GRAND HAVANA INC. - Annual Report: 2017 (Form 10-K)

Mark One

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2017

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File No. 333-172850

 761 NW 23rd Street

Miami, FL 33127

(800) 608-5441

 (Address and telephone number of principal executive offices)

Securities Registered Under Section 12(b) of the Exchange Act:   None

Securities Registered Under Section 12(g) of the Exchange Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer as defined by Rule 405 of the Securities Act 

Yes [   ]   No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Rule 13 or Section 15(d) of the Act

Yes [   ]   No [X]

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:

DOCUMENTS INCORPORATED BY REFERENCE

None

TABLE OF CONTENTS

PART I:

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Mine Safety Disclosures

PART II:

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

Item 6. Selected Financial Data

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

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

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

Item 9A. Controls and Procedures

Item 9A(T). Controls and Procedures

Item 9B. Other Information

PART III:

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

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

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

Item 14. Principal Accounting Fees and Services

PART IV:

Item 15. Exhibits, Financial Statement Schedules

SIGNATURES:

Cautionary Statement Regarding Forward-Looking Statements

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.

In this report, “Grand Havana Inc.”, “JunkieDog.com,” “the Company,” “the Registrant,” “we,” “us,” and “our,” refer to Grand Havana Inc., unless the context otherwise requires. Unless otherwise indicated, the term “fiscal year” refers to our fiscal year ending June 30, 2015. Unless otherwise indicated, the term “common stock” refers to shares of the Company’s common stock, par value $0.001 per share.

PART I

Item 1.  Business.

Overview

Grand Havana Inc., was originally incorporated in the State of Texas in 2009 as Unique Underwriters Inc.. Effective as of March 14, 2014, Samuel Wolfe and Robert Luciano entered into a Share Purchase Agreement whereby, Mr. Wolfe sold to Mr. Luciano 305,000 shares (after reverse stock split discussed below) of the Company’s common stock in consideration for payment of $5,000. Mr. Wolfe retained ownership of 20,000 shares (after reverse stock split) of the Company’s common stock. As of the same date, Ralph Simpson and Bennie Manion entered into a Share Purchase Agreement, whereby Mr. Simpson sold to Mr. Manion 305,000 shares (after reverse stock split) of the Company’s common stock in consideration for payment of $5,000. Mr. Simpson retained ownership of 20,000 shares (after reverse stock split) of the Company’s common stock. Both Mr. Luciano and Mr. Manion each held approximately 39.3% of the Company’s outstanding shares as of March 14, 2014 as a result of the foregoing.

Pursuant to resolution of the Board of Directors, on March 14, 2014, Mr. Samuel Wolfe resigned as the Company’s chief executive officer and president and from all other officer positions; Mr. Rudolf Renda resigned as a director of the Company (his sole position) and Mr. Ralph Simpson resigned as the Company’s chief financial officer, chairman of the board, director and from all other positions held by him. Simultaneously, pursuant to the same resolution, Roberto Luciano was appointed as the Company’s chief executive officer, president, secretary, treasurer and director and Bennie Manion was appointed chief operating officer, vice president and director of the Company. After such appointments, and pursuant to the same board resolution, Mr. Samuel Wolfe resigned as director of the Company, leaving Mr. Luciano and Mr. Manion as the Company’s sole officers and directors.

On or around June 9, 2014, the Board of Directors agreed to and did incorporate a wholly owned subsidiary in Nevada under the name Junkiedog.com with the intent of merging with the subsidiary in order to change the Company’s domicile and name and effectuate a reverse split of its common stock at a ratio of 1:100. The Board of Directors and shareholders of the Company approved the merger with JunkieDog.com on or about June 9, 2014.

On September 19, 2014, JunkieDog.com, Inc. entered into a Plan of Exchange with First Choice Apparel, an online wholesale website for clothing and other quality items. Under the agreement JunkieDog.com, Inc. agreed to acquire certain assets and liabilities of First Choice Apparel for 40,000,000 restricted shares of common stock. Subsequent to entering into this agreement, both parties agreed to amend the agreement from a Plan of Exchange to an Asset Acquisition Agreement and to account for the transaction, based on those terms.

