balance
|
|
$
|
4,960,740
|
|
|
$
|
—
|
|
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 following assumptions were used for the valuation of the derivative liability related to the convertible notes:
|
|
•
|
The underlying stock price $0.0085 to $.0615 was used as the fair value
of the common stock;
|
|
|
•
|
The note face amounts are in the range $12,970 and $172,000 with the
same terms as at issuance and effectively convert at discounts in the range of 43.70% to 78.23%.
|
|
|
•
|
Capital raising events would not occur in any quarter generating dilutive
reset events at prices below the current variable rates for the Notes;
|
|
|
•
|
The holder would redeem based on availability of alternative financing,
10% of the time increasing 1.0% monthly to a maximum of 20%;
|
|
|
•
|
The holder would automatically convert the note at maturity if the
registration was effective and the company was not in default;
|
|
|
•
|
An event of default would occur 0% of the time, increasing 1.00% per
month to a maximum of 20% – to–date many notes are in default and partially converted by the holder’s post assignment;
|
|
|
•
|
The projected volatility for each valuation period was based on the
volatility of 12 comparable company’s in the same Food Processing industry range from 112% to 243%.
|
The following assumptions were used for the
valuation of the derivative liability related to the warrants:
|
|
•
|
The holder would automatically exercise the warrants at a stock price
above the exercise price at expiration;
|
|
|
•
|
Dilutive reset events (March 15, 2017 to $0.027 and April 7, 2017 to
$0.012) projected to occur based on future projected capital needs and projected debt/liability settlements resulting in adjusted
warrants to 3,341,691 as of December 31, 2017;
|
|
|
•
|
The projected annual volatility was based on the historical volatility
of comparable companies of 123% to 175%;
|
|
|
•
|
Risk-free rates were based on the remaining term
|
CASH AND CASH EQUIVALENTS
The Company considers highly liquid
investments with original maturities of three months or less when purchased as cash equivalents. The Company had no cash equivalents
as of December 31, 2017 and 2016. At times throughout the year, the Company might maintain bank balances that may exceed Federal
Deposit Insurance Corporation insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions,
and has not experienced any losses in such accounts. At December 31, 2017 and 2016, the Company had $0 over the insurable limit.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an
allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews
the accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors,
including the age of the balance, a customer’s historical payment history, its current credit-worthiness and current economic
trends. Accounts are written off after exhaustive efforts at collection. At December 31, 2017 and 2016, the Company has established,
based on a review of its outstanding balances, that no allowance is necessary.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose
the Company to concentrations of credit risk, are primarily comprised of cash and cash equivalents, investments, accounts receivable
and unbilled accounts receivable, if any. The Company places its cash in highly rated financial institutions. Management believes
its credit policies reflect normal industry terms and business risk.
CONVERTIBLE INSTRUMENTS AND DERIVATIVES
The Company evaluates and accounts for conversion
options embedded in its convertible instruments in accordance with professional standards for FASB ASC 815,
Derivatives and
Hedging
(“ASC 815”).
Professional standards generally provides three
criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free
standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics
and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of
the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not
re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported
in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered
a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed to be
conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument”.
The Company accounts for convertible instruments
(when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance
with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those
professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary,
discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences
between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion
price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their earliest
date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded
in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of
the note transaction and the effective conversion price embedded in the note.
ASC 815 provides that, among other things,
generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall
be classified as an asset or a liability.
GOODWILL
Goodwill represents the excess of cost over
net assets of acquired businesses that are consolidated. The Company performs its annual assessment of goodwill on December 31
of each fiscal year and whenever events or changes in circumstances or a triggering event indicate that the carrying amount may
not be recoverable. Determining whether a triggering event has occurred often involves significant judgment from management. An
entity is permitted to first assess qualitatively whether it is necessary to perform a goodwill impairment test. The quantitative
impairment test is required only if the entity concludes that it is more likely than not that a reporting unit’s fair value
is less than its carrying amount. The Company determines the fair value of a reporting unit based on an income approach utilizing
a discounted cash flow adjusted for entity specific factors. In evaluating whether it is more likely than not that the fair value
of a reporting unit is less than its carrying amount, an entity should consider the totality of all relevant events or circumstances
that affect the fair value or carrying amount of a reporting unit. If the carrying value of a reporting unit’s goodwill exceeds
its implied fair value, then an impairment loss equal to the difference is recorded. See Note 7, "Acquisition and Related
Goodwill" for further information and discussion.
The Company performed its annual assessment
of goodwill on December 31, 2017 and determined that a full impairment to goodwill of $553,980 was necessary.
INTANGIBLE ASSETS
The Company records intangible assets at cost
or based on the fair value of the assets acquired. Intangible assets consist of customer lists and trademarks. The Company amortizes
intangible assets over their estimated useful lives or in proportion to expected yearly revenue generated from the intangibles
that were acquired.
In accordance with ASC 350,
Intangibles-Goodwill
and Other
, the Company assesses intangible assets for potential impairments at the end of each fiscal year, or during the
year if an event or other circumstance indicates that we may not be able to recover the carrying amount of the asset. In evaluating
goodwill and intangible assets for impairment, the Company first assesses qualitative factors to determine whether it is more
likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount. If the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its
carrying value, then no further testing of the intangible assets assigned to the reporting unit is required. However, if the Company
concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company
will perform a two-step intangible assets impairment test to identify potential intangible assets impairment and measure the amount
of intangible assets impairment to be recognized, if any.
