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 26, 2004





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 jurisdiction of 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) 475-5600Securities
      registered under Section 12(b) of the Exchange Act:
    NoneSecurities
      registered under Section 12(g) of the Exchange
  Act:




Common
Stock, par value $.01 per share


(Title
of Class)





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





The Issuer's
revenues for the most recent fiscal year were $8,020,992.




The aggregate market
value of the common stock of the registrant held by non-affiliates of the
registrant on January 3, 2005, based on the average closing bid and asked price
of the common stock on such date, was approximately $157,655.28.****




The
number of shares of the registrant's common stock outstanding as of January 3,
2005 was 14,599,306 shares.





DOCUMENTS
INCORPORATED BY REFERENCE





None.





Transitional
Small Business Disclosure Format (Check One): Yes o;
No x








**GRAND
HAVANA ENTERPRISES, INC.**





**ANNUAL
REPORT ON FORM 10-KSB**





**INDEX**







Page**PART
      I**Item
      1. Description of Business
    1Item
      2. Description of Property
    6Item
      3. Legal Proceedings
    7Item
      4. Submission of Matters to a Vote of Security Holders
    7**PART
      II**Item
      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
    12**PART
      III**Item
      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, 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 under
the name "United Restaurants, Inc." The Company was formed to acquire all of the
capital stock of Love's Enterprises, Inc. ("LEI"), which it accomplished in May
1993. LEI was the owner, operator and franchisor of the Love's restaurant
chain.





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.





**Background**





In December
1996, the Company decided to discontinue its LEI franchise and restaurant
operations due to poor operating results. At that time, the Company operated
three Love's restaurants and was the franchisor of an additional ten Love's
restaurants. The plan to discontinue its LEI operations was completed in July
1998.





The only LEI
assets currently retained by the Company are the international licensing rights
to Love's restaurants.




1


**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 first Grand
Havana Room opened in June 1995 in Beverly Hills, California. In March 1997, a
second Grand Havana Room opened in Washington, D.C., and the third Grand Havana
Room opened in New York, New York in May 1997. The Washington, D.C. Grand Havana
Room closed in February 1999 and the Company sold substantially all of its
assets in the Washington, D.C. location.





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 humidor rentals for a one-time
initiation fee and a monthly rental fee 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” humidor rentals. 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.





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 a demand
for more memberships. Prior to that time, Grand Havana operated a restaurant
called On Canon on the first floor of the space occupied by the Beverly Hills
Grand Havana Room. On Canon was closed and converted into additional space for
the Grand Havana Room. In December 2000, the Company entered into a sublease
agreement with Mistral Brasserie, LLC (“Mistral”) for the On Canon space.
Mistral operated a restaurant open to the public, but would allow unrestricted
access to Grand Havana’s additional humidors located on the first floor. Mistral
provided food for the members of the Beverly Hills Grand Havana Room. In 2002,
301 N. Canon Drive, LLC assumed the sublease from Mistral under the restaurant
name Avenue Restaurant (“Avenue”). Avenue provided the same services as Mistral.
In August 2003, Luce of Beverly Hills, LLC (“Luce”) assumed the sublease, on a
month to month basis, from Avenue and continues to provide the same services.
All alcoholic and non-alcoholic beverages continue to be served by the Company.





Prior to the
expansion of the Beverly Hills Grand Havana Room, memberships at this location
were fully subscribed and there was a waiting list. After the expansion, the
membership list was opened and all newly available memberships were fully
subscribed. The Beverly Hills Grand Havana Room continues to maintain 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 specializes in premium cigars, cigar
accessories and related merchandise.





The first
Grand Havana House of Cigars opened in March 1997 adjacent to the Washington,
D.C. Grand Havana Room. A second Grand Havana House of Cigars opened in the
lobby of the Bally's Hotel in Las Vegas, Nevada in November 1997, and a third
Grand Havana House of Cigars opened adjacent to the Beverly Hills Grand Havana
Room in December 1997. The Washington D.C. location was closed in February 1999
and the Company sold the store's assets. The Company closed the Las Vegas House
of Cigars in January 2002.





2


**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.





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.




*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.


3





*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.





*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.





4


*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.





*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, with the exception of
establishments known as “Tobacco Bars.” 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 is valid until
July 15, 2005. 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
annual 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, 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.





5


*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 although these rules
have not had a material effect on Grand Havana's operations.





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 which 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 26, 2004, Grand Havana had 71 employees, including 15 full-time and 56
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 lease was entered into with 1990
Westwood Blvd., Inc. (“1990 Westwood”) which is
owned principally by Harry Shuster, the former Chief Executive Officer and
principal stockholder of the Company. In February 2003, Harry Shuster sold the
building to 1990 Westwood Boulevard, L.L.C., an unrelated company. The monthly
rent under the lease for the premises is currently $4,025.





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.





6


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.





**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 29, 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 is now quoted on the
Pink Sheets under the symbol “PUFF.” Since January 29, 2002, there has been
minimal trading activity. 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.





**Holders**





As of
January 3, 2005, there were approximately 94 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, Grand Havana's earnings, financial condition,
capital requirements, level of indebtedness, contractual restrictions with
respect to the payment of dividends and other factors that Grand Havana's Board
of Directors deems relevant.