On February 5, 2017, an Agreement For The Exchange of Stock (the “Exchange”) was entered into between the Company and the Grand Havana Master LLC (“GHM”), a Florida limited liability company, 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 40,000,00 shares of the Company’s common stock for cancellation in exchange for certain assets of the business. 

Plan of Operation

About Our Company

Initially, the Company acted as a national Independent Marketing Organization that focused exclusively on the sale of mortgage protection insurance policies, final expense insurance policies and life insurance policies. The Company provided sales and marketing assistance for its agents by utilizing direct-mail lead programs, insurance sales training and agency-building opportunities.

With the acquisition of First Choice Apparel Company LLC, a North Carolina limited liability company (“First Choice”), the Company acted as an online e-commerce company that specialized in importing, product sourcing, and global distribution of various products ranging from consumer electronics to department store merchandise. 

Grand Havana 

With the acquisition of Grand Havana, the Company exited the business of First Choice Apparel and changed its focus to the distribution of specialty coffee and tea, based around the theme of providing the perfect cup of Cuban Coffee.  

Market Opportunity

Grand Havana currently sells and distributes a variety of coffees and teas, specializing in espresso beans to make “Cuban Coffee” or a “Cortadito.” A Cortadito is identical to Italian pulls, except for the addition of sugar directly to the metal pourer. The heat from the coffee-making process will hydrolyze some of the sucrose, thereby creating a sweeter and slightly more viscous result than a normal pull or adding sugar at the table. Besides selling directly to end-users through our own website, Grand Havana coffee is distributed to 65 restaurants and coffee shops throughout Florida.

Specialty coffee has been a growing market. Coupled with the growth of the Hispanic population in the United States, the Company seeks to offer an espresso that has a unique appeal and can differentiate itself from the well-known Italian espresso served by national chains such as Starbucks. 

Competition

Grand Havana offers specialty products that are rooted with Latin flare such as Cuban Style roast, Latin Espressos such as Cafecito, Cortadito and Cafe con Leche. Our baked goods have a Caribbean influence such as the popular Empanada and Rum Cake.

Grand Havana competes with mainstream coffee roasters and cafes such as Starbucks, as well as pod makers such as Nesspresso, and specialty roasters such as Café Bustelo. These companies are larger, more established, better capitalized and have greater brand recognition than Grand Havana.

However, Grand Havana is not directly targeting the same markets or otherwise differentiates itself from these competitors.

Starbucks is now considered a main stream purveyor of coffee and specialty coffee drinks.

Nespresso is a capsule style coffee company that sells very popular varieties of Italian roasted espresso. However, Grand Havana caters to a different demographic.

Cafe Bustelo is a Cuban style roaster that mainly distributes its product throughout independent supermarkets and bodegas. The brand targets the Latin community and does market to mainstream America.

Employees

We currently have 7 employees

Item 1A Risk Factors

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

Item 1B. Unresolved Staff Comments

None

Item 2 Properties

We lease approximately 2,000 square feet of office and warehouse space located at 761 NW 23rd Street

Miami, FL 33127. We have a 2- year lease at a cost of $3,095 per month.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

N/A

PART II

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

Market Information

Our common stock is quoted on the OTC Link™ quotation platform of OTC Markets Group, Inc. under the symbol “GHAV”. OTC Markets Group, Inc. is not an issuer listing service, market or exchange.

As of the date of this report we have 127 registered shareholders and a total of 69,002,799 common shares issued and outstanding

Holders

As of the date hereof 69,002,799 shares of common stock were issued and outstanding.  Each shareholder of our common stock is entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our Articles of Incorporation. Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, we are authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect. Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.

Additionally, the Company has a class of Series A Preferred shares that were designated on April 18, 2017. Each Series A share has voting rights equal to 2% of the issued and outstanding shares at the time of such vote. There are 100 Series A shares issued and outstanding. Voting as a group, the Series A holders can out vote the holders of the common stock.