In the first step of the review process, the
Company compares the estimated fair value of the reporting unit with its carrying value. If the estimated fair value of the reporting
unit exceeds its carrying amount, no further analysis is needed. If the estimated fair value of the reporting unit is less than
its carrying amount, the Company proceeds to the second step of the review process to calculate the implied fair value of the reporting
unit intangible assets in order to determine whether any impairment is required. The Company calculates the implied fair value
of the reporting unit intangible assets by allocating the estimated fair value of the reporting unit to all of the assets and liabilities
of the reporting unit as if the reporting unit had been acquired in a business combination. If the carrying value of the reporting
unit's intangible assets exceeds the implied fair value of the intangible assets, the Company recognizes an impairment loss for
that excess amount. In allocating the estimated fair value of the reporting unit to all of the assets and liabilities of the reporting
unit, the Company uses industry and market data, as well as knowledge of the industry and the Company’s past experiences.
The Company bases its calculation of the estimated
fair value of a reporting unit on the income approach. For the income approach, the Company uses internally developed discounted
cash flow models that include, among others, the following assumptions: projections of revenues and expenses and related cash
flows based on assumed long-term growth rates and demand trends; expected future investments to grow new units; and estimated
discount rates. The Company bases these assumptions on its historical data and experience, third-party appraisals, industry projections,
micro and macro general economic condition projections, and its expectations.
The Company had no intangible assets impairment
charges for the years ended December 31, 2017 and 2016.
INVENTORY
Inventory is stated at the lower of cost or
net realizable value using the FIFO method. Inventory consists primarily of only finished goods, which represents the final product
ready for sale. A periodic inventory system is maintained by 100% count. Inventory is replaced periodically to maintain the optimum
stock on hand available for immediate shipment. The Company assesses whether an inventory reserve is necessary at the end of each
fiscal period. For the years ended December 31, 2017 and 2016 no inventory reserve was deemed necessary.
INCOME TAXES
The Company, along with its consolidated subsidiaries,
are deemed a corporation and thus is a taxable entity. Prior to the reverse merger on February 5, 2017 the Company filed a U.S.
Return of Partnership Income, whereby the members of the Company were taxed on their share of the Company’s taxable income,
and the Company was not subject to federal and state income taxes. No provision for income taxes was reflected in the accompanying
consolidated financial statements, as the Company did not have income through December 31, 2017. There were no uncertain tax positions
that would require recognition in the consolidated financial statements through December 31, 2017.
Generally, federal, state and local authorities
may examine the Company’s tax returns for three years from the date of filing, and the current and prior three years remain
subject to examination as of December 31, 2017.
The Company’s conclusions regarding uncertain
tax positions may be subject to review and adjustment at a later date based upon ongoing analyses of tax laws, regulations and
interpretations thereof as well as other factors.
The Company accounts for income taxes under
ASC 740-10-30,
Income Taxes
. Deferred income tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent
management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements
of operations in the period that includes the enactment date.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost.
Expenditures for major renewals and improvements are capitalized while expenditures for minor replacements, maintenance and repairs
are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets.
Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss,
if any, is reflected in loss on disposal of assets in the consolidated statement of income and comprehensive income.
At least annually, the Company evaluates, and
adjusts when necessary, the estimated useful lives. The changes in estimated useful lives would not have a material impact on depreciation
in any period. The estimated useful lives are:
LONG LIVED ASSETS
The Company evaluates the carrying value and
recoverability of its long-lived assets when circumstances warrant such evaluation by applying the provisions of ASC 360-35,
Property,
Plant and Equipment, Subsequent Measurement
(“ASC 360-35”). ASC 360-35 requires that long-lived assets be reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable
through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever
any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
RECOGNITION OF REVENUE
Sales are recorded at the time title of goods
sold passes to customers, which based on shipping terms, which generally occurs when the product is shipped to the customer and
collectability is reasonably assured. Sales are presented net of discounts and allowances. Discounts and allowances are determined
when a sale is negotiated. The Company does not grant price adjustments after a sale is complete.
The Company’s revenue is primarily derived
from the sale of coffee, tea and accessories. The Company records revenue when the amount is fixed or determinable, delivery has
occurred or services have been performed and both title and risk of loss have transferred to the customer, and collection is reasonably
assured.
STOCK BASED COMPENSATION
The Company follows FASB ASC 718,
Compensation
– Stock Compensation
, which prescribes accounting and reporting standards for all share-based payment transactions in
which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares,
options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based
payments to employees, including grants of employee stock options, are recognized as compensation expense in the unaudited condensed
consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee
is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).
The Company accounts for stock-based compensation
issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50,
Equity–based Payments to
Non-Employees
. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever
is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value
of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
For
the years ended December 31, 2017 and 2016, the Company had stock based compensation
totaling $2,883,032
and $0, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
("ASU 2014-09"). ASU 2014-09 affects any entity using U.S. GAAP
that either enters into contracts with customers to transfer goods or services, or enters into contracts for the transfer of nonfinancial
assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). ASU 2014-09
is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted
ASU 2014-09 on January 1, 2018. The adoption had no impact on the financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
(“ASU 2016-02”), which modifies lease accounting for lessees to increase transparency and
comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements.
