UNITED
      STATES





SECURITIES
      AND EXCHANGE COMMISSION





WASHINGTON,
      D.C. 20549





FORM
      10-KSB





(Mark
      one)




x
            Annual
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934




For
      the
      fiscal year ended September 25, 2005




or




o
            Transition
                Report Under Section 13 or 15(d) of the Securities Exchange Act of
                1934





For
      the
      transition period from ________ to ________





Commission
      file number: 0-24828





GRAND
      HAVANA ENTERPRISES, INC.


(Name
      of
      small business issuer in its charter)




Delaware
            
            95-4428370(State
                or other jurisdictionof
                incorporation or organization)
            
            (I.R.S.
                Employer Identification
                No.)




1990
      Westwood Blvd., 3rd Floor, Los Angeles, CA 90025


(Address
      of principal executive offices) (Zip Code)





Issuer’s
      telephone number: (310) 475-5600





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, par value $.01 per share


(Title
      of
      Class)





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o





Check
      whether the issuer (1) 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 o No x





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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





The
      issuer's revenues for the most recent fiscal year were $8,244,120.





The
      aggregate market value of Common Stock held by non-affiliates of the registrant,
      based upon the closing sales price of the Common Stock on January 6, 2006,
      was
      approximately $2,333,611. Shares of Common Stock held by each officer and
      director, and by each individual or entity that owns 5% or more of the
      outstanding Common Stock have been excluded in that such persons may be deemed
      to be affiliates. This determination of affiliate status is not necessarily
      a
      conclusive determination for other purposes.









The
      number of shares of the issuer's common stock outstanding as of January 6,
      2006
      was 14,764,306 shares.





DOCUMENTS
      INCORPORATED BY REFERENCE




None.





Transitional
      Small Business Disclosure Format (Check One): Yes __; No X





GRAND
      HAVANA ENTERPRISES, INC.





ANNUAL
      REPORT ON FORM 10-KSB





INDEX


PagePART
                    IItem
                    1.
                Description
                    of Business
                1Item
                    2.
                Description
                    of Property
                6Item
                    3.
                Legal
                    Proceedings
                6Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                7PART
                    IIItem
                    5.
                Market
                    for Common Equity and Related Stockholder Matters
                8Item
                    6.
                Management's
                    Discussion and Analysis or Plan of Operation
                9Item
                    7.
                Financial
                    Statements
                12Item
                    8.
                Changes
                    in and Disagreements with Accountants on Accounting and Financial
                    Disclosure
                12Item
                    8A.
                Controls
                    and Procedures
                12Item
                    8B.
                Other
                    Information
                12PART
                    IIIItem
                    9.
                Directors,
                    Executive Officers, Promoters and Control Persons; Compliance
                    with Section
                    16(a) of the Exchange Act
                13Item
                    10.
                Executive
                    Compensation
                14Item
                    11.
                Security
                    Ownership of Certain Beneficial Owners and Management and Related
                    Stockholder Matters
                16Item
                    12.
                Certain
                    Relationships and Related Transactions
                17Item
                    13.
                Exhibits
                18Item
                    14.
                Principal
                    Accountant Fees and Services
                19Signatures
                20









**PART
      I**




**FORWARD-LOOKING
      AND CAUTIONARY STATEMENTS**




Grand
      Havana Enterprises, Inc. ("Grand Havana" or the "Company") and its
      representatives may from time to time make written or oral forward-looking
      statements, including statements contained in the Company's filings with the
      Securities and Exchange Commission and in its reports to stockholders, including
      this Annual Report on Form 10-KSB. Forward-looking statements can be identified
      by use of words such as "expects", "plans", "believes", "will", "estimates",
      "intends", "projects", "goals" and other words of similar meaning. Such
      forward-looking statements can also be identified by the fact that they do
      not
      relate strictly to historical or current facts. The Company is hereby
      identifying important factors that could cause actual results and outcomes
      to
      differ materially from those contained in any forward-looking statement made
      by
      or on behalf of the Company. Any such statement is qualified by reference to
      the
      following cautionary statements.




The
      tobacco industry continues to be subject to health concerns relating to the
      use
      of tobacco products and exposure to environmental tobacco smoke (“ETS”),
      legislation, including actual and potential excise tax increases, increasing
      marketing and regulatory restrictions, governmental regulation, privately
      imposed smoking restrictions, governmental and grand jury investigations,
      litigation, including risks associated with the effects of price increases
      related to concluded tobacco litigation settlements and excise tax increases
      on
      consumption rates. Each of the Company's Grand Havana Rooms is subject to
      intense competition, changes in consumer preferences, and changes in food and
      beverage costs and local economic conditions (particularly in the Los Angeles
      and New York metropolitan areas). Their results are dependent upon their
      continued ability to attract new members, to anticipate and respond to new
      consumer trends, and to sell new products. Developments in any of these areas
      could cause the Company's results to differ materially from results that have
      been or may be projected by the Company. The Company cautions that the foregoing
      list of important factors is not exclusive and is subject to change. The Company
      does not undertake to update any forward-looking statement that may be made
      from
      time to time by or on behalf of the Company.





**ITEM
      1.****DESCRIPTION OF BUSINESS.**





**General**





The
      Company owns and operates private membership cigar clubs under the name "Grand
      Havana Room" and one retail cigar store under the name "Grand Havana House
      of
      Cigars.” Grand
      Havana currently owns and operates two Grand Havana Rooms which are located
      in
      Beverly Hills, California and New York, New York, and one Grand Havana House
      of
      Cigars retail store located in Beverly Hills, California. Grand Havana's primary
      business focus is on operating its existing cigar clubs and retail
      store.





The
      Company was incorporated under the laws of the State of Delaware on April 13,
      1993. The Company's principal executive offices are located at 1990 Westwood
      Boulevard, 3rd Floor, Los Angeles, California 90025, and its telephone number
      is
      (310) 475-5600. References to the "Company" herein include Grand Havana
      Enterprises, Inc. and its consolidated subsidiaries, unless the context
      otherwise requires.





**Cigar
      Club Operations; Retail Operations**





The
      Grand
      Havana Rooms, the Company's private membership cigar clubs, are targeted
      primarily towards affluent cigar smokers and their guests. The Grand Havana
      Room
      in Beverly Hills, California opened in June 1995 and the Grand Havana Room
      in
      New York, New York opened in May 1997.





The
      Grand
      Havana Room concept is to provide a private club where members can keep their
      cigars and smoking accessories for use while at the Grand Havana Room. Each
      Grand Havana Room offers corporate and individual memberships for a one-time
      initiation fee and a monthly dues thereafter. The New York Grand Havana Room
      offered a "social membership" which permitted a member to use the Grand Havana
      Room facilities, but did not provide the member with a locker or humidor. This
      type of membership was suspended in March 2003. Currently, both clubs offer
      “private”, “shared” and “corporate” memberships. Each Grand Havana Room includes
      a private smoking lounge, a full bar and food service. The Grand Havana Rooms
      also sell premium cigars and cigar and tobacco accessories. All facilities
      of
      the Grand Havana Rooms are available for use only by members and their
      guests.





1




Membership
      at each Grand Havana Room is limited to the number which the Company believes
      is
      appropriate to the space of the particular Grand Havana Room. Memberships at
      both Grand Havana Rooms are also limited to the number of humidors maintained
      by
      the Company.





*Beverly
      Hills Grand Havana Room*





The
      first
      Grand Havana Room opened in Beverly Hills, California in June 1995. In December
      1998, the Beverly Hills Grand Havana Room was expanded in response to the demand
      for more memberships. Since December 2000, the Company has sublet a portion
      of
      its space to Mistral Brasserie, LLC and then to Luce of Beverly Hills, LLC
      (“Luce”), which have operated a restaurant open to the public, provided food for
      members of the Beverly Hills Grand Havana Room, and allowed unrestricted access
      to some of Grand Havana’s humidors. All alcoholic and non-alcoholic beverages
      continue to be served by the Company. The Beverly Hills Grand Havana Room
      maintains a waiting list for membership.





*New
      York Grand Havana Room*





The
      New
      York Grand Havana Room opened in May 1997 and is located on the 39th floor
      of
      666 Fifth Avenue in New York, New York. The New York Grand Havana Room provides
      a smoking lounge, bar, restaurant and conference facilities. The New York Grand
      Havana Room maintains a waiting list for membership.





*Grand
      Havana House of Cigars*





The
      Grand
      Havana House of Cigars retail store adjacent to the Beverly Hills Grand Havana
      Room specializes in premium cigars, cigar accessories and related merchandise.





**Trademarks
      and Service Marks**





Grand
      Havana has registered the service marks "Grand Havana Room" and "Grand Havana
      House of Cigars", and the trademarks "Grand Havana Selection" and "Grand Havana
      Reserve." The Company regards its service marks and trademarks as having
      significant value and being an important factor in the marketing of its
      restaurants and cigar clubs as well as its Grand Havana House of Cigars
      locations. Grand Havana also uses its Grand Havana Room service marks on
      T-shirts, hats and golf balls and other similar products to generate additional
      revenues. Grand Havana's policy is to pursue registrations of its marks wherever
      possible and to oppose vigorously any infringement of its marks. Grand Havana
      is
      not aware of any infringing uses that could materially affect its business
      or
      any prior claim to the trademarks that would prevent Grand Havana from using
      such trademarks in its business.





**Taxes,
      Legislation, Regulation and Other Matters Regarding Tobacco and Smoking**





The
      tobacco industry has faced, and continues to face, a number of issues that
      may
      adversely affect the business, volume, results of operations, cash flows and
      financial position of the Company.





These
      issues, some of which are more fully discussed below, include legislation or
      other governmental action seeking to ascribe to the tobacco industry
      responsibility and liability for the adverse health effects associated with
      both
      smoking and exposure to ETS; increased smoking and health litigation and jury
      verdicts against tobacco companies; price increases related to the settlement
      of
      certain tobacco litigation; actual and proposed excise tax increases;
      governmental and private bans and restrictions on smoking; actual and proposed
      price controls diminishing social acceptance of smoking; increased pressure
      from
      anti-smoking groups and unfavorable press reports; and other tobacco legislation
      that may be considered by Congress, the states and other jurisdictions in the
      United States.





*Excise
      Taxes*





Cigars
      and pipe tobacco are subject to substantial federal, state and local excise
      taxes. In general, excise taxes and other taxes on tobacco products have been
      increasing. Congress has been considering significant increases in the federal
      excise tax or other payments from tobacco manufacturers. Increases in other
      tobacco-related taxes have been proposed at the state and local level.





2




Any
      future increases, the extent of which cannot be predicted, could result in
      volume declines in the tobacco industry, and might cause sales of tobacco
      products to shift from the premium segment to the discount segment. A shift
      in
      sales of tobacco products resulting from higher cigar prices could result in
      decreased sales of cigars at the Company's Grand Havana Rooms and Grand Havana
      House of Cigars locations, and a decrease in the number of persons who smoke
      cigars. In turn, this could cause a reduction in membership at our Grand Havana
      Rooms. Effective July 2000, the excise tax on the wholesale price of cigars
      sold
      in California decreased from approximately 67% to approximately 47% in July
      2002. This tax decrease has not had a significant impact on either the pricing
      or cigar sales by the Company in California.





*Potential
      Sales Tax*





A
      sales
      tax audit for the period August 1, 2000 to August 31, 2005 was conducted in
      October 2005 by the State of New York Department of Taxation and Finance (the
      “Department of Taxation”) resulting in a proposed assessment of approximately
      $710,000 plus interest for delinquent sales taxes on the Company’s revenue in
      that state generated from monthly dues, minimum spending requirements, and
      rental fees for the use of private rooms. The amount of the proposed assessment
      is based on the Department of Taxation’s assertion that 100% of the Company’s
      revenue generated in New York from monthly dues and other revenue are subject
      to
      sales tax. The Company disputes the Department of Taxation’s position that 100%
      of the Company’s revenue generated in New York from monthly dues and other
      revenue are subject to sales tax. Furthermore, even if it is determined that
      a
      portion of such revenue is subject to sales taxes, the Company estimates it
      will
      be no more than $234,000 plus interest of $91,000, which have been accrued
      in
      the accompanying financial statements. The Department of Taxation has
      represented that it will not assess penalties. As a result, potential penalties
      have been excluded from the Company’s estimates.