Dividends

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, business prospects, and other factors that the board of directors considers relevant.

Securities authorized for issuance under equity compensation plans

We do not have any equity compensation plans and accordingly we have no securities authorized for issuance hereunder.

Purchases of equity securities by the Issuer and affiliated purchasers

There were no shares of common stock or other securities issued to the issuer or affiliated purchasers during the year ended December 31, 2016.

Penny Stock

Our common stock is considered to be a “penny stock” under the rules of the Securities and Exchange Commission (the “SEC”) under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

Item 6. Selected Financial Data

As a smaller reporting company, we are not required to provide the information required by this item.

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

The following discussion should be read in conjunction with our financial statements and the notes thereto.

Forward-Looking Statements

As previously stated, this annual report contains forward-looking statements relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this Report, the words “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management’s current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: our potential inability to raise additional capital, the possibility that third parties hold proprietary rights that preclude us from marketing our products, the emergence of additional competing technologies, changes in domestic and foreign laws, regulations and taxes, changes in economic conditions, a general economic downturn, a downturn in the securities markets, Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Report as anticipated, estimated or expected.

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.

Overview

This subsection of MD&A is an overview of the important factors that management focuses on in evaluating our businesses, financial condition and operating performance, our overall business strategy and our earnings for the periods covered.

General

On February 7, 2017 the Company entered into an agreement with the members of Grand Havana Master LLC, a Florida limited liability company, whereby the Company acquired Grand Havana Master in exchange for shares of the Company, Grand Havana Master became a wholly-owned subsidiary of the Company, we sold the business of First Choice Apparel and the website junkiedog.com to Roberto Luciano and adopted the business plan of Grand Havana Master. 

Results of Operations

Our 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.

Revenues  

We had revenue of $204,303 for the year ended December 31, 2017.  Comparatively, we had revenue of $210,508 for the year ended December 31, 2016. The difference is due to the Company’s change to the food servicing business following the acquisition of Cafesa,Co.

Cost of Sales

Costs of sales was $107,196 for the year ended December 31, 2017 or 52.5% of revenues. The cost of sales was $50,512, or 24.0% of revenues for the current year ended December 31, 2016. Cost of sales includes the costs directly attributable to revenue recognition, such as equipment costs, purchased costs, and payments to vendors. 

Operating Expenses 

We had operating expenses of $4,228,850 for the year ended December 31, 2017 compared to operating expenses of $276,796 during the year ended December 31, 2016. The increase is mainly due to the change in business from selling retail products to selling to wholesale accounts, the impairment of goodwill of $553,980, and the issuance of 100 shares of Series A preferred stock to employees valued at $2,811,782. 

Other Expenses 

We had other expenses of $4,534,539 for the year ended December 31, 2017 compared to other expenses of $0 during the year ended December 31, 2016. The increase is mainly due to a change in derivative liabilities of $4,224,631. 

Liquidity and Capital Resources

Operating Activities

Net cash used in operating activities was $467,938 during the current year ended December 31, 2017. Negative cash flow from operation during the current year end December 31, 2017 was due to the net loss of $8,666,282, offset by the common stock issued for compensation of $71,250, Series A preferred stock issued for $2,811,782, loss on derivative liabilities by $4,224,631, depreciation expense of $16,402, the increase in accounts payable and accrued expenses in amount of $83,286, the increase in payroll and related liabilities of $142,945, and the increase in accrued interest of $37,800.

Investing Activities

Net cash used in investing activities was $5,594 for the fiscal year ended December 31, 2017, due primarily to purchase of property and equipment of $8,465, cash acquired in Cafesa acquisition of $2,393 and cash acquired in reverse merger of $478.

Financing Activities

Net cash provided by financing activities was $608,421 for the current fiscal year ended December 31, 2017 primarily due to proceeds from convertible notes of $583,750, proceeds from related party loans payable of $41,526 and repayments towards related party loans payable of $121,775.