The amendment is effective from December 15, 2018. The Company adopted ASU 2016-02 on January 1, 2019 along with the “package
of practical expedients”. At the time of adoption, the Company recognized ROU assets and liabilities in the amount of $32,616.
In May 2017, the FASB issued ASU 2017-09,
Compensation
- Stock Compensation (Subtopic 718) Scope of Modification Accounting
. The amendments in ASU 2017-09 provide clarity and
reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,
Compensation—Stock Compensation, to a change to the terms or conditions of a share-based payment award. The ASU is
effective for annual reporting periods beginning after December 15, 2017, including interim periods within those periods. The
Company has determined that
this
ASU will have an immaterial impact
on
its consolidated financial statements.
In July 2017, the
FASB issued ASU 2017-11,
Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480),
and Derivatives and Hedging (Topic 815)
. The amendments in ASU 2017-11 provide guidance for freestanding equity-linked financial
instruments, such as warrants and conversion options in convertible debt or preferred stock, and should no longer be accounted
for as a derivative liability at fair value as a result of the existence of a down round feature. The ASU is effective for annual
reporting periods beginning after December 15, 2018, including interim periods within those periods.
The Company has determined
that
this
ASU will have an immaterial impact
on its consolidated financial
statements.
In June 2018, the
FASB issued ASU 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Non-Employee Share Based Payment
Accounting
. The amendments in ASU 2018-07 provide for the simplification of the measurement of share-based payment transactions
for acquiring goods and services from non-employees. The ASU is effective for annual reporting periods beginning after December
15, 2018, including interim periods within those periods.
The Company has determined that
this
ASU will have an immaterial impact
on its consolidated financial statements.
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.
NOTE 3 - GOING CONCERN
The Company’s 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 losses during the years ended December 31, 2017 and 2016, respectively. Cash on hand will not be sufficient to
cover debt repayments, operating expenses and capital expenditure requirements for at least twelve months from the consolidated
balance sheet date. As of December 31, 2017 and 2016, the Company had working capital deficits. Our historical operating results
indicate substantial doubt exists 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 financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
NOTE 4 - 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 available to common stockholders by the weighted average shares outstanding
during the period. Diluted earnings per share, which is calculated by dividing net income 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, is not presented separately as of
December 31, 2017
as it is anti-dilutive.
Such securities, shown below, presented on a common share
equivalent basis and outstanding as of December 31, 2017 and 2016 have been excluded from the per share computations:
|
|
|
D
ecember 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
Convertible notes payable
|
|
|
$
|
44,437,745
|
|
|
$
|
—
|
|
|
|
Warrants
|
|
|
$
|
4,088,874
|
|
|
$
|
—
|
|
|
|
Series A preferred stock
|
|
|
$
|
122,251,400
|
|
|
$
|
—
|
|
|
|
Total diluted shares
|
|
|
$
|
170,778,019
|
|
|
$
|
—
|
|
|
NOTE 5 - INVENTORY
Inventory consisted of the following at December
31, 2017 and 2016:
|
|
|
D
ecember 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
Finishing goods
|
|
|
$
|
10,966
|
|
|
$
|
100
|
|
|
|
Totals
|
|
|
$
|
10,966
|
|
|
$
|
100
|
|
|
NOTE 6 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,
2017 and 2016:
|
|
|
D
ecember 31,
|
|
|
|
|
2017
|
|
2016
|
|
|
Equipment
|
|
|
$
|
74,404
|
|
|
$
|
32,248
|
|
|
|
Less: accumulated depreciation
|
|
|
$
|
(23,187
|
)
|
|
$
|
(6,766
|
)
|
|
|
Property and equipment, net
|
|
|
$
|
51,217
|
|
|
$
|
34,229
|
|
|
Depreciation expense for the years ended December 31, 2017 and 2016
was $16,402 and $5,057, respectively.
NOTE 7 - ACQUISITION AND RELATED GOODWILL
Acquisition of Cafesa:
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 (the “Acquisition”). The Company will pay a total of $420,000 in cash and stock for the interest in Cafesa.
There were two initial cash payments in May and August 2017, followed by eight quarterly payments of cash and stock.
The following table summarizes the consideration
paid for Cafesa and the amounts of the assets acquired and liabilities assumed recognized at the acquisition date, as well as
the fair value at the acquisition date:
|
|
|
April
25,
|
|
|
|
2017
|
|
Consideration:
|
|
|
|
|
|
Notes issued
for 70% acquisition of Cafesa
|
|
$
|
420,000
|
|
|
Non-controlling interest
|
|
|
180,000
|
|
|
Total Consideration
|
|
$
|
600,000
|
|
|
|
|
|
|
|
|
Recognized amounts
of identifiable assets acquired and liabilities assumed:
|
|
|
|
|
|
Tangible assets acquired:
|
|
|
|
|
|
Cash
|
|
$
|
2,393
|
|
|
Inventory
|
|
|
6,238
|
|
|
Property and equipment
|
|
|
24,906
|
|
|
Total tangible assets
acquired
|
|
$
|
33,537
|
|
|
|
|
|
|
|
|
Assumed liabilities:
|
|
|
|
|
|
Accounts payable and
accrued expenses
|
|
$
|
6,617
|
|
|
Total assumed liabilities
|
|
$
|
6,617
|
|
|
|
|
|
|
|
|
Net tangible assets/liabilities
|
|
$
|
26,920
|
|
|
|
|
|
|
|
|
Intangible assets acquired:
|
|
|
|
|
|
Trademarks
|
|
$
|
7,100
|
|
|
Customer lists
|
|
|
12,000
|
|
|
Total intangible assets
acquired
|
|
$
|
19,100
|
|
|
|
|
|
|
|
|
Goodwill recognized
|
|
$
|
553,980
|
|
Goodwill:
At the time of the Acquisition, the Company
allocated the purchase price to the assets acquired and liabilities assumed at their estimated fair values as of the date of Acquisition.