The
      Company prepared estimates of the potential liabilities based on consultation
      with its representatives in this matter and believes that the assertions of
      the
      Department of Taxation are exaggerated. The Company will continue to dispute
      the
      amounts. However, because it is probable that some amount will ultimately be
      payable, the Company has recorded its estimates in accordance with Statement
      of
      Financial Accounting Standards No. 5, “Accounting for Contingencies”. The timing
      and final outcome of this matter is not predictable. However, the Company
      believes that it has made an appropriate estimate of the liability.




*FDA
      Regulations*




The
      United States Food and Drug Administration (the “FDA”) has promulgated
      regulations asserting jurisdiction over cigarettes as “drugs” or “medical
      devices” under the provisions of the Food, Drug and Cosmetic Act. These
      regulations include severe restrictions on the distribution, marketing and
      advertising of cigarettes. The FDA’s exercise of jurisdiction, if not reversed
      by judicial or legislative action, could lead to more expansive regulations,
      and
      could materially adversely affect the business, volume, results of operations,
      cash flows and financial position of the Company. The ultimate outcome of this
      litigation cannot be predicted.





*Health
      Effects of Smoking and Exposure to ETS*





Reports
      with respect to the health risks of cigarette smoking have been publicized
      for
      many years, and the sale, promotion and use of cigars and cigarettes continue
      to
      be subject to increased governmental regulation.





Studies
      with respect to the health risks of ETS to nonsmokers (including lung cancer,
      respiratory and coronary illnesses and other conditions) have also received
      significant publicity. In 1986, the Surgeon General of the United States and
      the
      National Academy of Sciences reported that nonsmokers were at increased risk
      of
      lung cancer and respiratory illness due to ETS. In 1993, the United States
      Environmental Protection Agency (the “EPA”) issued a report relating to certain
      health effects of ETS. In July 1998, a federal district court vacated those
      sections of the report relating to lung cancer, finding that the EPA may have
      reached different conclusions had it complied with certain relevant statutory
      requirements. The federal government has appealed the court’s ruling. The
      ultimate outcome of this litigation cannot be predicted.





3





*Other
      Legislative Initiatives*





In
      recent
      years, various members of Congress have introduced legislation that would
      subject tobacco products to various regulations under the Department of Health
      and Human Services or regulation under the Consumer Products Safety Act. These
      include establishing anti-smoking educational campaigns or anti-smoking
      programs, providing additional funding for governmental anti-smoking activities,
      further restricting the advertising of tobacco products, including requiring
      additional warnings on packages and in advertising, and allowing state and
      local
      governments to restrict the sale and distribution of cigars.





It
      is not
      possible to determine the outcome of the FDA’s regulatory initiatives or the
      related litigation discussed above, or to predict what, if any, other
      governmental legislation or regulations will be adopted relating to the
      manufacturing, advertising, sale or use of cigars, or to the tobacco industry
      generally. However, if any or all of the foregoing were to be implemented,
      the
      business, volume, results of operations, cash flows and financial position
      of
      the Company would be materially adversely affected.





*Tobacco-Related
      Litigation*





There
      has
      been substantial litigation related to tobacco products in the United States,
      including a class action trial in Florida and a civil health care cost recovery
      action filed by the United States Department of Justice in September 1999
      against domestic tobacco manufacturers and others.





In
      1997,
      the five largest tobacco companies announced a proposed settlement of a number
      of cases brought by the attorneys general of several states to recoup Medicare
      and Medicaid expenses. Legislation was introduced in Congress to implement
      the
      settlement by increasing the price of cigarettes, regulating all tobacco
      products, imposing full FDA regulation and adopting new and highly restrictive
      marketing requirements. Although Congress failed to adopt the legislation,
      the
      tobacco companies involved in the proposed settlement entered into separate
      settlement agreements (the "Master Settlement Agreement") in 1998 with the
      attorneys general pursuant to which they agreed to pay significant amounts
      annually and to certain marketing restrictions. Since the Master Settlement
      Agreement was signed in November 1998, additional tobacco product manufacturers
      have joined as subsequently participating parties. The effect of this settlement
      on the manufacture, advertisement, sale and consumption of tobacco products
      is
      unknown. However, there could be a sustained decrease in consumption of tobacco
      products over a period of years.




*Health
      Warnings*





Although
      federal law has required health warnings on cigarettes since 1965, there is
      currently no federal law requiring that cigars carry such warnings. California
      requires "clear and reasonable" warnings to consumers who are exposed to
      chemicals known to the state to cause cancer or reproductive toxicity, including
      tobacco smoke and several of its constituent chemicals. The Company believes
      that it complies with applicable California laws.





The
      majority of states, including California, restrict or prohibit smoking in
      certain pubic places and restrict the sale of tobacco products to minors. Local
      legislative and regulatory bodies have also increasingly moved to curtail
      smoking by prohibiting smoking in certain buildings or areas or by requiring
      designated "smoking" areas. The Company believes that because of its private
      smoker's lounge status in California, it will be exempt from future regulations
      in California or other jurisdictions that might further prohibit smoking.
      However, if regulations should be enacted in California or other jurisdictions
      which in any way limit or prohibit the smoking of cigars in the Company's Grand
      Havana Rooms, this would have a material adverse effect on the Company’s
      business.





*California
      Smoke-Free Workplace Act of 1994*





In
      1994,
      the California legislature enacted the California Smoke-Free Workplace Act
      of
      1994 which prohibits, with certain exceptions, smoking in enclosed spaces at
      places of employment. Since the inception of the Company's Beverly Hills Grand
      Havana Room, the Company has relied upon an exemption in the law that expressly
      exempts from its coverage retail tobacco shops and private smoker's
      lounges.




4





*New
      York City Smoke-Free Act*





In
      2002,
      the city council of New York enacted the New York City Smoke-Free Act, similar
      to the California Smoke-Free Workplace Act of 1994. The New York City Smoke-Free
      Act went into effect on July 25, 2003. All establishments requesting an
      exemption were required to submit a “Tobacco Bar” application prior to July 25,
      2003. The Company submitted its application to the Department of Health and
      Mental Hygiene (“DOHMH”) on June 25, 2003. On July 22, 2003, DOHMH approved the
      Company’s application as a “Tobacco Bar”, thereby allowing the Grand Havana Room
      in New York to be exempt from the Smoke-Free Act. The Company’s license was
      valid until July 15, 2005. The Company has been in contact with DOHMH concerning
      the current exemption, since its license expired. As of November 29, 2005,
      DOHMH
      has not provided a renewal application for any “Tobacco Bars,” as they are
      trying to streamline the renewal process. DOHMH has indicated to the Company
      that its status as a “Tobacco Bar” is still in effect. However, the license is
      only valid for this location. If the Company moves, it may not be able to obtain
      a new license. In addition, there can be no assurances that the Company will
      be
      able to maintain its “Tobacco Bar” status on an ongoing basis. If the Company is
      unable to qualify as a “Tobacco Bar” upon renewal of its registration, this
      could have a material adverse effect on the Company’s business, financial
      condition and results of operations.




*Restaurant
      and Alcohol Regulation*





The
      restaurants in the Grand Havana Rooms are subject to numerous federal, state
      and
      local laws regulating their business, including health, sanitation, safety
      standards, and alcoholic beverage control and fire regulations. The expansion,
      development and construction of any additional restaurants within the Company's
      Grand Havana Rooms, will be subject to compliance with applicable zoning, land
      use and environmental regulations. Each of the Grand Havana Rooms has
      appropriate licenses from regulatory authorities allowing them to sell liquor,
      beer and wine, and each cigar club has food service licenses from local health
      authorities. The failure of the club to obtain or retain liquor or food service
      licenses could have a material adverse effect on its operations. Difficulties
      in
      obtaining, or failures to obtain the required licenses or approvals, could
      delay
      or prevent the development of a new restaurant in a particular area, including
      any new Grand Havana Rooms which may be developed by the Company in the future.
      However, management believes the Company is currently in compliance in all
      material respects with all relevant regulations, and the Company has never
      experienced abnormal difficulties or delays in obtaining the required licenses
      or approvals.




Alcoholic
      beverage control regulations require each of the Company's cigar clubs to apply
      to a state authority and, in certain locations, county and municipal
      authorities, for a license and permit to sell alcoholic beverages on the
      premises. Typically, licenses must be renewed annually and may be revoked or
      suspended for cause at any time. Alcoholic beverage control regulations relate
      to numerous aspects of the daily operations of the Company's restaurants,
      including minimum age of patrons and employees, hours of operation, advertising,
      wholesale purchasing, inventory control and handling, and storage and dispensing
      of alcoholic beverages. The Company has not encountered any material problems
      relating to alcoholic beverage licenses to date. The failure to receive or
      retain, or a delay in obtaining, a liquor license in a particular location
      could
      adversely affect the Company's ability to obtain such a license
      elsewhere.





The
      Company is subject in California, and may be subject in certain other states,
      to
      "dram-shop" statutes, which generally provide a person injured by an intoxicated
      person the right to recover damages from an establishment that wrongfully served
      alcoholic beverages to the intoxicated person. The Company carries liquor
      liability coverage as part of its comprehensive general liability insurance.
      The
      Company has never been the subject of a "dram-shop" claim.





*Other*  *Regulations*





The
      Company is also subject to federal and state minimum wage laws and other laws
      governing such matters as overtime, tip credits, working conditions, safety
      standards and hiring and employment practices. Significant additional
      government-imposed increases in minimum wages, paid leaves of absence and
      mandated health benefits, or increased tax reporting and tax payment
      requirements for employees who receive gratuities, could be detrimental to
      the
      economic viability of Grand Havana cigar clubs.





The
      Company is subject to federal and state environmental regulations. To date,
      these regulations have not had a material effect on Grand Havana's
      operations.





5




The
      Company continues to monitor its facilities for compliance with the Americans
      with Disabilities Act (the "ADA") which prohibits discrimination on the basis
      of
      disability, accommodations and employment. The Company believes that it is
      in
      substantial compliance with all current applicable regulations relating to
      restaurant accommodations for the disabled. Under the ADA, the Company could
      be
      required to expend funds to modify its restaurants to better provide service
      to,
      or make reasonable accommodations for, the employment of disabled persons.





**Competition**





The
      Company's Grand Havana Rooms compete with other clubs that offer private
      memberships, as well as with other restaurants, bars, smoking lounges and other
      establishments that are open to the public and at which cigar smoking is
      permitted. The Company believes that by continuing its policy of catering to
      an
      affluent clientele, it will be able to compete effectively with other private
      membership clubs that may have a broader base membership, as well as with other
      bars and restaurants that are open to the public that permit cigar smoking.
      Many
      of the Company’s competitors have substantially greater financial, marketing,
      personnel and other resources than the Company. Additionally, the Company’s
      cigar club business is affected by changes in consumer taste and discretionary
      spending priorities, economic conditions, demographic trends, traffic patterns
      and employee availability. Any change in these factors could adversely affect
      the Company. The Company believes that the ability of the Company's restaurants
      located in its Grand Havana Rooms to compete effectively will continue to depend
      on its ability to offer high quality food in a full-service, distinctive dining
      environment.





The
      Company's Grand Havana House of Cigars location competes with other retail
      cigar
      stores, as well as with other businesses and entities that sell cigars and
      cigar
      related products, such as supermarkets and liquor stores. Many of these
      competitors have substantially greater financial, marketing, personnel and
      other
      resources than the Company. The Company believes that its ability to compete
      effectively will depend on establishing prime locations for its retail cigar
      stores and carrying the brands of premium cigars which are in
      demand.





**Employees**





As
      of
      September 25, 2005, Grand Havana had 75 employees, including 15 full-time and
      60
      part-time employees. None of the Company's employees are covered by a collective
      bargaining agreement. The Company believes that its relations with its employees
      are good.




**ITEM
      2. DESCRIPTION OF PROPERTY.**





Grand
      Havana maintains its principal executive offices in approximately 2,000 square
      feet of leased office space in Los Angeles under a lease with a term that
      expires on July 31, 2007. The monthly rent under the lease for the premises
      is
      currently $4,140.