Critical Accounting Policies

Revenue Recognition - The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when services are realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met:

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.

Cost of Sales - The Company’s policy is to recognize cost of sales in the same manner in conjunction with revenue recognition, when the costs are incurred.

Plan of Operation and Funding

The Company’s current cash on hand is not sufficient to meet our working capital requirements for the next twelve month period. We expect that working capital requirements will continue to be funded through a combination of our existing funds and further issuances of securities. Our working capital requirements are expected to increase in line with the growth of our business. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) increased production; (ii) advertisement expenses; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and potentially debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or debt securities could potentially result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock.

Off-Balance Sheet Arrangements

As of the date of this Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Going Concern

The Company has suffered recurring losses and negative cash flows from operations since inception and has a negative working capital. These factors raise substantial doubt as to the ability of the Company to continue as a going concern.

Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from new investors to alleviate the Company’s working deficiency, and 2) expand sales of Grand Havana products. The Company’s continued existence is dependent upon its ability to resolve it liquidity problems and increase profitability in its current business operations. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

Item 8. Financial Statements and Supplementary Data

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

The Report of Independent Registered Public Accounting Firm issued by MaloneBailey, LLP for the audited financial statements for year ended December 31, 2017 are included herein immediately preceding the audited financial statements.

Our audited financial statements are included following the signature page to this Form 10K.

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

On June 25, 2018, the Board of Directors voted to dismiss D. Brooks and Associates CPA’s, P.A. (“Brooks”) as principal independent auditor for the Company. Simultaneously, the Company engaged MaloneBailey LLP (“MaloneBailey) as its independent registered public accounting firm. The engagement of MaloneBailey was approved by Company’s Board of Directors.

During Company’s two most recent fiscal years and the subsequent interim period preceding to the dismissal of Brooks, the Company had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of Brooks would have caused it to make reference to the subject matter of the disagreement in connection with its report.

Brook’s had not provided a report on the Company during the last two fiscal years. Brooks had provided a report on the Company’s financial statements for the fiscal year ended June 30, 2014. That report of Brooks on the Company’s financial statements contained no adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles, except as that the report indicated conditions which raised substantial doubt about the Company’s ability to continue as a going concern. 

During Company’s two most recent fiscal years and the subsequent interim period prior to retaining MaloneBailey (1) neither Company nor anyone on Company’s behalf consulted MaloneBailey regarding (a) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on Company’s financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) MaloneBailey did not provide Company with a written report or oral advice that they concluded was an important factor considered by Company in reaching a decision as to accounting, auditing or financial reporting issue. 

Item 9A. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources and the benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

As of December 31, 2017, the year-end period covered by this report, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report. There have been no changes in our internal controls over financial reporting that occurred during the year ended December 31, 2017 that have materially or are reasonably likely to materially affect our internal controls over financial reporting.

Management's Report on Internal Control over Financial Reporting

Based on its evaluation under the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission as of December 31, 2017, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, concluded that its internal control over financial reporting were not effective as of December 31, 2017. Based on its evaluation, our management concluded that our internal control over financial reporting as of the end of our most recent fiscal year is not effective because there is a material weakness in our internal control over financial reporting as discussed below. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our independent registered public accounting firm pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which permanently exempts non-accelerated filers from complying with Section 404(b) of the Sarbanes-Oxley Act of 2002.

Attached as exhibits to this Form 10-K are certifications of the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This “Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.

Material Weakness Identified

The Company does not have a full time Controller or Chief Financial Officer and utilizes a part time consultant to perform these critical responsibilities. This lack of full time accounting staff results in a lack of segregation of duties and accounting technical expertise necessary for an effective system of internal control, , along with a lack of a formal review process that includes multiple levels of review. Additionally, certain IT controls have not been developed nor adhered to. Because of the size of the Company and the Company’s administrative staff, as well as other reasons noted above, controls related to the segregation of certain duties, and additionally, controls and processes involving the communication, dissemination, and disclosure of information, have not been developed and the Company has not been able to adhere to them. Furthermore, we have not formally adopted a written code of business conduct and ethics that governs the Company’s employees, officers, and directors. Since these entity level programs have a pervasive effect across the organization, as well as other deficiencies, management has determined that these circumstances constitute a material weakness. Additionally, the Board of Directors does not currently have a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.  