The excess of the purchase price paid by the Company over the estimated fair value of net assets acquired has been recorded as
goodwill. Goodwill represents the value associated with the acquired workforce and synergies related to the merger of the two companies.
The Company performed its annual assessment
of goodwill on December 31, 2017 and determined that a full impairment to goodwill of $553,980 was necessary.
Unaudited Pro Forma Financial
Information:
The unaudited pro forma consolidated statements
of operations give effect to the acquisition as if it occurred at the beginning of 2016. These unaudited pro forma consolidated
statements of operations are prepared by management for informational purposes and are not necessarily indicative of future results
or of actual results that would have been achieved had the acquisition been consummated as of the dates presented, and should not
be taken as representative of future consolidated results of operations of the Company:
|
|
|
Year
Ended
|
|
|
|
December
31, 2016
|
|
|
|
(Actual)
|
|
CAFESA
|
|
(Proforma)
|
|
NET REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net
|
|
$
|
210,508
|
|
|
$
|
207,702
|
|
|
$
|
418,210
|
|
|
TOTAL
NET REVENUES
|
|
|
210,508
|
|
|
|
207,702
|
|
|
|
418,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
50,512
|
|
|
|
118,545
|
|
|
|
169,057
|
|
|
TOTAL
COST OF GOODS SOLD
|
|
|
50,512
|
|
|
|
118,545
|
|
|
|
169,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT (LOSS)
|
|
|
159,996
|
|
|
|
89,157
|
|
|
|
249,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
142,560
|
|
|
|
40,440
|
|
|
|
183,000
|
|
|
Depreciation
and amortization
|
|
|
5,057
|
|
|
|
—
|
|
|
|
—
|
|
|
Payroll
and related expenses
|
|
|
129,179
|
|
|
|
43,406
|
|
|
|
367,062
|
|
|
TOTAL
OPERATING EXPENSES
|
|
|
276,796
|
|
|
|
83,846
|
|
|
|
360,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(116,800
|
)
|
|
$
|
5,311
|
|
|
$
|
(111,489
|
)
|
|
|
|
Year
Ended
|
|
|
|
December
31, 2017
|
|
|
|
(Actual)
|
|
CAFESA
|
|
(Proforma)
|
|
NET REVENUES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues,
net
|
|
$
|
47,418
|
|
|
$
|
211,246
|
|
|
$
|
258,664
|
|
|
TOTAL
NET REVENUES
|
|
|
47,418
|
|
|
|
211,246
|
|
|
|
258,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COST OF GOODS SOLD:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
32,146
|
|
|
|
102,204
|
|
|
|
134,350
|
|
|
TOTAL COST OF GOODS
SOLD
|
|
|
32,146
|
|
|
|
102,204
|
|
|
|
134,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
15,272
|
|
|
|
109,042
|
|
|
|
124,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
expenses
|
|
|
3,257,064
|
|
|
|
30,444
|
|
|
|
3,287,508
|
|
|
Depreciation and amortization
|
|
|
6,114
|
|
|
|
11,040
|
|
|
|
17,154
|
|
|
Impairment of goodwill
|
|
|
553,980
|
|
|
|
—
|
|
|
|
553,980
|
|
|
Payroll and related
expenses
|
|
|
287,283
|
|
|
|
104,709
|
|
|
|
391,992
|
|
|
TOTAL OPERATING
EXPENSES
|
|
|
4,104,441
|
|
|
|
146,193
|
|
|
|
4,250,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(4,089,169
|
)
|
|
|
(37,151
|
)
|
|
|
(4,126,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER EXPENSE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(309,908
|
)
|
|
|
—
|
|
|
|
(309,908
|
)
|
|
Other (expense) income
|
|
|
(4,224,631
|
)
|
|
|
—
|
|
|
|
(4,224,631
|
)
|
|
TOTAL OTHER EXPENSE
|
|
|
(4,534,539
|
)
|
|
|
—
|
|
|
|
(4,534,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(8,623,708
|
)
|
|
$
|
(37,151
|
)
|
|
$
|
(8,660,859
|
)
|
NOTE 8 - INTANGIBLE ASSETS
The expected useful life of intangible assets is 15 years. Intangible
assets consisted of the following at December 31, 2017 and 2016:
|
|
|
D
ecember 31,
|
|
|
|
2017
|
|
2016
|
|
Trademarks
|
|
$
|
7,100
|
|
|
$
|
—
|
|
|
Customer lists
|
|
$
|
12,000
|
|
|
$
|
—
|
|
|
Subtotal
|
|
$
|
19,100
|
|
|
$
|
—
|
|
|
Intangible assets, net
|
|
$
|
19,100
|
|
|
$
|
—
|
|
Amortization expense for the years ended December 31, 2017 and
2016 was $0 and $0, respectively.