The
      Grand
      Havana Room and the Grand Havana House of Cigars in Beverly Hills, California
      are located in approximately 4,000 square feet of leased space under a five
      and
      a half year lease expiring May 31, 2010. The lease has one five-year option
      to
      extend, through May 31, 2015. The monthly rent is $25,471, of which $12,735
      is
      paid by the sublessor, Luce. The sublease expires on May 31, 2010. Luce has
      one
      option to extend the sublease until May 31, 2015.





The
      New
      York Grand Havana Room is located in approximately 16,470 square feet of leased
      space on the 39th floor of 666 Fifth Avenue in New York, New York under a
      fifteen year lease expiring September 30, 2011. The monthly rent is
      $60,397.





The
      Company believes that its existing leased properties are adequate for its
      current needs. The Company also believes that all of the properties are
      adequately covered by insurance.





**ITEM
      3. LEGAL PROCEEDINGS.**





None.




6




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS.**





None.





7


**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





**Market
      for Common Equity**





Grand
      Havana’s common stock traded on the Nasdaq SmallCap Market under the symbol
      "UNIR" until March 1997. From March 1997 until January 2002, the Company’s
      common stock was quoted on the Over the Counter Bulletin Board (the "OTC
      Bulletin Board") under the symbol "PUFF.” The common stock was quoted on the
      Pink Sheets under the symbol “PUFF” from January 2002 to May 2005. During this
      time, there was no active public trading in the Company’s common stock.





On
      May 3,
      2005, the Company’s common stock resumed trading on the OTC Bulletin Board under
      the symbol “PUFF.OB.” There can be no assurance that a significant public market
      for the common stock will develop or be sustained. The future market price
      of
      the common stock may be highly volatile. There have been periods of extreme
      fluctuation in the stock market that, in many cases, were unrelated to the
      operating performance of, or announcements concerning the issuers of the
      affected securities. Securities of issuers having relatively limited
      capitalization or limited market makers are particularly susceptible to
      fluctuations based on short-term trading strategies of certain
      investors.





The
      quarterly high and low bid prices of the Company’s common stock since May 3,
      2005 are as follows:




**PUFF
      Common Stock**


**High**
              
              **Low****Fiscal
                  Year Ended September 25, 2005**Fourth
                  Quarter
              
              $
              0.42
              
              $
              0.32Third
                  Quarter
              
              $
              0.43
              
              $
              0.28Second
                  Quarter
              
              
              -
              
              
              -First
                  Quarter
              
              
              -
              
              
              -





These
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission, and may not represent actual transactions. The quarterly high and
      low bid prices of our common stock for the fiscal year ended September 25,
      2005
      (“fiscal 2005”) were provided by Bloomberg L.P.





**Holders**





As
      of
      January 6, 2006, there were approximately 96 holders of record of the Company’s
      common stock.





**Dividends**





The
      Company has never declared or paid any cash dividends on its capital stock
      and
      does not anticipate paying cash dividends on its common stock in the foreseeable
      future. The Company currently intends to retain future earnings to finance
      its
      operations and fund the growth of its business. Any payment of future dividends
      will be at the discretion of the Board of Directors of the Company and will
      depend upon, among other things, the Company’s earnings, financial condition,
      capital requirements, level of indebtedness, contractual restrictions with
      respect to the payment of dividends and other factors that the Board of
      Directors deems relevant.





8





**Equity
      Compensation Plans**




During
      the fiscal year ended September 28, 1997, the Company adopted its 1996 Stock
      Option Plan (the "Plan") to provide officers, directors, key employees and
      other
      key contributors to the Company an opportunity to purchase common stock of
      the
      Company pursuant to "non-qualified stock options" at the discretion of the
      Board
      of Directors. Under the Plan, options to purchase an aggregate of 626,250 shares
      of common stock were authorized for grant. All of the options granted under
      the
      Plan expired on January 3, 2004.




**Recent
      Sales of Unregistered Securities**





During
      fiscal 2005, the Company issued stock options to its employees to purchase
      an
      aggregate of 100,000 shares of common stock. The exercise price of the options
      is $.02 per share, the estimated fair market value of the common stock on the
      date of the grant. All 100,000 options were exercised on February 9, 2005.
      The
      options were granted pursuant to Rule 701 of the Securities Act of 1933, as
      amended (the “Securities Act”).





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.**





**General**





Grand
      Havana owns, operates and develops private membership cigar clubs under the
      name
“Grand Havana Rooms” and a retail cigar store under the name “Grand Havana House
      of Cigars.” For fiscal 2005, Grand Havana generated approximately 58% of its net
      revenue from its cigar club operations, and approximately 42% of its revenue
      from monthly dues and sales of cigars and other smoking related
      merchandise.





The
      Company has experienced operating losses since its inception, however, for
      the
      fiscal year ended September 26, 2004 (“fiscal 2004”), the Company had net income
      of $837,150, and net loss of $47,411 for fiscal 2005. There can be no assurance
      that the cigar clubs and retail cigar stores will be profitable in the
      future.





**Critical
      Accounting Policies**





*Revenue
      Recognition and Measurement*





Grand
      Havana derives revenues from four principal sources: (1) monthly dues; (2)
      sales
      of cigars and related merchandise; (3) private events and club activities;
      and
      (4) food and beverage sales. Revenue from sales of cigars and related
      merchandise, private events and club activities, and food and beverage sales
      are
      recognized at the time of sale. The Company recognizes two types of membership
      fees. An initial fee, or set up fee, and monthly dues. The initial fee is
      recognized at the time the member joins. The monthly dues are charged in advance
      for a three-month period, and recognized equally over the three-month period.
      Deferred revenue represents those monthly dues charged in advance and recognized
      equally over the three-month period.





*Recent
      Accounting Pronouncements*




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Shared-Based
      Payment” (SFAS 123(R)”). SFAS 123(R) revised SFAS No. 123, “Accounting for
      Stock-Based Compensation” and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123 (R) focuses
      primarily on accounting for transactions in which an entity obtains employee
      services in share-based payment transactions. SFAS 123(R) requires companies
      to
      recognize in the statement of operations the cost of employee services received
      in exchange for awards of equity instruments based on the grant-date fair value
      of those awards (with limited exceptions). SFAS 123(R) is effective as of the
      first interim or annual reporting period of the first fiscal year that begins
      after June 15, 2005 for non-small business issuers, and after the first fiscal
      year that begins after December 15, 2005 for small business issuers.
      Accordingly, the Company will adopt SFAS 123(R) in its quarter ending March
      26,
      2006. The Company is currently evaluating the provisions of SFAS 123(R), and
      has
      not yet determined the impact, if any, that SFAS 123(R) will have on its
      financial statement presentation or disclosures.




9




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-a
      replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. SFAS 154 requires that a voluntary change in accounting
      principle be applied retrospectively with all prior period financial statements
      presented on the new accounting principle, unless it is impracticable to
      determine either the period-specific effect or the cumulative effect of changing
      to the new accounting principle. SFAS 154 also requires that a change in method
      of depreciation , amortizing or depleting a long-lived nonfinancial asset be
      accounted for prospectively as a change in estimate, and correction of errors
      in
      previously issued financial statements should be termed a restatement. SFAS
      154
      is effective for accounting changes and correction of errors made in fiscal
      years beginning after December 15, 2005 .
      The
      implementation of the provisions of these pronouncements is not expected to
      have
      a significant effect on the Company’s consolidated financial statement
      presentation.





**Sales
      Taxes in Arrears**





A
      sales
      tax audit for the period August 1, 2000 to August 31, 2005 was conducted in
      October 2005 by the Department of Taxation resulting in a proposed assessment
      of
      approximately $710,000 plus interest for delinquent sales taxes on the Company’s
      revenue in that state generated from monthly dues, minimum spending
      requirements, and rental fees for the use of private rooms. The amount of the
      proposed assessment is based on the Department of Taxation’s assertion that 100%
      of the Company’s revenue generated in New York from monthly dues and other
      revenue are subject to sales tax. The Company disputes the Department of
      Taxation’s position that 100% of the Company’s revenue generated in New York
      from monthly dues and other revenue are subject to sales tax. Furthermore,
      even
      if it is determined that a portion of such revenue is subject to sales taxes,
      the Company estimates it will be no more than $234,000 plus interest of $91,000,
      which have been accrued in the accompanying financial statements. The Department
      of Taxation has represented that it will not assess penalties. As a result,
      potential penalties have been excluded from the Company’s
      estimates.





The
      Company prepared estimates of the potential liabilities based on consultation
      with its representatives in this matter and believes that the assertions of
      the
      State of New York are exaggerated. The Company will continue to dispute the
      amounts. However, because it is probable that some amount will ultimately be
      payable, the Company has recorded its estimates in accordance with Statement
      of
      Financial Accounting Standards No. 5, “Accounting for Contingencies”. The timing
      and final outcome of this matter is not predictable. However, the Company
      believes that it has made an appropriate estimate of the liability.





**Results
      of Operations**





*Fiscal
      Year Ended September 25, 2005 Compared to Fiscal Year Ended September 26,
      2004* .





*Revenues*





Grand
      Havana derives revenues from four principal sources: (1) monthly dues; (2)
      sales
      of cigars and related merchandise; (3) private events and club activities;
      and
      (4) food and beverage sales. For fiscal 2005, Grand Havana had revenues of
      $8,244,120, compared to revenues of $8,020,992 for fiscal 2004, an increase
      of
      $223,128, or approximately 2.7%. This increase in revenues for fiscal 2005
      was
      due primarily to the increase in monthly dues of $267,709, or 10.0%, from
      $2,685,237 in fiscal 2004 to $2,952,946 in fiscal 2005, an increase in sales
      of
      cigars and related merchandise from $442,842 in fiscal 2004 to $490,940 in
      fiscal 2005, an increase of 10.9%, and an increase in food and beverage sales
      from $4,074,255 in fiscal 2004 to $4,219,114 in fiscal 2005, an increase of
      3.6%. The increase in monthly dues and food and beverage sales was primarily
      due
      to the designation of the New York Grand Havana Room as a “Tobacco Bar” by the
      City of New York, and an increase in the monthly rate in New York, which began
      in January 2005. The increase in sales of cigars and smoking related merchandise
      was primarily due to an increase in volume at the Grand Havana Room in New
      York.
      Revenues from private events and club activities decreased from $818,657 in
      fiscal 2004 to $581,120 in fiscal 2005, a decrease of $237,537, or 29.0%. This
      decrease was primarily due to the increase in “ala carte” or individual revenues
      versus revenues from large parties including room rentals.





10





*Expenses*





Total
      costs and expenses increased from $7,172,385 in fiscal 2004 to $8,008,896 in
      fiscal 2005, an increase of $836,511, or approximately 11.7%. This increase
      was
      mainly due to an increase in general and administrative expense due to increased
      legal and professional expenses associated with the filing of quarterly and
      annual reports, and the additional sales tax and interest due to the New York
      sales tax audit.





Direct
      labor and benefit costs decreased from $1,821,142 in fiscal 2004 to $1,807,237
      in fiscal 2005, a decrease of $13,905, or approximately 0.8%. This slight
      decrease was mainly due to the elimination of a commission paid on new
      membership at the Grand Havana Room in New York. Occupancy and other operating
      expenses increased from $2,430,970 in fiscal 2004 to $2,843,506 in fiscal 2005,
      an increase of $412,536, or 17.0%. This increase was mainly due to the
      additional sales tax due from the New York sales tax audit, and an increase
      in
      activity at the New York Grand Havana Room.





General
      and administrative costs increased from $731,575 in fiscal 2004 to $1,090,412
      in
      fiscal 2005, an increase of $358,837, or approximately 49%. This increase
      included additional legal and accounting expenses associated with the filing
      of
      quarterly and annual reports and the accrual of estimated sales taxes in arrears
      and interest thereon. Depreciation and amortization costs increased from
      $333,578 in fiscal 2004 to $341,090 in fiscal 2005, an increase of $7,512,
      or
      approximately 2.2%. This increase was attributable to new equipment in the
      Company’s New York facility.





**Liquidity
      and Capital Resources**





Cash
      and
      cash equivalents totaled $103,207 at the end of fiscal 2005 compared to $121,338
      at the end of fiscal 2004.