The Company intends to review the above design and operational weaknesses going forward.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal controls or in other factors that could significantly affect these controls subsequent to the evaluation date.

Item 9B. Other Information

No items required to be reported on Form 8-K during the fourth quarter ended December 31, 2017 covered by this report were not previously reported on Form 8-K..

PART III

Item 10. Directors, Executive Officers and Corporate Governance

On February 7, 2017, upon the acquisition of Grand Havana Master by the Company, Roberto Luciano, the sole officer and director of the Company resigned and was replaced by our current officers and directors. The following individuals serve as the directors and executive officers of our company as of the date of this annual report. All directors of our company hold office until the next annual meeting of our shareholders or until their successors have been elected and qualified. The executive officers of our company are appointed by our board of directors and hold office until their death, resignation or removal from office.

None of our directors or officers is a director in any other U.S. reporting companies. We are not aware of any proceedings to which any of our officers or directors, or any associate of any such officer or director is a party adverse to us or has a material interest adverse to us.

Director and Executive Biographies

Robert Rico, Chief Executive Officer.

Robert Rico was a consultant to Grand Havana prior to the Company’s acquisition. Mr. Rico was CEO of Pleasant Kids, a specialized beverage company, with oversight of the company’s business development. Prior to GH, Robert was managing director, Alchemist Funds, There was a team leader for Financial Services, composed of numerous professionals covering investment banks, commercial banks, consumer finance. For seven years prior, he was managing director of RR Investments Group. where he advised companies in corporate finance and M&A transactions. Mr. Rico has managed over 40 transactions, including Expert Group (Correspondent Lending  Company).

Tanya Bredemeier, President and Director, Chairwoman

Tanya Bredemeier is a founder and Chief Operating Officer of Grand Havana’s retail hotel kiosks and wholesale division in Miami Beach, Florida. She opened Grand Havana with her partners in 2015, bringing more than 20 years of retail business ownership and management expertise.

Prior to joining Grand Havana, Tanya Bredemeier built, owned and operated her own luxury retail apparel store for 10 years. Her experience previously was in the luxury fine jewelry business with retail store management and sales for 8 years. Her excellent entrepreneurial skills allow her to focus on leadership , branding, innovation, detail awareness and exceptional customer service .

Steve Polisar, Director

Steve Polisar is currently a practicing attorney, specializing in hospitality issues. He attended Michigan State University on a full baseball scholarship and was the Batting Champion of his senior year. After Graduation, he was accepted into the University of the Pacific School of Law in Sacramento, California. US Supreme Court Justice Anthony Kennedy was his Constitutional Law Professor. Mr. Polisar was admitted to the Florida Bar in 1975.

Subsequently, Mr . Polisar opened and built the first sidewalk café on Ocean Drive, South Beach in 1988 and was co-chairing the Ocean Drive Association. Thereafter in 2002, based on extensive experience,he was asked by the Mayor and City Commission of the City of Miami Beach to chair the Nite Life Task Force which negotiated various issues regarding the hospitality industry between public officials and private sector.

Luis Bustelo, Chief Operating Officer

Louis Bustello is the former president of Bustelo Coffee and has 50 years learning the US coffee business. He was one of the builders of the Cuban espresso market in Florida.

Mr. Bustello built his career at the now 80-year-old Spanish immigrant founded company that bears his family's name. The company was later bought by transnational corporations and became the US Latino coffee market leader for years, while Luis served as president and became an expert in the corporate-style American coffee business.