NOTE 9 - CONVERTIBLE NOTES
On August 28, 2013 and November 19, 2013, the
Company issued convertible promissory notes in the amounts of $47,500 and $18,000, respectively. These notes bear interest at a
rate of 8% per annum, and the interest rate will increase to 22% if the convertible promissory note is in default. These notes
contains a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate
of 58% of the average of the lowest three trading prices during the last ten day trading period, including the date of conversion.
On March 14, 2014, one of the notes for $47,500 was assigned for a premium of $18,624 which was added to convertible note principal.
On March 14, 2014, one of the notes for $18,000 was assigned for a premium of $3,920 which was added to convertible note principal,
and on July 7, 2015 $9,000 of principal for this note was converted into 2,000,000 shares of common stock at a price of $0.00225
per share. The combined principal amount of these notes at December 31, 2017 and 2016 is $79,044, and the related accrued interest
is $18,601, respectively. These notes are currently in default.
On August 28, 2013 the Company issued a 10%
convertible promissory note in the principal amount of $172,000. The note bears interest at a rate of 10% per annum, and the interest
rate will increase to 18% if the convertible promissory note is in default. This note contains a provision for conversion at the
holder's option including accrued interest, into the Company's common stock at a rate of 50% of the closing bid price on the day
immediately prior to conversion. The principal amount of this note at December 31, 2017 and 2016 is $172,000, and the related accrued
interest is $42,666, respectively. This note is currently in default.
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.
The principal amount of the note at December 31, 2017 is $25,000, and the related accrued interest is $1,764, respectively. This
note is currently in default.
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.
The principal amount of the note at December 31, 2017 is $95,000, and the related accrued interest is $5,830, respectively. This
note is currently in default.
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. The principal amount of the note at December 31, 2017 is $60,000, and the related accrued interest is $3,827,
respectively. This note is currently in default.
On March 17, 2017 the Company entered into
a secured convertible promissory note for $80,000, due on March 17, 2018, bearing interest at 15% 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 45% of the lowest trading price during the last fifteen trading day period,
including the date of conversion. The principal amount of the note at December 31, 2017 is $80,000, and the related accrued interest
is $9,534, respectively. This note is currently in default.
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.
The principal amount of the note at December 31, 2017 is $60,000, and the related accrued interest is $3,814, respectively. This
note is currently in default.
On March 17, 2017 the Company entered into
an unsecured convertible promissory note for $25,000, due on March 17, 2018, bearing interest at 15% 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 45% of the lowest trading price during the last fifteen trading day period, including the date of conversion.
The principal amount of the note at December 31, 2017 is $25,000, and the related accrued interest is $2,877, respectively. This
note is currently in default.
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. The principal
amount of the note at December 31, 2017 is $20,000, and the related accrued interest is $1,179, respectively. This note is currently
in default.
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. The principal
amount of the note at December 31, 2017 is $20,000, and the related accrued interest is $1,065, respectively. This note is currently
in default.
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. The principal amount of the note at December 31, 2017 is $60,000, and the related accrued interest is $3,196,
respectively. This note is currently in default.
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. The principal amount of the note at December 31, 2017 is $78,750, and the related accrued interest
is $2,537, respectively. This note is currently in default.
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. The principal amount of the note at December 31, 2017 is $60,000, and the related accrued interest is $250,
respectively. This note is currently in default.
NOTE 10 -
NOTE PAYABLE
During 2013 and 2014, the Company entered into
a promissory note for $88,957 for inventory purchase. The note had no stated term and bears no interest.
NOTE 11 -
RELATED PARTY TRANSACTIONS
On December 1, 2016, the Company entered into
employment agreements with certain key executives with initial terms of five years and call for compensation in cash and equity
in the Company as follows:
|
Employee
|
Position
|
Cash Compensation
|
Equity Compensation
|
|
Tanya Bredemeier
|
Chairman and COO
|
$ 75,000*
|
25%
|
|
Robert Rico
|
Chief Executive Office
|
$ 125,000
|
10%
|
|
Steve Polisar
|
Chief Legal Officer
|
$ 36,000*
|
30%
|
|
Jorge Moreno
|
Chief Marketing Officer
|
$ 40,000*
|
10%
|
*= Second year compensation will increase by
20% after corporate financing milestones are met.
Additionally, an employment agreement was entered
into on May 5, 2017, with Luis Ravelo, Vice President of Operations. The agreement has a one-year renewable term with an annual
salary of $104,000. As of December 31, 2017 and 2016 related party payroll liabilities totaled $165,945 and $0, respectively.
Certain employees and shareholders were granted
shares of Series A preferred stock in 2017. For the years ended December 31, 2017 and 2016 employees and shareholders received
a total of 100 shares of Series A preferred stock valued at $2,811,782.
The Company has received loans from related
parties for working capital purposes. These unsecured loans bear interest at a rate of 6% per annum and have no repayment terms.
For the years ended December 31, 2017 and 2016 the Company was (repaid) loaned a net of $(80,249) and $57,452, respectively. As
of December 31, 2017 and 2016 the outstanding balance of these loans is $102,018 and $77,267, respectively.