On
      March
      1, 2004, the Company consolidated its notes payables and all accrued liabilities
      to advances made by the Company’s former Chief Executive Officer. The Company
      issued a promissory note to its former CEO in the amount of $2,500,901. In
      connection therewith, the former Chief Executive Officer agreed to terminate
      a
      security agreement dated September 30, 1998, whereby he was granted a security
      interest in substantially all of the assets of the Company. The Company also
      issued a promissory note to United Films Distributor (“United Films”) for
      $782,917, which consolidated an original note and all accrued interest due
      to
      United Films as of such date. Lastly, the Company issued a promissory note
      to an
      affiliate, 1990 Westwood Blvd., Inc. (“1990 Westwood”), the Company’s former
      landlord of its corporate office, in the amount of $181,720 for past rent due
      under its lease. The notes issued to the Company's former Chief Executive
      Officer, United Films and 1990 Westwood on March 1, 2004 provided for interest
      at a rate of 5% per annum.





On
      September 26, 2004, the Company cancelled the notes issued to its former CEO,
      United Films and 1990 Westwood on March 1, 2004. In consideration for such
      cancellation and termination of the March 1, 2004 notes, the Company issued
      its
      former Chief Executive Officer, United Films and 1990 Westwood new, unsecured
      promissory notes for principal and unpaid interest owed to such parties as
      of
      such date in amounts of $2,435,050, $798,786 and $170,866, respectively
      (collectively, the “September 2004 Notes”). The September 2004 Notes bear
      interest at a rate of 5% per annum. The Company has the right to prepay the
      September 2004 Notes in whole or in part at any time. In addition, the Company
      agreed to pay its former Chief Executive Officer successive monthly installments
      of at least $10,000, commencing on October 1, 2004 and continuing on the first
      day of each month until the loan matures. The September 2004 Notes are all
      due
      and payable upon the earlier of (1) September 30, 2007, (2) the sale of all
      or
      substantially all of the assets of the Company, or (3) a change in control
      of
      the Company. See Item
      12 “Certain Relationships and Related Transactions,” and Item 7 “Financial
      Statements - Note 7 to Notes to Consolidated Financial Statements.”





Cash
      flows provided by operating activities were $526,874, primarily due to the
      effects of depreciation and amortization, and the net change in operating assets
      and liabilities. Cash flows from operating activities exceeded net income
      primarily due to the increase in accrued liabilities.





Cash
      flows used by financing activities were $433,732, primarily due to the reduction
      in long term debt owed to related parties.





Total
      capital expenditures were $111,273, used primarily for the replacement of worn
      furniture and equipment in the New York Grand Havana Room.





11




The
      Company anticipates that revenues from the operation of its existing Grand
      Havana Rooms and Grand Havana House of Cigars retail store will provide
      sufficient working capital during the next twelve months. In fiscal 2005, the
      Company’s Beverly Hills operations had net income of approximately $364,442. The
      Company’s New York Grand Havana Room had net income of $860,263. The Company
      anticipates that the New York Grand Havana Room will maintain profitability
      in
      2006, although there can be no assurances that this will occur.





Due
      to
      the fact that the trading price of the Company’s common stock has remained low
      in the last twelve months and because it is currently trading on the OTC
      Bulletin Board, the Company does not anticipate that it will be able to sell
      its
      securities in private placements on terms that are acceptable to the Company
      for
      the foreseeable future.





**Off-Balance
      Sheet Arrangements**





The
      Company had no off-balance sheet arrangements as defined by Item 303(c) of
      Regulation S-B.




**ITEM
      7. FINANCIAL STATEMENTS.**





Our
      audited financial statements appear beginning on page F-1 of this
      report.





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND****FINANCIAL
      DISCLOSURE.**





N/A.





**ITEM
      8A. CONTROLS AND PROCEDURES.**





**(a)**
            **Evaluation
                of disclosure controls and
                procedures**





As
      of
      September 25, 2005, the end of the period covered by this report, Stanley
      Shuster, the Company’s chief executive officer and chief financial officer,
      reviewed and evaluated the effectiveness of the Company’s disclosure controls
      and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)), which
      are designed to ensure that material information the Company must disclose
      in
      its reports filed or submitted under the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”) is recorded, processed, summarized, and reported on
      a timely basis, and has concluded, based on that evaluation, that as of such
      date, the Company’s disclosure controls and procedures were effective to ensure
      that information required to be disclosed by the Company in reports that it
      files or submits under the Exchange Act is accumulated and communicated to
      the
      Company’s chief executive officer and chief financial officer to allow timely
      decisions regarding required disclosure.





**(b)**
            **Changes
                in internal control over financial reporting**





During
      the period covered by this report, there were no changes in the Company’s
      internal controls over financial reporting that have materially affected, or
      are
      reasonably likely to materially affect, its internal controls over financial
      reporting.





**ITEM
      8B. OTHER INFORMATION.**





None.




12


**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH
      SECTION 16(A) OF THE EXCHANGE ACT.**





**Executive
      Officers and Key Employees**





Set
      forth
      in the table below are the names, ages and positions of the current directors
      and executive officers of the Company. Directors hold office until the next
      annual meeting of stockholders and until their successors are elected and
      qualified. Executive officers are elected by and serve at the discretion of
      the
      Company’s Board of Directors. None of the executive officers has any family
      relationship to any director or any other executive officer of the
      Company.




Name
              
              Age
              
              Positions
                  Currently Held With the Company
              
              Director
                  SinceStanley
                  Shuster
              
              45
              
              Chairman
                  of the Board, Chief Executive Officer, President and Chief Financial
                  Officer
              
              1995Steven
                  T. Ousdahl
              
              59
              
              Vice
                  President, Administration and Director
              
              2000Shannon
                  Taylor
              
              36
              
              Vice
                  President, Operations and Director
              
              2003








Set
      forth
      below is a brief description of the business experience of the directors and
      executive officers of the Company.





*Stanley
      Shuster* has
      served as an Executive Vice President and director of Grand Havana since June
      1995. In May 1999, Mr. Shuster became Chairman of the Board, Chief Executive
      Officer, President and Chief Financial Officer of the Company. Since April
      1994,
      Mr. Shuster has been employed by the Company to develop its Grand Havana Room
      concept and is currently supervising the operations of the Company's Grand
      Havana Rooms. From March 1991 through February 1994, Mr. Shuster served as
      Vice
      President of Artist and Repertoire for J.R.S. Records, an independent record
      company, with major distribution through BMG.





*Steven
      T. Ousdahl* has
      served as Vice President, Administration of the Company since August 1993 and
      as
      a director since May 2000. He also served as operations administrator for LEI
      since September 1985, where he managed the operations of the Love's restaurant
      chain until its disposition. Prior to that, Mr. Ousdahl was engaged for over
      fifteen years as an operations executive in the food service business for
      several firms, including IHOP Corporation.





*Shannon
      Taylor* has
      served as Vice President, Operations of the Company and as a director since
      November 11, 2003. Ms. Taylor served as an employee of the Company for over
      ten
      years prior to assuming an executive role.





13


**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Exchange Act requires the Company's officers and directors, and
      persons who beneficially own more than 10% of a registered class of the
      Company's equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission. Officers, directors
      and
      beneficial owners of more than 10% of the Company's common stock are required
      by
      Securities and Exchange Commission regulations to furnish the Company with
      copies of all Section 16(a) forms that they file. Based solely on review of
      the
      copies of such forms furnished to the Company, or written representations from
      certain reporting persons, the Company believes that for the period through
      September 25, 2005, all officers, directors and greater-than-10% beneficial
      owners complied with all Section 16(a) filing requirements applicable to them,
      except that Ms. Taylor filed one late report on Form 5 relating to the grant
      and
      exercise of stock options during fiscal 2005.





**Code
      of Ethics**





The
      Company has adopted a Code of Ethics that applies to its officers, including
      its
      principal executive officer and principal financial officer, directors and
      employees. A copy of the Code of Ethics is attached as Exhibit 14.1 to this
      report.




**Audit
      Committee Financial Expert**





The
      Company does not have an audit committee. Since its securities are not currently
      listed on or with a national securities exchange or national securities
      association, the Company is not required to have an independent audit committee.
      As such, the Company has not designated an audit committee financial expert.





**Stockholder
      Communications**





Stockholders
      interested in communicating directly with the Board of Directors,


or
      specified individual directors, may write to the Company at 1990 Westwood Blvd.,
      3 rd Floor,
      Los Angeles, CA 90025. Mr. Shuster will review all such correspondence and
      will
      regularly forward to the Company’s Board of Directors copies of all such
      correspondence that deals with the functions of the Board.





**ITEM
      10. EXECUTIVE COMPENSATION.**





The
      following table sets forth information for the three most recently completed
      fiscal years concerning the compensation of (i) the Chief Executive Officer
      and
      (ii) all other executive officers of the Company who earned over $100,000 in
      salary and bonus in fiscal 2005 (the “Named Executive Officers”) .







**Summary
      Compensation Table**




**Annual
                Compensation******
            
            **Long-Term
                Compensation********Awards******
            
            **Payouts********Name
                and**
              **Principal
                Position**
            
            **Year******
            
            **Salary($)******
            
            **Bonus($)******
            
            **Other**
              **Annual**
              **Compensation($)******
            
            **Restricted**
              **Stock**
              **Awards(#)******
            
            **Securities**
              **Underlying**
              **Options**
              **SARS(#)******
            
            **LTIP**
              **Payouts($)******
            
            **All
                Other**
              **Compensation($)(1)******Stanley
                Shuster
              Chairman
                of the Board, President, Chief Executive Officer and Chief Financial
                Officer
            
            2005
              2004
              2003
            
            $282,319
              $255,744
              $231,609
            
            $9,000
              $7,500
              —
            
            —
              —
              —
            
            —
              —
              —
            
            —
              100,000
              —
            
            —
              —
              —
            
            5,775
              9,924
              6,286




(1)
      Represents amounts paid in health and insurance benefits.





14





The
      following tables set forth certain information for the Named Executive Officers
      with respect to grants and exercises in fiscal 2005 of options to purchase
      common stock of the Company:




**Option
      Grants in Last Fiscal Year**




None
      of
      the Named Executive Officers received a stock option grant in fiscal
      2005.





**Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year End Option Values**





None
      of
      the Named Executive Officers exercised an outstanding stock option in fiscal
      2005. The following table sets forth certain information for the Named Executive
      Officers with respect to securities underlying unexercised options at the end
      of
      fiscal 2005.




**Name**
              
              **Shares**
                **Acquired on**
                **Exercise
                  (#)**
              
              **Value**
                **Realized**
                **($)**
              
              **Number
                  of Securities**
                **Underlying Unexercised Options**
                **at
                  Fiscal Year End (#)**
              
              **Value
                  of Unexercised**
                **In-the-Money
                  Options**
                **at
                  Fiscal Year End ($)****Exercisable**
              
              **Unexercisable**
              
              **Exercisable**
              
              **Unexercisable**Stanley
                  Shuster
              
              —
              
              —
              
              100,000
              
              —
              
              36,000
              
              —




**Director
      Compensation**





Directors
      receive no cash compensation for their services to the Company as directors,
      but
      are reimbursed for expenses actually incurred in connection with attending
      meetings of the Board of Directors.





**Employment
      Agreements and Change-in-Control Arrangements**





The
      Company entered into an employment agreement with Stanley Shuster on June 1,
      2003 for a three-year term, which automatically renews for successive three-year
      terms, except (a) the parties may mutually agree to revise any of the terms
      thereof, and (b) the employment relationship will be on an “at will” basis. The
      employment agreement requires Mr. Shuster to devote his best efforts to the
      Company’s interests and business and prohibits him from disclosing information,
      competing with the Company and soliciting employees for one year after
      termination of his employment. The Company has also extended various benefits
      and reimbursement of expenses to Mr. Shuster.





The
      employment agreement provides that in the event that Mr. Shuster is terminated
      prior to the end of the initial three year term, other than for cause, the
      Company will pay Mr. Shuster the compensation and other benefits provided for
      under the employment agreement for the remainder of the three year term without
      any deduction or offset for any compensation earned or received from any other
      sources.