Steven Haas, Director

Mr. Haas is a past Chair of the Miami Beach Visitor and Convention Authority and has co-owned and operated numerous restaurants in the greater Miami area including Soyka Restaurant/News Café Corp and City Hall Restaurant. He has also worked for China Grill Management, a world renowned operator of high end restaurants. Mr. Haas is a graduate of Florida International University.

Involvement in Certain Legal Proceedings

During the past ten years, none of our officers or directors have been the subject of the following events:

1. Any bankruptcy petition filed by or against any business of which they was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.

2. Any conviction in a criminal proceeding or being subject to a pending criminal proceeding.

3. An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities.

4. Found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

Stockholder Communications with the Board

We have not implemented a formal policy or procedure by which our stockholders can communicate directly with our Board of Directors. Nevertheless, every effort will be made to ensure that the views of stockholders are heard by the Board of Directors, and that appropriate responses are provided to stockholders in a timely manner. During the upcoming year, our Board will continue to monitor whether it would be appropriate to adopt such a process.

Audit Committee

We do not have a separately designated standing audit committee. Pursuant to Section 3(a)(58)(B) of the Exchange Act, the entire Board of Directors acts as an audit committee for the purpose of overseeing the accounting and financial reporting processes, and audits of our financial statements. The Commission recently adopted new regulations relating to audit committee composition and functions, including disclosure requirements relating to the presence of an "audit committee financial expert" serving on its audit committee. In connection with these new requirements, our Board of Directors examined the Commission's definition of "audit committee financial expert" and concluded that we do not currently have a person that qualifies as such an expert. We have had minimal operations for the past two (2) years. Presently, there are only four (4) directors serving on our Board, and us are not in a position at this time to attract, retain and compensate additional directors in order to acquire a director who qualifies as an "audit committee financial expert", but we intend to retain an additional director who will qualify as such an expert, as soon as reasonably practicable. While neither of our current directors meets the qualifications of an "audit committee financial expert", each of our directors, by virtue of his past employment experience, has considerable knowledge of financial statements, finance, and accounting, and has significant employment experience involving financial oversight responsibilities. Accordingly, we believe that our current directors capably fulfill the duties and responsibilities of an audit committee in the absence of such an expert.

Code of Ethics

We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions in that our officers and directors serve in these capacities. 

Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, all executive officers, directors, and each person who is the beneficial owner of more than 10% of the common stock of a company that files reports pursuant to Section 12 of the Exchange Act, are required to report the ownership of such common stock, options, and stock appreciation rights (other than certain cash-only rights) and any changes in that ownership with the Commission. Specific due dates for these reports have been established, and we are required to report, in this Form 10-K, any failure to comply therewith during the year ended December 31, 2017.

Item 11. Executive Compensation

General

The table below sets forth information concerning compensation paid, earned or accrued by our chief executive officer and chief operating officer (“Named Executive Officers”) from the years ended December 31, 2017 and 2016, respectively.

(1) Robert Luciano resigned as an officer and director of the Company on February 7, 2017.

(2) Robert Rico was appointed CEO and Director of the Company on February 5, 2017.

(3) Tanya Bredemeir was appointed President and Director of the Company on February 5, 2017.

(4)  Steve Polisar was appointed Chief Legal Officer and Director of the Company on February 5, 2017.

(5) Jorge Moreno was appointed Chief Marketing Officer and Director of the Company on February 5, 2017. Jorge Moreno's employment agreement was terminated on June 19, 2018.

The Company has not adopted any retirement, pension, profit sharing, stock option or insurance programs or other similar programs for the benefit of its employees.

The Company does not have a compensation committee. Given the nature of the Company’s business, its limited stockholder base and the current composition of management, the board of directors does not believe that the Company requires a compensation committee at this time. The board of directors takes the position that management of a Target Business will make a determination to establish a compensation committee that will be suitable for its operations at such time as the Company consummates a Business Transaction, if ever. 