As part of the Cafesa acquisition on April
25, 2017, the Company is required to make cash and stock payments to a related party. For the year ended December 31, 2017, the
Company made two cash payments totaling $105,000. As of December 31, 2017, the outstanding balance due to this related party is
$315,000.
NOTE 12 - LINE OF CREDIT
The Company has a revolving business credit
line of $5,000 with one of its banks with a variable interest rate of 5% above the Prime rate of the respective bank. As of December
31, 2017, and 2016 the balance due on the line of credit was $4,936 and $5,034, respectively. The line of credit is collateralized
by a certificate of deposit in the amount of $5,300, which matures on December 8, 2020.
NOTE 13 - INCOME TAXES
The provision for income taxes represents estimated
federal and state income taxes. From the Company’s inception on August 20, 2015 to February 4, 2017, the Company was not
subject to federal and state income taxes since it was operating as a Limited Liability Company. On February 5, 2017, as a result
of the reverse merger, the Company became subject to corporate federal and state income taxes as a C corporation. The effective
tax rate for the year ended December 31, 2017 was 41% and diverged from the combined federal and state statutory rates strictly
due to differences in the tax rates.
Reconciliation between the statutory United
States corporate income tax rate and the effective income tax rates based on continuing operations is as follows:
|
Year ended December 31,
|
|
2017
|
|
Income tax expense at Federal statutory rate of 35%
|
|
$
|
241,843
|
|
|
State Income tax expense (benefit), net of Federal effect
|
|
|
40,216
|
|
|
Change in valuation allowance
|
|
|
(282,059
|
)
|
|
Total
|
|
$
|
—
|
|
The Company did not have a deferred tax asset
or liability as of December 31, 2017 and 2016.
At December 31, 2017 the Company has available
net operating losses of approximately $731,000 which may be carried forward to apply against future taxable income. These losses
will expire carryforward indefinitely. The net operating losses may be subject to limitations under Internal Revenue Code Section
382 should there be a 50% ownership change as determined under regulations. Deferred tax assets related to these losses have not
been recorded due to uncertainty regarding their utilization.
The provisions of ASC 740 require companies
to recognize in their unaudited consolidated financial statements the impact of a tax position if that position is more likely
than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold
and measurement attribute for the unaudited consolidated financial statement recognition and measurement of a tax position taken
or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure.
Management does not believe that the Company
has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly,
the adoption of these provisions of ASC 740 did not have a material effect on the Company’s unaudited consolidated financial
statements. The Company’s policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.
The Company has not filed its applicable Federal
and State tax returns for the years ended December 31, 2017 and 2016, and may be subject to penalties for noncompliance.
NOTE 14 - EQUITY
During the year ended December 31, 2016, GHM
granted an aggregate of 23% membership interests in GHM to employees pursuant to employee agreements. The fair value of the membership
interests was estimated using a discounted cash flow method and market approach. GHM recorded the fair value of $7,589 as compensation
expense for the year ended December 31, 2016.
Preferred Stock
As of December 31, 2017, and 2016, the Company
has 19,999,900 and 20,000,000 undesignated shares of preferred stock authorized, no par value, of which nil shares are issued and
outstanding.
The Company has designated 100 shares of Series
A Preferred Stock for issuance. Each share of Series A Preferred Stock (i) pays no dividends, (ii) is convertible
into a number of common shares equal to 2% of the issued and outstanding shares at the time of conversion, (iii) has no liquidation
preference, and (v) has voting rights equal to the number of shares into which they can be converted. For the year ended December
31, 2017, the Company issued 100 shares of Series A Preferred Stock to certain employees and shareholders valued on an as if converted
basis.
As of December 31, 2017, and 2016, the Company
has 10,000,000 authorized shares of Series B Preferred Stock, no par value, of which nil shares are issued and outstanding. The
Series B Preferred Stock carries super voting rights at a 1:1 ratio of the entire voting Common Stock eligible to vote at any time
until such Series B Preferred shares are either converted, redeemed, liquidated or cancelled. The Series B Preferred Stock is convertible
into common stock at a 1:1 ratio (i.e. – one share of common stock issued for each share of Series B Preferred Stock converted).
Common Stock
As of December 31, 2017, and 2016, the Company
has 400,000,000 authorized shares of common stock, par value $0.001, of which 61,125,687 and 46,875,687 shares are issued and outstanding,
respectively.
On February 5, 2017, as part of the reverse
merger, the Company issued 7,375,687 shares of common stock (see Note 1).
On March 31, 2017, the Company issued a total
of 3,750,000 shares of common stock at a price of $0.019 per share, the fair market value on the date of issuance, to two separate
third parties for services rendered totaling $71,250.
NOTE 15 - WARRANTS
During the year ended December 31, 2017, the
Company granted a total of 4,088,874 warrants to acquire shares of common stock at a range of $0.01 to $0.03 per share. All tranches
of stock purchase warrants were issued to various note holders in connection with the issuance of convertible debt. The intrinsic
value of the 4,088,874 warrants as of December 31, 2017 is $147,461.