15




**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED****STOCKHOLDER
      MATTERS.**





**Beneficial
      Ownership**





The
      following tables set forth certain information regarding beneficial ownership
      of
      the Company’s common stock as of December 27, 2005 by (i) each person or entity
      who is known by the Company to own beneficially more than 5% of the outstanding
      shares of the Company’s common stock, (ii) each of the Company’s directors,
      (iii) each of the Named Executive Officers, and (iv) all directors and executive
      officers as a group.





Name
                  and Address of Beneficial Owner(1)
              
              Number
                  of Shares Beneficially Owned(2)(3)
              
              Percentage
                  of ClassSteven
                  T. Ousdahl(4)
              
              50,000
              
              0.3%Shannon
                  Taylor
              
              175,000
              
              1.2%Stanley
                  Shuster(5)
              
              6,816,542
              
              46.2%All
                  executive officers and directors as a group (3 persons)
              
              7,041,542
              
              47.7%





(1)
            Each
                person's address is 1990 Westwood Boulevard, 3rd Floor, Los
                Angeles,    California 90025, unless otherwise
                noted.





(2)
            Unless
                otherwise indicated, the Company believes that all persons named
                in the
                table have sole voting and investment power with respect to the shares
                of
                common stock beneficially owned by
                them.





(3)
            A
                person is deemed to be the beneficial owner of common stock that
                can be
                acquired by such person within sixty days of the date hereof upon
                the
                exercise of warrants or stock options. Except as otherwise specified,
                each
                beneficial owner's percentage ownership is determined by assuming
                that
                warrants and stock options that are held by such person (but not
                those
                held by any other person) and that are exercisable within sixty days
                from
                the date hereof, have been
                exercised.





(4)
            Includes
                50,000 shares issuable upon exercise of
                options.





(5)
            Includes
                100,000 shares issuable upon exercise of options.





**Equity
      Compensation Plan Information**





For
      information relating to the Company’s equity compensation plan, see Item 5 of
      this report entitled “Market for Common Equity and Related Stockholder Matters -
      Equity Compensation Plans.”




16




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**





**Transactions
      with Former Officer**




As
      of
      March 1, 2004, the Company was indebted to its former Chief Executive Officer
      and principal stockholder, in the total amount of $2,500,901. On March 1, 2004,
      the Company and the former CEO agreed to consolidate the payables and all
      accrued liabilities to advances made by the former Chief Executive Officer,
      and,
      in lieu thereof, the Company issued a promissory note in the amount of
      $2,500,901 (the “March 2004 Promissory Note”). In connection therewith, the
      Company’s former CEO agreed to terminate his security interest in substantially
      all of the assets of the Company. The March 2004 Promissory Note provided for
      interest at the rate of 5% per annum.




On
      September 26, 2004, the Company cancelled the March 2004 Promissory Note. In
      consideration for cancellation and termination of the note, the Company issued
      its former Chief Executive Officer a promissory note in the amount of $2,435,050
      (the “September 2004 Promissory Note”). The September 2004 Promissory Note bears
      interest at a rate of 5% per annum. The Company has the right to prepay the
      September 2004 Promissory Note in whole or in part at any time. In addition,
      the
      Company agreed to pay its former Chief Executive Officer successive monthly
      installments of at least $10,000, commencing on October 1, 2004 and continuing
      on the first day of each month until the loan matures. The September 2004
      Promissory Note is due and payable upon the earlier of (1) September 30, 2007,
      (2) the sale of all or substantially all of the assets of the Company, or (3)
      a
      change in control of the Company. During
      fiscal 2005, the Company paid its former Chief Executive Officer $245,000 for
      amounts due under the loan.





**Lease
      of Office Premises**





Grand
      Havana maintains its principal executive offices in approximately 2,000 square
      feet of leased office space in Los Angeles, California under a lease with a
      term
      that expires on July 31, 2007. The monthly rent under the lease for the premises
      is currently $4,140.00.





As
      of
      March 1, 2004, the Company was indebted to 1990 Westwood, a related party that
      owned the Company’s executive offices up to February 2003, in the amount of
      $181,720 for outstanding rent due under the lease. On March 1, 2004, the Company
      and 1990 Westwood entered into a letter agreement, whereby the Company issued
      a
      promissory note to 1990 Westwood in the amount of $181,720. The promissory
      note
      provided for interest at the rate of 5% per annum.




On
      September 26, 2004, the Company cancelled the note issued to 1990 Westwood
      on
      March 1, 2004. In consideration for cancellation and termination of the note,
      the Company issued 1990 Westwood a new, unsecured promissory note in the amount
      of $170,866 for principal and unpaid interest owed as of September 26, 2004.
      The
      new note bears interest at a rate of 5% per annum. The Company has the right
      to
      prepay the note in whole or in part at any time. The promissory note is due
      and
      payable upon the earlier of (1) September 30, 2007, (2) the sale of all or
      substantially all of the assets of the Company, or (3) a change in control
      of
      the Company. During fiscal 2005, the Company paid 1990 Westwood $119,000,
      leaving a balance of $51,866 owed under the new note.





**Transactions
      with United Film Distributors, Inc.**





As
      of
      March 1, 2004, the Company was indebted to United Films in the amount of
      $782,917 as a result of monies due under a promissory note issued to United
      Films in May 1997 (“1997 Promissory Note”). The president of United Film is
      Brian Shuster, the brother of Stanley Shuster, the current Chief Executive
      Officer and principal stockholder of the Company. On March 1, 2004, the Company
      and United Films agreed to cancel and terminate the obligations due under the
      1997 Promissory Note, and, in lieu thereof, issued a promissory note to United
      Films in the amount of $782,917 (the “2004 United Films Promissory Note”).





On
      September 26, 2004, the Company cancelled the March 2004 United Films Promissory
      Note. In consideration for cancellation and termination of the note, the Company
      issued United Films the a new note in the amount of $798,786 (the “September
      2004 United Films Promissory Note”). The September 2004 United Films Promissory
      Note bears interest at a rate of 5% per annum. The Company has the right to
      prepay the note in whole or in part at any time. The September 2004 United
      Films
      Promissory Note is due and payable upon the earlier of (1) September 30, 2007,
      (2) the sale of all or substantially all of the assets of the Company, or (3)
      a
      change in control of the Company.





17




**ITEM
      13. EXHIBITS.**





3.1
            
            Restated
                Certificate of Incorporation of Grand Havana (incorporated by reference
                to
                Exhibit 3.1 of Grand Havana's Form SB-2 (File No. 33-68252-LA) (the
                "SB-2")).





3.2
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation of Grand
                Havana
                (incorporated by reference to Exhibit 3.3 of Grand Havana's Annual
                Report
                on Form 10-KSB for the fiscal year ended September 28, 1997 (File
                No.
                0-24828) (the "1997 10-KSB")).





3.3
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation of Grand
                Havana
                (incorporated by reference to Exhibit 3.4 of the 1997
                10-KSB).





3.4
            
            Bylaws
                of Grand Havana (incorporated by reference to Exhibit 3.2 of the
                SB-2).





10.1
            
            Form
                of Indemnity Agreement entered into between Grand Havana and each
                of its
                directors (incorporated by reference to Exhibit 10.39 of the
                SB-2).





10.2
            
            Village
                On Canon Lease dated July 1, 1994 between Pinkwood Properties Corporation
                and Grand Havana (incorporated by reference to Exhibit 10.37 of Grand
                Havana’s Annual Report on Form 10-KSB for the fiscal year ended 1994 (the
                “1994 10-KSB”)).





10.3
            
            The
                First Addendum to the Village On Cannon Lease dated October 10, 1994
                between Douglas Emmett Joint Venture and Grand Havana (incorporated
                by
                reference to Exhibit 10.3 of Grand Havana’s Annual Report on Form 10-KSB
                for the fiscal year ended September 28, 2003 (the “2003
                10-KSB”)).





10.4
            
            The
                Second Addendum to the Village On Cannon Lease dated November 23,
                1994
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.4 of the 2003
                10-KSB).





10.5
            
            The
                Third Addendum to the Village On Cannon Lease dated October 1, 1999
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.5 of the 2003
                10-KSB).





10.6
            
            The
                Fourth Addendum to the Village On Cannon Lease dated February 3,
                2004
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.6 of the 2003 10-KSB).





10.7
            
            Agreement
                of Lease dated September 16, 1996 between Avenue Limited Partnership
                and
                Grand Havana (incorporated by reference to Exhibit 10.35 to Grand
                Havana's
                Registration Statement on Form S-3 (File No. 33-16045) (the "Form
                S-3")).





10.8
            
            Employment
                Agreement between Grand Havana and Stanley Shuster dated June 1,
                2003
                (incorporated by reference to Exhibit 10.9 of the 2003
                10-KSB.





10.9
            
            Amended
                and Restated Promissory Note dated September 26, 2004 between Grand
                Havana
                and Harry Shuster.*




10.10
              
              Letter
                  Agreement dated September 26, 2004 between Grand Havana and Harry
                  Shuster.*
 10.11
                  
                  Amended
                      and Restated Promissory Note dated September 26, 2004 between
                      Grand Havana
                      and United Film Distributors, Inc.*
 10.12
                        
                        Letter
                            Agreement dated September 26, 2004 between Grand Havana
                            and United Film
                            Distributors, Inc.*
 10.13
                              
                              Amended
                                  and Restated Promissory Note dated September 26,
                                  2004 between Grand Havana
                                  and 1990 Westwood Boulevard, Inc.*
 10.14
                                    
                                    Letter
                                        Agreement dated September 26, 2004 between
                                        Grand Havana and 1990 Westwood
                                        Boulevard,
                                        Inc.*




18






14.1
            
            Code
                of Ethics.*





31.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                302 of the Sarbanes-Oxley Act of
                2002.*





32.1
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2003.*





*
      Filed
      herewith.





**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**





The
      following table sets forth the aggregate fees for professional audit services
      rendered by Weinberg & Company, P.A. for the audit of the Company’s annual
      financial statements for the fiscal years 2005 and 2004, and fees billed for
      other services provided by Weinberg & Company, P.A. for fiscal years 2005
      and 2004.








******Fiscal
                Year Ended****2005**
            
            **2004**Audit
                Fees
            
            **$**
            **117,410**
            
            **$**
            **30,000**Audit-Related
                Fees
            
            
            **--**
            
            
            **--**Tax
                Fees
            
            
            **--**
            
            
            **--**All
                Other Fees
            
            
            **--**
            
            
            **--**Total
                Fees Paid
            
            **$**
            **117,410**
            
            **$**
            **30,000**





19




**SIGNATURES**





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





GRAND
              HAVANA
              ENTERPRISES, INC.Date:
              February 16, 2006
            By:
            /s/ Stanley
              ShusterStanley
              ShusterChairman
                of the
                Board, President, Chief Executive
              Officer and Chief Financial
                Officer




Pursuant
        to the requirements of the Securities Exchange Act of 1934, as amended
        this
 report
        has been signed below by the following persons on behalf of the Registrant
        and
        in the capacities indicated.




**Signature**
            
            **Title**
            
            **Date**/S/   
                Stanley Shuster
              
              **Stanley Shuster**
            
            Chairman
                of the Board, President, Chief Executive Officer and Chief Financial
                Officer (Principal Executive Officer and Principal Financial and
                Accounting Officer)
            
            February
                16, 2006/S/   Steven
                T. Ousdahl
              **Steven T. Ousdahl**
            
            Director
            
            February
                16, 2006/S/    Shannon
                Taylor
              **Shannon Taylor**
            
            Director
            
            February
                16, 2006




20




**GRAND
      HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      25, 2005 AND SEPTEMBER 26, 2004**




Report
                  of Independent Registered Public Accounting Firm
              F-2Consolidated
                  Balance Sheets as of September 25, 2005 and September 26,
                  2004
              F-3Consolidated
                  Statements of Operations for the Years Ended September 25, 2005
                  and
                  September 26, 2004
              F-4Consolidated
                  Statements of Stockholders' Deficiency for the Years Ended September
                  25,
                  2005 and September 26, 2004
              F-5Consolidated
                  Statements of Cash Flows for the Years Ended September 25, 2005
                  and
                  September 26, 2004
              F-6Notes
                  to Consolidated Financial Statements as of September 25, 2005 and
                  September 26, 2004
              F-7




F-1




REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The
      Board
      of Directors and Stockholders


Grand
      Havana Enterprises, Inc.