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

The following table lists, as of December 31, 2017, the number of shares of our common stock that are beneficially owned by (i) each person or entity known to us to be the beneficial owner of more than 5% of our common stock; (ii) each executive officer and director of our company; and (iii) all executive officers and directors as a group. Information relating to beneficial ownership of Common Stock by our principal shareholders and management is based upon information furnished by each person using “beneficial ownership” concepts under the rules of the Securities and Exchange Commission. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or direct the voting of the security, or investment power, which includes the power to vote or direct the voting of the security. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Under the Securities and Exchange Commission rules, more than one person may be deemed to be a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which he or she may not have any pecuniary beneficial interest. Except as noted below, each person has sole voting and investment power.

Changes in Control

 On February 5, 2017, an Agreement For The Exchange of Stock (the “Exchange”) was entered into between the Company and the Grand Havana Master LLC (“GHM”), a Florida limited liability company, and the members of GHM, pursuant to which 50,000,000 shares of the Company’s common stock will be issued to the members of GHM in exchange for 100% of the Capital Shares of GHM. Upon completion of the Exchange, Grand Havana Master LLC became the Company’s wholly-owned subsidiary and the members of GHM owned a ‘controlling interest’ in the Company representing 88% of the voting shares of the Company. Simultaneously upon the Closing of the Exchange, Mr. Roberto Luciano, the Company’s Chief Executive Officer, returned his 40,000,00 shares of the Company’s common stock for cancellation in exchange for certain assets of the business. In exchange for 1,000,000 common stock and certain assets of the business.

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

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:

*= 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.

Item 14. Principal Accounting Fees and Services

The following table represents the aggregate fees billed for professional audit services rendered during the fiscal years ended June 30, 2016 and December 31, 2017 to the independent auditor, D. Brooks and Associates CPA’s PA (“Brooks”) and MaloneBailey LLP (“MaloneBailey”):

Audit Fees : The aggregate fees billed by the independent accountants for the last two fiscal years are for professional services for the audit of our annual financial statements and the review of our Form 10-K and other services that are normally provided by the accountants in connection with statutory and regulatory filings or engagements.

Audit-Related Fees : The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review for the audit or review of our annual financial statements and the review of financial statements and are not reported under the previous item, Audit Fees.

Tax Fees : During the last two fiscal years any other fees charged by the principal accountants for tax services other than those disclosed above.

All Other Fees : During the last two fiscal years any other fees charged by the principal accountants other than those disclosed above.

Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.

PART IV

Item 15.  Exhibits, Financial Statement Schedules

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

CONTENTS

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS ……………... F-2

BALANCE SHEETS………………………………………………………………………….......…. F-3

STATEMENTS OF OPERATIONS……………………………………………………….……….. F-4

STATEMENTS OF STOCKHOLDERS’ DEFICIT………………………………………………... F-5

STATEMENT OF CASH FLOWS ………….………..………….………….…….…...................... F-6

NOTES TO THE FINANCIAL STATEMENTS……………….……………………...………….... F-7

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and board of directors of

Grand Havana, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Grand Havana, Inc. and its subsidiaries (collectively, the “Company”) as of December 31, 2017, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2018.

Houston, Texas

August 5, 2019

D. Brooks and Associates CPA’s, P.A. Certified Public Accountants - Valuation Analysts - Advisors

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Grand Havana, Inc. (formerly, Grand Havana Master, LLC)

We have audited the accompanying balance sheet of Grand Havana, Inc. (formerly, Grand Havana Master, LLC) as of December 31, 2016, and the related statement of operations, stockholders’ deficiency, and cash flows for the year ended December 31, 2016. Grand Havana, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Grand Havana, Inc. (formerly, Grand Havana Master, LLC) as of December 31, 2016, and the results of its operations and its cash flows for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements the Company has suffered recurring losses from operations since. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan regarding these matters is also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

D. Brooks and Associates CPA’s, P.A.

West Palm Beach, Florida

October 31, 2017

GRAND HAVANA, INC. AND SUBSIDIARIES

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:

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 following assumptions were used for the valuation of the derivative liability related to the warrants: 

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”).