A summary of the status of the Company’s
warrants as of December 31, 2017 is presented below:
|
|
|
Number of
Options and
Warrants
|
|
|
|
|
|
Outstanding at December 31, 2016
|
|
|
—
|
|
|
|
|
|
|
|
|
Options and warrants granted
|
|
|
4,088,874
|
|
|
Options and warrants exercised
|
|
|
—
|
|
|
Options and warrants forfeited or expired
|
|
|
—
|
|
|
Outstanding at December 31, 2017
|
|
|
4,088,874
|
|
|
Exercisable at December 31, 2017
|
|
|
4,088,874
|
|
The following table summarizes information
about warrants as of December 31, 2017:
|
|
|
Warrants
Outstanding
|
|
Warrants
Exercisable
|
Range of Exercise
Prices
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.01 to $0.03
|
|
|
|
4,088,874
|
|
|
|
2.31
|
|
|
$
|
0.03
|
|
|
|
4,088,874
|
|
|
$
|
0.03
|
|
|
|
|
|
|
|
4,088,874
|
|
|
|
2.31
|
|
|
$
|
0.03
|
|
|
|
4,088,874
|
|
|
$
|
0.03
|
|
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company evaluates contingencies on an ongoing
basis and is not currently a party to any legal proceeding that management believes could have a material adverse effect on our
results of operations.
Rent is charged at the rate of 50% of retail
sales by the hotels where the Company’s kiosks are located and totaled $0 and $95,989 for the years ended December 31, 2017
and 2016, respectively, pursuant to oral agreements with the hotels.
The Company has a one year lease for approximately
225 square feet of office space located at 407 Lincoln Road, Miami Beach, FL 33139. The lease started May 1, 2017 and ended April
30, 2018. The monthly rental payments are $600 per month. This lease was extended on a month to month basis through July 2018 with
the same terms.
Future minimum rentals on non-cancelable leases for the year ending
December 31, 2017 are as follows:
|
2018
|
|
$
|
2,400
|
|
|
Thereafter
|
|
|
-
|
|
|
Total
|
|
$
|
2,400
|
|
NOTE 17 - SUBSEQUENT EVENTS
On January 16, 2018, the Company issued 100,000
shares of common stock for services rendered.
On January 27, 2018, the Company issued 60,000
shares of common stock at a price of $0.05 per share for $3,000 cash.
On February 12, 2018, the Company issued 100,000
shares of common stock at a price of $0.05 per share for $5,000 cash.
On February 15, 2018, the Company entered into a strategic partnership and services agreement. On February 27, 2018, the Company
issued 400,000 shares of common stock for services rendered. In addition to services rendered, the Company received 10,000,000
shares of their partner's common stock. On September 11, 2018, the partner effectuated a 1:250 reverse stock split.
On February 27, 2018, the Company issued 100,000
shares of common stock at a price of $0.05 per share for $5,000 cash.
On March 5, 2018, the Company entered into
a convertible promissory note for $302,612 in settlement of previous convertible promissory notes, of which $228,750 was principal
and $73,862 was interest accrued through the date of issuance of this note, due on March 5, 2019, bearing interest at 8% per annum,
with an original issuance discount of $1,500. 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 50% of the closing price on the trading day immediately
prior to the conversion date.
On March 12, 2018, the Company issued 100,000
shares of common stock at a price of $0.05 per share for $5,000 cash.
On March 13, 2018 the Company entered into
a convertible promissory note for $15,000, due on March 23, 2019, bearing interest at 15% per annum, with an original issuance
discount of $1,500. 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 the lower of $0.01 per share or 45% of the lowest trading price during
the last twenty trading day period, including the date of conversion. In addition to this note, the Company granted 500,000 warrants
to purchase common stock at an exercise price of $0.10 per share expiring on March 23, 2023.
On April 25, 2018, the Company issued to 56,000
shares of common stock at a price of $0.05 per share for $2,800 cash.
On May 8, 2018, the Company issued to a related
party 1 share of Series A preferred stock for $25,000 cash.
On May 10, 2018 the Company entered into a
secured convertible promissory note for $20,000, due on May 10, 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 twenty trading day period, including
the date of conversion.
On May 31, 2018, the Company issued to the
Company’s accountant 1 share of Series A preferred stock for $25,000 cash.
On June 1, 2018, the Company issued to a related
party 1 share of Series A preferred stock for $25,000 cash.
On June 25, 2018 the Company entered into a
secured convertible promissory note for $32,000, due on June 25, 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 twenty trading day period, including
the date of conversion.
On July 7, 2018 the Company entered into a
finance agreement for the purchase of a vehicle totaling $32,529, of which $5,350 was paid on the date of signing. The terms of
this agreement include 72 monthly payments of $377 beginning on August 21, 2018 with an annual interest rate of 7.04%.
On July 9, 2018, the Company entered into a
two year lease for office and warehouse space located at 2300 NW 7th Place, Miami, FL 33127. The lease began July 12, 2018 and
ends July 1th, 2020. The monthly rental payments are $1,495 per month for year 1 and $1,548 per month for year 2 of the lease.
On July 25, 2018, the Company issued 65,000
shares of common stock at a price of $0.05 per share for $3,250 cash.
On July 26, 2018, the Company issued 100,000
shares of common stock at a price of $0.10 per share for $10,000 cash.
On July 28, 2018 the Company entered into a
finance agreement for the purchase of a vehicle totaling $36,331, of which $4,850 was paid on the date of signing. The terms of
this agreement include 72 monthly payments of $437 beginning on September 11, 2018 with an annual interest rate of 8.94%.
On August 2, 2018, the Company issued 1 share
of Series A preferred stock for $25,000 cash.