We
      have
      audited the accompanying consolidated balance sheets of Grand Havana
      Enterprises, Inc. and subsidiaries (the “Company”) as of September 25, 2005 and
      September 26, 2004, and the related consolidated statements of operations,
      stockholders’ deficiency, and cash flows for the years then ended. These
      consolidated financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these consolidated
      financial statements based on our audits.




We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes 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 consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of the Company at September
      25,
      2005 and September 26, 2004, and the results of its operations and its cash
      flows for the years then ended, in conformity with accounting principles
      generally accepted in the United States of America.




February
              10, 2006
            
            /s/ Weinberg
              & Company, P.A.Los
              Angeles, California




F-2






**GRAND
        HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**


CONSOLIDATED
      BALANCE
      SHEETS




September
                25,
              2005
            
            September
                26,
              2004ASSETSCURRENT
                ASSETSCash
                and cash equivalents
            
            $
            103,207
            
            
            $
            121,338Accounts
                receivable, net
            
            
            43,782
            
            
            
            195,343Inventories,
                net
            
            
            342,481
            
            
            
            257,872Prepaid
                expenses
            
            
            160,313
            
            
            
            96,231TOTAL
                CURRENT ASSETS
            
            
            649,783
            
            
            
            670,784PROPERTY
                AND EQUIPMENT, net of accumulated depreciation
            
            
            1,779,183
            
            
            
            2,009,099OTHER
                ASSETSRestricted
                cash
            
            
            760,000
            
            
            
            760,000Deposits
                and other assets
            
            
            45,888
            
            
            
            77,088TOTAL
                OTHER ASSETS
            
            
            805,888
            
            
            
            837,088TOTAL
                ASSETS
            
            $
            3,234,854
            
            
            $
            3,516,971LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYCURRENT
                LIABILITIESCash
                overdraft
            
            $
            67,750
            
            
            $
            140,132Accounts
                payable and accrued liabilities
            
            
            469,342
            
            
            
            531,155Sales
                taxes payable
            
            
            346,327
            
            
            
            250,397Income
                taxes payable
            
            
            1,140
            
            
            
            -Note
                payable to bank
            
            
            185,000
            
            
            
            185,000Deferred
                revenues
            
            
            494,439
            
            
            
            491,254Current
                portion of notes payable to related parties
            
            
            120,000
            
            
            
            120,000TOTAL
                CURRENT LIABILITIES
            
            
            1,683,998
            
            
            
            1,717,938LONG
                TERM LIABILITIESNotes
                payable to related parties
            
            
            2,920,702
            
            
            
            3,284,702Interest
                payable to related parties
            
            
            144,119
            
            
            
            -Deferred
                rent payable
            
            
            497,392
            
            
            
            480,927Other
                long term liabilities
            
            
            48,308
            
            
            
            48,308TOTAL
                LONG TERM LIABILITIES
            
            
            3,610,521
            
            
            
            3,813,937STOCKHOLDERS'
                DEFICIENCYPreferred
                stock, $.01 par value; authorized - 3,000,000
                shares; issued and outstanding - noneCommon
                  stock, $.01 par value; authorized - 50,000,000
                  shares; issued and outstanding -14,764,306
                  shares in 2005 and 14,599,306 shares in 2004
            
            
            147,644
            
            
            
            145,994Additional
                paid-in capital
            
            
            13,280,044
            
            
            
            13,279,044Accumulated
                deficit
            
            
            (15,487,353
            )
            
            
            (15,439,942
            )TOTAL
                STOCKHOLDERS' DEFICIENCY
            
            
            (2,059,665
            )
            
            
            (2,014,904
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            3,234,854
            
            
            $
            3,516,971See
                accompanying Notes to Consolidated Financial
                Statements.




F-3




**GRAND
        HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 For
                      the Years EndedSeptember
                      25, 2005
                  
                  September
                      26, 2004REVENUE
                  
                  $
                  8,244,120
                  
                  $
                  8,020,992COSTS
                      AND EXPENSESFood
                      and beverage
                  
                  
                  1,668,857
                  
                  
                  1,635,284Merchandise
                  
                  
                  257,794
                  
                  
                  219,836Operating
                      expensesDirect
                      Labor
                  
                  
                  1,807,237
                  
                  
                  1,821,142Occupancy
                      and other
                  
                  
                  2,843,506
                  
                  
                  2,430,970General
                      and administrative
                  
                  
                  1,090,412
                  
                  
                  731,575Depreciation
                  
                  
                  341,090
                  
                  
                  333,578TOTAL
                      COSTS AND EXPENSES
                  
                  
                  8,008,896
                  
                  
                  7,172,385INCOME
                      FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE)
                  
                  
                  235,224
                  
                  
                  848,607OTHER
                      INCOME (EXPENSE)Income
                      on extinguishment of debt
                  
                  
                  -
                  
                  
                  186,558Interest
                      income
                  
                  
                  8,632
                  
                  
                  9,421Interest
                      expense
                  
                  
                  (274,267
                  )
                  
                  (206,645
                  )Loss
                      on disposal of asset
                  
                  
                  -
                  
                  
                  (791
                  )TOTAL
                      OTHER INCOME (EXPENSE)
                  
                  
                  (265,635
                  )
                  
                  (11,457
                  )NET
                      (LOSS) INCOME BEFORE INCOME TAXES
                  
                  
                  (30,411
                  )
                  
                  837,150Income
                      taxes (state income taxes)
                  
                  
                  17,000
                  
                  
                  -Net
                      (loss) income
                  
                  $
                  (47,411
                  )
                  $
                  837,150NET
                      INCOME (LOSS) PER COMMON SHAREBASIC
                  
                  $
                  0.00
                  
                  $
                  0.06DILUTED
                  
                  
                  0.00
                  
                  
                  0.06WEIGHTED
                      AVERAGE NUMBER OF COMMON SHARESBASIC
                  
                  
                  14,681,806
                  
                  
                  14,530,556DILUTED
                  
                  
                  14,681,806
                  
                  
                  14,724,306
  See
          accompanying Notes to Consolidated Financial Statements.
  F-4




**GRAND
        HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF STOCKHOLDERS' DEFICIENCY**
 **Additional****Common
                    Stock**
                
                **Pai****d-In**
                
                **Accumulated****Shares**
                
                **Amount**
                
                **Capital**
                
                **Deficit**
                
                **Total**Balance-September
                    28, 2003
                
                
                14,524,306
                
                $
                145,244
                
                $
                13,279,044
                
                $
                (16,277,092
                )
                $
                (2,852,804
                )Common
                    stock issued With options
                
                
                75,000
                
                
                750
                
                
                
                
                
                -
                
                
                750Net
                    income-year ended September 26, 2004
                
                
                -
                
                
                -
                
                
                -
                
                
                837,150
                
                
                837,150Balance-September
                    26,2004
                
                
                14,599,306
                
                
                145,994
                
                
                13,279,044
                
                
                (15,439,942
                )
                
                (2,014,904
                )Common
                    stock issued with options
                
                
                165,000
                
                
                1,650
                
                
                1,000
                
                
                -
                
                
                2,650Net
                    loss-year ended September 25, 2005
                
                
                -
                
                
                -
                
                
                -
                
                
                (47,411
                )
                
                (47,411
                )Balance-September
                    25, 2005
                
                
                14,764,306
                
                $
                147,644
                
                $
                13,280,044
                
                $
                (15,487,353
                )
                $
                (2,059,665
                )




See
      accompanying Notes to Consolidated Financial Statements.




F-5


**GRAND
      HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


For
                the Years EndedSeptember
                25,
              2005
            
            September
                26,
              2004CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                (loss) income
            
            $
            (47,411
            )
            $
            837,150Adjustments
                to reconcile net (loss) income to net cash provided by operating
                activities:Depreciation
                and amortization
            
            
            341,189
            
            
            333,578Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            151,561
            
            
            (165,497
            )Inventories,
                net
            
            
            (84,609
            )
            
            (57,744
            )Prepaid
                expenses
            
            
            (64,082
            )
            
            (44,461
            )Due
                from related parties
            
            
            -
            
            
            21,458Deposits
                and other assets
            
            
            31,200
            
            
            (42,267
            )Accounts
                payable and accrued liabilities
            
            
            (61,813
            )
            
            (337,444
            )Sales
                taxes payable
            
            
            95,930
            
            
            (263,668
            )Income
                taxes payable
            
            
            1,140
            
            
            -Interest
                payable to related parties
            
            
            144,119
            
            
            -Deferred
                revenues
            
            
            3,185
            
            
            26,970Deferred
                rent payable
            
            
            16,465
            
            
            (22,032
            )NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            526,874
            
            
            286,043CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property and equipment
            
            
            (111,273
            )
            
            (121,958
            )CASH
                FLOWS FROM FINANCING ACTIVITIESDecrease
                in cash overdraft
            
            
            (72,382
            )
            
            (173,396
            )Principal
                payments on notes payable to related parties
            
            
            (364,000
            )
            
            (238,307
            )Proceeds
                from the issuance of common stock
            
            
            2,650
            
            
            750NET
                CASH USED IN FINANCING ACTIVITIES
            
            
            (433,732
            )
            
            (410,953
            )NET
                DECREASE IN CASH AND CASH EQUIVALENTS
            
            
            (18,131
            )
            
            (246,868
            )CASH
                AND CASH EQUIVALENTS, beginning of year
            
            
            121,338
            
            
            368,206CASH
                AND CASH EQUIVALENTS, end of year
            
            $
            103,207
            
            $
            121,338SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONInterest
                paid
            
            $
            86,739
            
            $
            38,797Income
                taxes paid
            
            $
            119,724
            
            $
            6,072




See
      accompanying Notes to Consolidated Financial Statements.




F-6




**GRAND
      HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      25, 2005 AND SEPTEMBER 26, 2004**





1.
      BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Description
      of Business :
      Grand
      Havana Enterprises, Inc. (the "Company"), was incorporated under the laws of
      the
      State of Delaware on April 13, 1993. The Company is engaged in the business
      of
      the ownership, operation and development of private membership cigar clubs
      known
      as "Grand Havana Rooms," and retail cigar stores known as "Grand Havana House
      of
      Cigars." The Company’s fiscal year is the 52 or 53-week period ending on the
      last Sunday in September. The Company maintains two locations in New York,
      New
      York and Beverly Hills, California.





Principles
      of Consolidation :
      The
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries. Intercompany transactions and balances have been
      eliminated in consolidation.





Use
      of
      Estimates :
      The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect certain reported amounts and disclosures. Accordingly, actual results
      could differ from those estimates.





Cash
      and Cash Equivalents :
      The
      Company considers all highly liquid investments purchased with an original
      maturity of three months or less to be cash equivalents.





Fair
      Value of Financial Instruments :
      The
      Company's financial instruments consist of cash and cash equivalents, accounts
      receivable, accounts payable and accrued expenses, taxes payable, deferred
      liabilities and term loans. The fair value of the Company's financial
      instruments approximates the carrying value of the instruments.





Allowance
      for Doubtful Accounts :
      Accounts receivable are stated net of an allowance for doubtful accounts. The
      Company estimated the allowance based on an analysis of specific customers.
      The
      allowance for doubtful accounts was $29,725 and $21,775 at September 25, 2005
      and September 26, 2004, respectively.





Inventories :
      Inventories, consisting of food and beverage products, cigars and other
      merchandise, are stated at the lower of cost (first-in, first-out method) or
      market. The reserve for inventory obsolescence and damage was $25,528 and
      $29,889 as of September 25, 2005 and September 26, 2004,
      respectively.





Property
      and Equipment :
      Property and equipment are stated at cost. Depreciation is provided using the
      straight-line method over the estimated useful lives of the assets. Leasehold
      improvements are amortized on the straight-line method over the shorter of
      the
      lease term or estimated useful lives of the assets. Useful lives generally
      are
      as follows:


Leasehold
                  improvements
              
              5
                  to 15 yearsRestaurant
                  equipment
              
              2
                  to 8 yearsOther
                  equipment
              
              3
                  to 15 years


Property
      and equipment are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount may not be recoverable. An
      impairment loss should be recognized when the aggregate of estimated future
      cash
      inflows (less estimated future cash outflows) to be generated by an asset is
      less than the asset's carrying value. Future cash inflows include an estimate
      of
      the proceeds from eventual disposition. For purposes of this comparison,
      estimated future cash flows are determined without reference to their discounted
      present value. If the sum of undiscounted estimated future cash inflows is
      equal
      to or greater than the asset’s carrying value, impairment does not exist. If,
      however, expected future cash inflows are less than carrying value, a loss
      on
      impairment should be recorded. Such a loss is measured as the excess of the
      asset's carrying value over its fair value. Fair value of an asset is the amount
      at which an asset could be bought or sold in a current
      transaction between a willing buyer and seller, other than in a forced or
      liquidation sale. The Company measures an impairment loss by comparing the
      fair
      value of the asset to its carrying amount. Fair value of an asset is calculated
      as the present value of expected future cash flows.





F-7




Deferred
      Rent :
      Rent
      expense is recognized on a straight-line basis over the term of the lease.
      When
      the Company signed the lease on the New York facility, the Company was given
      incentives for the lease. Those incentives were capitalized as deferred rent
      and
      amortized over the life of the lease.





Income
      Taxes: The
      Company accounts for income taxes in accordance with provisions of SFAS No.
      109,
“Accounting for Income Taxes” (“SFAS 109”) which requires that deferred income
      taxes be determined based on the estimated future tax effects of differences
      between financial statement and tax bases of assets and liabilities given the
      provisions of the enacted tax laws. Valuation allowances are used to reduce
      deferred tax assets to the amount considered likely to be realized.





Revenue
      Recognition and Measurement :
      The
      Company recognizes two types of membership fees, an initial fee, or set up
      fee,
      and monthly dues. The entire initial fee is recognized at the time the member
      joins. The monthly dues are charged in advance for a three-month period, and
      are
      recognized ratably over the three-month period.





Deferred
      Revenue :
      Deferred revenue represents those monthly dues charged in advance and recognized
      ratably over the three-month period.





Earnings
      Per Share :
      Basic
      earnings (loss) per share amounts are computed by dividing the net income (loss)
      by the weighted average of common shares outstanding. Diluted earnings (loss)
      per share are computed by dividing the net income (loss) by the weighted average
      number of common shares and common share equivalents. Diluted (loss) per share
      does not include common share equivalents in the computation because their
      inclusion would be anti-dilutive.





Concentrations
      of Credit Risk :
      The
      Company maintains some of its cash in bank deposit accounts, which may be
      uninsured or exceed the federally insured limits. No losses have been
      experienced related to such accounts. The Company believes it places its cash
      with quality financial institutions and is not exposed to any significant
      concentrations of credit risk on cash.




Recent
      Accounting Pronouncements : In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Shared-Based
      Payment” (“SFAS 123(R)”). SFAS 123(R) revised SFAS No. 123, “Accounting for
      Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”)
      Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123(R) focuses
      primarily on accounting for transactions in which an entity obtains employee
      services in share-based payment transactions. SFAS 123(R) requires companies
      to
      recognize in the statement of operations the cost of employee services received
      in exchange for awards of equity instruments based on the grant-date fair value
      of those awards (with limited exceptions). SFAS 123(R) is effective as of the
      first interim or annual reporting period of the first fiscal year that begins
      after June 15, 2005 for non-small business issuers, and after the first fiscal
      year that begins after December 15, 2005 for small business issuers.
      Accordingly, the Company will adopt SFAS 123(R) in its quarter ending March
      26,
      2006. The Company is currently evaluating the provisions of SFAS 123(R), and
      has
      not yet determined the impact, if any, that SFAS 123(R) will have on its
      financial statement presentation or disclosures.




In
      May
      2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections-a
      replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS
      154 changes the requirements for the accounting for and reporting of a change
      in
      accounting principle. SFAS 154 requires that a voluntary change in accounting
      principle be applied retrospectively with all prior period financial statements
      presented on the new accounting principle, unless it is impracticable to
      determine either the period-specific effect or the cumulative effect of changing
      to the new accounting principle. SFAS 154 also requires that a change in method
      of depreciation , amortizing or depleting a long-lived nonfinancial asset be
      accounted for prospectively as a change in estimate, and correction of errors
      in
      previously issued financial statements should be termed a restatement. SFAS
      154
      is effective for accounting changes and correction of errors made in fiscal
      years beginning after December 15, 2005. As such, the Company’s adoption of this
      standard in fiscal 2006 is not expected to have a material impact on the
      Company’s consolidated financial statements.




F-8




2.
      SEGMENT INFORMATION




The
      Company maintains two locations in New York, New York and Beverly Hills,
      California.




The
      accounting policies of the product sectors are the same as those described
      in
      the summary of significant accounting policies except that the disaggregated
      financial results for the product sectors have been prepared using a management
      approach, which is consistent with the basis and manner in which management
      internally disaggregates financial information for the purposes of assisting
      on
      making internal operating decisions. Financial information by product sector
      is
      as follows:





2005
            
            2004Food
                and beverage
            
            $
            4,219,114
            
            $
            4,074,256Merchandise
            
            
            490,940
            
            
            442,842Monthly
                dues
            
            
            2,952,946
            
            
            2,685,237Club
                activities
            
            
            581,120
            
            
            818,657Total
                revenue by product segment
            
            $
            8,244,120
            
            $
            8,020,992




Information
      concerning principal geographic areas is set forth below:





2005
            
            2004RevenuesNew
                York, New York
            
            $
            5,654,968
            
            $
            5,237,746Beverly
                Hills, California
            
            
            2,589,152
            
            
            2,783,246Total
            
            $
            8,244,120
            
            $
            8,020,992





2005
            
            2004Cost
                of Goods SoldNew
                York, New York
            
            $
            2,344,179
            
            $
            2,218,000Beverly
                Hills, California
            
            
            1,389,709
            
            
            1,458,262Total
            
            $
            3,733,888
            
            $
            3,676,262





2005
            
            2004Gross
                ProfitNew
                York, New York
            
            $
            3,310,789
            
            $
            3,019,746Beverly
                Hills, California
            
            
            1,199,443
            
            
            1,324,984Total
            
            $
            4,510,232
            
            $
            4,344,730




F-9










2005
            
            2004Income
                (Loss)New
                York, New York
            
            $
            860,263
            
            $
            1,210,506Beverly
                Hills, California
            
            
            364,442
            
            
            523,592Los
                Angeles, California (corporate)
            
            
            (1,272,116
            )
            
            (896,948
            )Total
            
            $
            (47,411
            )
            $
            837,150





2005
            
            2004Total
                AssetsNew
                York, New York
            
            $
            2,171,287
            
            $
            2,341,337Beverly
                Hills, California
            
            
            937,184
            
            
            1,038,292Los
                Angeles, California (corporate)
            
            
            126,383
            
            
            137,342Total
            
            $
            3,234,854
            
            $
            3,516,971





2005
            
            2004Total
                LiabilitiesNew
                York, New York
            
            $
            1,432,092
            
            $
            1,362,904Beverly
                Hills, California
            
            
            163,971
            
            
            142,240Los
                Angeles, California (corporate)
            
            
            3,698,456
            
            
            4,026,731Total
            
            $
            5,294,519
            
            $
            5,531,875





3.
      PROPERTY AND EQUIPMENT





Property
      and equipment is comprised of the following at September 25, 2005 and September
      26, 2004:


2005
              
              2004Leasehold
                  improvements
              
              $
              4,038,082
              
              $
              4,010,246Restaurant
                  equipment
              
              
              1,072,014
              
              
              1,014,584Office
                  equipment
              
              
              218,448
              
              
              215,416Signage
              
              
              1,870
              
              
              1,8705,330,414
              
              
              5,242,116Less
                  accumulated depreciation
              
              
              (3,551,231
              )
              
              (3,233,017
              )$
              1,779,183
              
              $
              2,009,099
  The
      depreciation expense charged to operations for the years ended September 25,
      2005 and September 26, 2004 were $341,090 and $333,578,
      respectively.

















F-10


4.
      INCOME
      TAXES




Significant
      components of the Company’s deferred income tax assets at September 25, 2005 and
      September 26, 2004 are as follows:





2005
            
            2004Deferred
                income tax assetNet
                operating loss carry forward
            
            $
            3,900,000
            
            $
            4,600,000Total
                deferred income tax asset
            
            
            3,900,000
            
            
            4,600,000Valuation
                allowance
            
            
            (3,900,000
            )
            
            (4,600,000
            )Net
                deferred income tax asset
            
            $
            -
            
            $
            -





Reconciliation
      of the effective income tax rate to the U.S. statutory rate is as
      follows:




2005
              
              2004Tax
                  expense at the U.S. statutory income
                  tax rate
              
              
              (34.0
              )%
              
              (34.0
              )%Increase
                  in the valuation allowance
              
              
              34.0
              %
              
              34.0
              %Effective
                  income tax rate
              
              
              -
              %
              
              -
              %





The
      benefit for income taxes from operations consisted primarily of the approximate
      long-term deferred tax benefit of $3,900,000 at September 25, 2005 resulting
      from the accumulated net operating loss carry forwards of approximately
      $11,500,000. There is a $3,900,000 valuation allowance against the deferred
      tax
      benefit asset, because it is more likely than not that the deferred tax asset
      will not be utilized.





The
      valuation allowance will be evaluated at the end of each year, considering
      positive and negative evidence about whether the asset will be realized. At
      the
      time, the allowance will either be increased or reduced. The
      net
      operating losses expire in various years ending in 2025.  The income tax
      expense in 2005 is entirely State income taxes based on income and is based
      upon
      the suspension of loss carry forwards in California and taxable income in New
      York State.





5.
      COMMITMENTS AND CONTINGENCIES





Employment
      Agreement :
      In June
      2003, the Company entered into an employment agreement with the President,
      Chief
      Executive Officer and Chief Financial Officer of the Company for an initial
      term
      of three (3) years, which automatically renews for successive three-year terms.
      The agreement calls for his salary to begin at $246,235 and to increase each
      year by at least 10%. For the years ended September 25, 2005 and September
      26,
      2004, the Company paid the amounts required under the employment agreement.





Leases :
      The
      Company leases cigar club and corporate facilities under operating leases with
      original terms ranging from five (5) to fifteen (15) years. The lease
      obligations include provisions requiring the payment of property taxes,
      insurance, repairs and maintenance, and contain renewal options and call for
      contingency rentals based on percentages of sales. Restaurant facilities
      subleased to franchisees are subleased under similar terms to the lease the
      Company has with its lessor.





The
      Company leases its corporate offices from a non-related party under an operating
      lease. The lease requires monthly payments of $4,025. Prior to March 2003,
      the
      Company leased its corporate offices from a related party, the Company’s former
      CEO, at a rate of $3,200 per month. In February 2003, the Company’s former CEO
      sold the building to a non-related party, and the Company entered a
      month-to-month tenancy lease at a rate of $4,140 per month. In March 2004,
      the
      Company negotiated a new lease calling for monthly payments of $4,025 until
      August 2005, at which time the rate will increase to $4,140 per month until
      August 2006, and then to $4,255 per month until the lease terminates on July
      31,
      2007.





F-11




Minimum
      lease payments required under non-cancelable leases and subleases, respectively,
      at September 25, 2005 are as follows:





Fiscal
                Year Ending
            
            Gross
                Rentals
            
            Sublease
                Rentals
            
            Net
                Rentals2006
            
            $
            1,054,860
            
            $
            (152,826
            )
            $
            902,0342007
            
            
            1,120,265
            
            
            (156,647
            )
            
            963,6182008
            
            
            1,086,327
            
            
            (161,347
            )
            
            924,9802009
            
            
            1,095,197
            
            
            (166,187
            )
            
            929,0102010
            
            
            1,018,389
            
            
            (113,867
            )
            
            904,522Thereafter
            
            
            790,656
            
            
            -
            
            
            790,656$
            6,165,694
            
            $
            (750,874
            )
            $
            5,414,820





Rent
      expense was $1,017,652 in fiscal 2005 and $1,080,209 in fiscal 2004.