On August 19, 2018, the Company issued
21,000 shares of common stock at a price of $0.05 per share for $1,050 cash.
On September 2, 2018 the Company entered into
a convertible promissory note for $12,500, due on September 1, 2019, bearing interest at 10% 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 intraday trading price during the last five trading day period, including the date of conversion.
On September 17, 2018 the Company entered into
a secured convertible promissory note for $40,000, due on September 17, 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.
On September 20, 2018, the Company issued 3,000,000
shares of common stock at a price of $0.02 per share for $60,000 cash.
On September 20, 2018, the Company issued to
a related party 250,000 shares of common stock at a price of $0.02 per share for $5,000 cash.
On October 26, 2018 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.
On October 30, 2018 the Company entered into
a finance agreement for the purchase of a vehicle totaling $36,981, of which $5,500 was paid on the date of signing. The terms
of this agreement include 72 monthly payments of $437 beginning on December 14, 2018 with an annual interest rate of 7.44%.
On October 31, 2018, the Company entered into
a five year consulting agreement including a commencement bonus of 100,000 shares of common stock valued at $0.12 per share for
a total of $12,000 with an additional 400,000 shares of common stock to be issued after established targets have been achieved.
On December 4, 2018, the Company issued to
a related party a 1/2 share of Series A preferred stock for $12,500 cash.
On December 7, 2018, the Company issued the
Company’s accountant a 1/2 share of Series A preferred stock for $12,500 cash.
On December 13, 2018 the Company entered into
a secured convertible promissory note for $30,000, 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.
On December 31, 2018 the Company entered into
a finance agreement for the purchase of a vehicle totaling $35,701, of which $1,500 was paid on the date of signing. The terms
of this agreement include 75 monthly payments of $456 beginning on February 14, 2019 with an annual interest rate of 6.99%.
On December 31, 2018 the Company entered into
a secured convertible promissory note for $35,000, due on May 10, 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 twenty trading day period, including
the date of conversion.
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 twenty trading day period,
including the date of conversion.
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. The lease began February 1, 2019
and ends January 31, 2021. The monthly rental payments are $1,601 per month for year 1 and $1,657 per month for year 2 of the lease.
On February 6, 2019, the Company issued 100,000
shares of common stock at a price of $0.05 per share for $5,000 cash.
On February 25, 2019, the Company issued 150,000
shares of common stock at a price of $0.04667 per share for $7,000 cash.
On March 1, 2019, the Company issued 50,000
shares of common stock at a price of $0.05 per share for $2,500 cash.
On March 12, 2019, the Company entered into
a secured promissory note for $50,000, due on July 12, 2019, bearing interest at 8% per annum and secured by 60 shares of Series
A preferred stock. This note was further extended through October 12, 2019.
On March 12, 2019, the Company filed an amendment
to their Articles of Incorporation to increase the number of authorized shares of Series A Preferred Stock from 100 shares to 200
shares.
On March 28, 2019, the Company issued 200,000
shares of common stock at a price of $0.025 per share for $5,000 cash.
On April 1, 2019, the Company issued 25,000
shares of common stock at a price of $0.04 per share for $1,000 cash.
On April 12, 2019, the Company entered into
a secured senior 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 conversion prices per share of $0.02.
On April 25, 2019, the Company entered into
two secured convertible promissory note for $33,000 each totaling $66,000, due on April 25, 2020, bearing interest at 10% per annum,
each with an original issuance discount of $3,000 and secured by the assets of the Company. Both convertible promissory notes contains
a provision for conversion at the holder's option including accrued interest, into the Company's common stock at a rate equal to
the lower of $.11 per share or 50% of the lowest trading price during the last twenty trading day period, including the date of
conversion. In addition to the notes, the Company granted 75,000 warrants to purchase common stock at an exercise price of $0.11
per share expiring on April 25, 2022.
On May 1, 2019, The Board of Directors approved
a bonus to three of the Company's executives in the form of 37 Series A Preferred Shares.
On May 2, 2019, the Company issued 5,714,286
shares of common stock at a price of $0.035 per share for $200,000 cash.
On May 13, 2019, the Company issued 142,857
shares of common stock at a price of $0.035 per share for $5,000 cash.
On May 16, 2019, the Company issued 5,714,286
shares of common stock at a price of $0.035 per share for $200,000 cash.
On May 21, 2019, the Company issued 2,857,143
shares of common stock at a price of $0.035 per share for $100,000 cash.
On May 22, 2019, the Company issued 285,714
shares of common stock at a price of $0.035 per share for $10,000 cash.
On June 1, 2019, the Company entered into
a six month consulting agreement including a commencement bonus of 250,000 shares of common stock valued at $0.19 per share for
a total of $47,500.
On June 26, 2019, the Company issued 571,429
shares of common stock at a price of $0.035 per share for $20,000 cash.
On July 8, 2019, the Company issued 285,714
shares of common stock at a price of $.035 per share of $10,000 cash.
On July 18, 2019, the Company issued 285,714
share of common stock at a price of $.035 per share of $10,000 cash.
On July 19, 2019, the Company issued 4 shares
of Series A Preferred Stock for services rendered.
Management has evaluated all transactions and
events after the balance sheet date through the date on which these financials were available to be issued, and except as already
included in the notes to these consolidated financial statements, has determined that no additional disclosures are required.