Sales
      Tax Liability :
      A sales
      tax audit for the period August 1, 2000 to August 31, 2005 was conducted in
      October 2005 by the State of New York Department of Taxation and Finance (the
      “Department of Taxation”) resulting in a proposed assessment of approximately
      $710,000 plus interest for delinquent sales taxes on the Company’s revenue in
      that state generated from monthly dues, minimum spending requirements, and
      rental fees for the use of private rooms. The amount of the proposed assessment
      is based on the Department of Taxation’s assertion that 100% of the Company’s
      revenue generated in New York from monthly dues and other revenue are subject
      to
      sales tax. The Company disputes the Department of Taxation’s position that 100%
      of the Company’s revenue generated in New York from monthly dues and other
      revenue are subject to sales tax. Furthermore, even if it is determined that
      a
      portion of such revenue is subject to sales taxes, the Company estimates it
      will
      be no more than $234,000 plus interest of $91,000, which have been accrued
      in
      the accompanying financial statements. The Department of Taxation has
      represented that it will not assess penalties. As a result, potential penalties
      have been excluded from the Company’s estimates.




The
      Company prepared estimates of the potential liabilities based on consultation
      with its representatives in this matter and believes that the assertions of
      the
      Department of Taxation are exaggerated. The Company will continue to dispute
      the
      amounts. However, because it is probable that some amount will ultimately be
      payable, the Company has recorded its estimates in accordance with Statement
      of
      Financial Accounting Standards No. 5, “Accounting for Contingencies”. The timing
      and final outcome of this matter is not predictable. However, the Company
      believes that it has made an appropriate estimate of the liability.





6.
      STOCKHOLDERS' DEFICIENCY





Stock
      Options : During
      the fiscal year ended September 26, 2004, the Company issued stock options
      to
      its employees to purchase an aggregate of 300,000 shares of common stock. The
      exercise price of the options is $.01 per share, the estimated fair market
      value
      of the common stock on the date of the grant. The options are exercisable at
      any
      time during a five-year period, commencing March 1, 2004, and ending March
      1,
      2009. During the fiscal year ended September 25, 2005, 65,000 of these options
      were exercised for $650.





During
      the fiscal year ended September 25, 2005, the Company issued stock options
      to
      its employees to purchase an aggregate of 100,000 shares of common stock. The
      exercise price of the options was $.02 per share, the estimated fair market
      value of the common stock on the date of the grant. All 100,000 options were
      exercised on March 8, 2005 for $2,000.





As
      of
      September 25, 2005, a total of 165,000 options have been exercised.




F-12


The
      following table summarizes information concerning outstanding and exercisable
      options:




Number
                  of Average
              
              Weighted
                  ExerciseOptions
                  Outstanding at September 26, 2004
              
              
              300,000
              
              
              .01Granted
              
              
              100,000
              
              
              .02Exercised
              
              
              165,000
              
              
              .015Options
                  Outstanding at September 25, 2005
              
              
              235,000
              
              
              .01
  7.
      RELATED PARTY TRANSACTIONS





Notes
      Payable to Related Parties :
      Notes
      payable to related parties at September 25, 2005 and September 26, 2004
      consisted of principal amounts due to the following persons:





2005
            
            2004(A)
                Promissory note, former CEO
            
            $
            2,190,050
            
            $
            2,435,050(B)
                Affiliated company
            
            
            798,786
            
            
            798,786(C)
                Former landlord
            
            
            51,866
            
            
            170,866Total
            
            $
            3,040,702
            
            $
            3,404,702





(A) At
      March
      1, 2004, the Company was indebted to its former Chief Executive Officer and
      principal stockholder, in the total amount of $2,500,901. On March 1, 2004,
      the
      Company and the former CEO agreed to consolidate the payables and all accrued
      liabilities to advances made by the former Chief Executive Officer, and, in
      lieu
      thereof, the Company issued a promissory note in the amount of $2,500,901 (the
      “March 2004 Promissory Note”). In connection therewith, the Company’s former CEO
      agreed to terminate his security interest in substantially all of the assets
      of
      the Company. The March 2004 Promissory Note provided for interest at the rate
      of
      5% per annum. On September 26, 2004, the Company cancelled the March 2004
      Promissory Note. In consideration for cancellation and termination of the note,
      the Company issued its former Chief Executive Officer a promissory note in
      the
      amount of $2,435,050 (the “September 2004 Promissory Note”). The September 2004
      Promissory Note bears interest at a rate of 5% per annum. The Company has the
      right to prepay the September 2004 Promissory Note in whole or in part at any
      time. In addition, the Company agreed to pay its former Chief Executive Officer
      successive monthly installments of at least $10,000, commencing on October
      1,
      2004 and continuing on the first day of each month until the loan matures.
      The
      September 2004 Promissory Note is due and payable upon the earlier of (1)
      September 30, 2007, (2) the sale of all or substantially all of the assets
      of
      the Company, or (3) a change in control of the Company. During
      fiscal 2005, the Company paid its former Chief Executive Officer $245,000 for
      amounts due under the loan.





(B) At
      March
      1, 2004, the Company was indebted to an affiliated company in the amount of
      $782,917 as a result of monies due under a promissory note issued in May 1997
      (“1997 Promissory Note”). On March 1, 2004, the Company and affiliated company
      agreed to cancel and terminate the obligations due under the 1997 Promissory
      Note, and, in lieu thereof, issued a promissory note to United Films in the
      amount of $782,917 (the “2004 United Films Promissory Note”). On September 26,
      2004, the Company cancelled the March 2004 United Films Promissory Note. In
      consideration for cancellation and termination of the note, the Company issued
      the affiliated company a new note in the amount of $798,786 (the “September 2004
      United Films Promissory Note”). The September 2004 United Films Promissory Note
      bears interest at a rate of 5% per annum. The Company has the right to prepay
      the note in whole or in part at any time. The September 2004 United Films
      Promissory Note is due and payable upon the earlier of (1) September 30, 2007,
      (2) the sale of all or substantially all of the assets of the Company, or (3)
      a
      change in control of the Company.




F-13


(C) At
      March
      1, 2004, the Company was indebted to its former landlord for its corporate
      offices in the amount of $181,720 for outstanding rent due under its lease
      agreement. On March 1, 2004, the Company and the former landlord entered into
      a
      letter agreement, whereby the Company issued a promissory note in the amount
      of
      $181,720. The promissory note provided for interest at the rate of 5% per annum.
      On September 26, 2004, the Company cancelled the note issued to its former
      landlord on March 1, 2004. In consideration for cancellation and termination
      of
      the note, the Company issued a new, unsecured promissory note in the amount
      of
      $170,866 for principal and unpaid interest owed as of September 26, 2004. The
      new note bears interest at a rate of 5% per annum. The Company has the right
      to
      prepay the note in whole or in part at any time. The promissory note is due
      and
      payable upon the earlier of (1) September 30, 2007, (2) the sale of all or
      substantially all of the assets of the Company, or (3) a change in control
      of
      the Company. During fiscal 2005, the Company paid its former landlord $119,000,
      leaving a balance of $51,866 owed under the new note.





Maturities
      of notes payable to related parties are as follows:





Fiscal
                year2006
            
            $
            120,0002007
            
            
            120,000Thereafter
            
            
            2,800,702$
            3,040,702





Interest
      Due to Related Parties :
      Interest due to related parties upon maturity of respective notes payable
      to related parties at September 25, 2005 and September 26, 2004 consisted of
      the
      following:





2005
            
            2004Accrued
                  interest expense to formerChief Executive Officer
            
            $
            111,990
            
            $
            -Accrued
                interest expense to affiliate
            
            
            26,609
            
            
            -Accrued
                interest expense to former landlord
            
            
            5,520
            
            
            -Total
            
            $
            144,119
            
            $
            -





8.
      NOTE
      PAYABLE TO BANK





The
      Company has an $185,000 loan with Bank Leumi. The note is dated February 28,
      2005 and matures on September 12, 2006. Interest rate is Libor rate plus 2
      percent (5.765% at September 25, 2005). The Company’s President and Chief
      Executive Officer is a guarantor of the Company's credit line and has pledged
      certain personal assets to secure the obligation.





9.
      SALES
      TAXES  IN
      ARREARS




In
      January 2004, the Company reached an agreement with the Department of Taxation
      in regards to the Company’s sales tax in arrears which called for the Company to
      pay $25,000 per month. At September 26, 2004, the Company owed the Department
      of
      Taxation $250,397 in back sales tax, interest and penalties which was paid
      off
      in July 2005. See Note 5 for additional New York sales tax liabilities resulting
      from a recent sales tax audit conducted in October 2005.





F-14


EXHIBIT
      INDEX





3.1
            
            Restated
                Certificate of Incorporation of Grand Havana (incorporated by reference
                to
                Exhibit 3.1 of Grand Havana's Form SB-2 (File No. 33-68252-LA) (the
                "SB-2")).





3.2
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation of Grand
                Havana
                (incorporated by reference to Exhibit 3.3 of Grand Havana's Annual
                Report
                on Form 10-KSB for the fiscal year ended September 28, 1997 (File
                No.
                0-24828) (the "1997 10-KSB")).





3.3
            
            Certificate
                of Amendment to the Restated Certificate of Incorporation of Grand
                Havana
                (incorporated by reference to Exhibit 3.4 of the 1997
                10-KSB).





3.4
            
            Bylaws
                  of Grand Havana (incorporated by reference to Exhibit 3.2 of the
                  SB-2).


10.1
              
              Form
                  of Indemnity Agreement entered into between Grand Havana and each
                  of its
                  directors (incorporated by reference to Exhibit 10.39 of the
                  SB-2).


10.2
            
            Village
                On Canon Lease dated July 1, 1994 between Pinkwood Properties Corporation
                and Grand Havana (incorporated by reference to Exhibit 10.37 of Grand
                Havana’s Annual Report on Form 10-KSB for the fiscal year ended 1994 (the
                “1994 10-KSB”)).





10.3
            
            The
                First Addendum to the Village On Cannon Lease dated October 10, 1994
                between Douglas Emmett Joint Venture and Grand Havana (incorporated
                by
                reference to Exhibit 10.3 of Grand Havana’s Annual Report on Form 10-KSB
                for the fiscal year ended September 28, 2003 (the “2003
                10-KSB”)).





10.4
            
            The
                Second Addendum to the Village On Cannon Lease dated November 23,
                1994
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.4 of the 2003
                10-KSB).





10.5
            
            The
                Third Addendum to the Village On Cannon Lease dated October 1, 1999
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.5 of the 2003
                10-KSB).





10.6
            
            The
                Fourth Addendum to the Village On Cannon Lease dated February 3,
                2004
                between Douglas Emmett Joint Venture and Grand Havana(incorporated
                by reference to Exhibit 10.6 of the 2003 10-KSB).





10.7
            
            Agreement
                of Lease dated September 16, 1996 between Avenue Limited Partnership
                and
                Grand Havana (incorporated by reference to Exhibit 10.35 to Grand
                Havana's
                Registration Statement on Form S-3 (File No. 33-16045) (the "Form
                S-3")).





10.8
            
            Employment
                Agreement between Grand Havana and Stanley Shuster dated June 1,
                2003
                (incorporated by reference to Exhibit 10.9 of the 2003
                10-KSB.





10.9
            
            Amended
                and Restated Promissory Note dated September 26, 2004 between Grand
                Havana
                and Harry Shuster.*





10.10
            
            Letter
                Agreement dated September 26, 2004 between Grand Havana and Harry
                Shuster.*





10.11
            
            Amended
                and Restated Promissory Note dated September 26, 2004 between Grand
                Havana
                and United Film Distributors, Inc.*





10.12
            
            Letter
                Agreement dated September 26, 2004 between Grand Havana and United
                Film
                Distributors, Inc.*





10.13
            
            Amended
                and Restated Promissory Note dated September 26, 2004 between Grand
                Havana
                and 1990 Westwood Boulevard, Inc.*





10.14
            
            Letter
                Agreement dated September 26, 2004 between Grand Havana and 1990
                Westwood
                Boulevard, Inc.*









14.1
            
            
            Code
                of Ethics.*





31.1
            
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                302 of the Sarbanes-Oxley Act of
                2002.*





32.1
            
            
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2003.*







*
      Filed
      herewith.