**Equity
Compensation Plans**




The
following table provides information concerning the Company’s equity
compensation plans as of September 26, 2004.





**Number of securities
      to be issued upon exercise of outstanding options, warrants
      and rights**
      **(a)**
    
    **Weighted-average
      exercise price of outstanding options, warrants and
      rights**
      **(b)**
    
    **Number of securities
      remaining available for future issuance under equity compensation plans
      (excluding securities reflected in**
      **column
      (a))**
      **(c)**Equity
      compensation plans approved by security holders
    
    
    -0-
    
    
    -0-
    
    
    -0-Equity
      compensation plans not approved by security holders
    
    
    225,000
    
    $
    .01
    
    
    N/ATotal
    
    
    225,000
    
    $
    .01
    
    
    N/A




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 on March 1,
2009. As of September 26, 2004, 75,000 options had been exercised. The options
were granted pursuant to Rule 701 of the Securities Act of 1933, as
amended.





8


**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 the fiscal year ended September 26, 2004 (“fiscal 2004”), Grand
Havana generated approximately 62% of its net revenue from its cigar club
operations, and approximately 39% of its revenue from membership (humidor
rental) fees and sales of cigars and other smoking related
merchandise.





The Company
has experienced operating losses since its inception with net losses of
$(784,726) for the fiscal year ended September 28, 2003 (“fiscal 2003”),
however, for fiscal 2004, the Company had net income of $837,150. 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) membership (humidor rentals)
fees; (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 (humidor rental) fees, an initial fee, or set up fee, and a monthly
rental fee. The entire initial fee is recognized at the time the member joins.
The monthly rental fee is charged in advance for a three-month period, and
recognized ratably over the three-month period. Deferred revenue represents
those humidor fees charged in advance and recognized ratably over the
three-month period.





*Recent
Accounting Pronouncements*




In May 2003,
the Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standard (“SFAS”) No. 150, entitled “Accounting for Certain Financial
Instruments and Characteristics of Both Liabilities and Equity” (“SFAS 150”).
SFAS 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS 150 requires that those instruments be classified as
liabilities on the balance sheet.




SFAS 150
affects the issuer’s accounting for three types of freestanding financial
instruments. One type is mandatory redeemable shares, which the issuing company
is obligated to buy back in exchange for cash or other assets. A second type
includes put options and forward purchase contracts, which involve instruments
that require the issuer to buy back some of its shares in exchange for cash or
other assets. The third type of instruments that are liabilities under SFAS 150
are obligations that can be settled with shares, the monetary value of which is
fixed, tied solely or predominantly to a variable such as a market index, or
that vary inversely with the value of the issuer’s shares. SFAS 150 does not
apply to features embedded in a financial instrument that are not derivative in
their entirety.




Most of the
provisions of SFAS 150 are consistent with the existing definition of
liabilities in FASB Concepts Statement No. 6, entitled “Elements of Financial
Statements.” The remaining provisions of SFAS 150 are consistent with FASB’s
proposal to revise that definition to encompass certain obligations that a
reporting entity can settle by issuing its own shares. SFAS 150 is effective for
the first interim period beginning after June 15, 2003, except for mandatory
redeemable financial instruments of a non-public entity, as to which the
effective date is the fiscal period beginning after December 15,
2004.





In December
2004, FASB issued SFAS No. 123(R), "Share-Based Payment"(“SFAS 123(R)”). SFAS
123(R) revises FASB Statement No. 123, "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS 123(R) focuses primarily on the 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 such awards (with limited exceptions). SFAS
123(R) is effective as of the first reporting period beginning after June 15,
2005 for large business issuers, and December 15, 2005 for small business
issuers. Accordingly, the Company will adopt SFAS 123(R) in its second quarter
of fiscal 2006. The Company is currently evaluating the provisions of SFAS
123(R), and has not yet determined the impact that this statement will have on
its results of operations or financial position.




9





The
implementation of the provisions of these pronouncements are not expected to
have a significant effect on the Company’s consolidated financial statement
presentation.





**Sales
Taxes in Arrears**





On
February 11, 2003, the Company was notified by the City of New York Department
of Finance, that it was in arrears in payment of “Commercial Rent Tax.” This tax
is based on annual rent payments made to the Company’s landlord at a rate of 6%,
after a 35% discount. The Company has never paid any “Commercial Rent Tax” since
its opening in June 1997. The City informed the Company that it was the
responsibility of the landlord to inform its tenants of the “rent tax” in
effect. Upon notification by the City of New York, the Company requested a
conciliation conference, which was granted and held on June 24, 2003, and
attended by Stanley Shuster. At this conference, the Company agreed to pay the
back “rent tax” and interest, while the City of New York agreed to waive all
penalties. This amounted to $137,498 in back taxes and $36,036 in interest. The
City waived $53,293 in penalties. On July 31, 2003, the Company made a down
payment of $43,250. On September 12, 2003, the Company was notified by the City
of New York of its upcoming amnesty period, starting October 20, 2003 and
running until January 23, 2004. During this period if payment of the remaining
back “rent tax” was paid-in-full, the interest portion would be reduced to
$20,154. On January 14, 2004 the Company paid $90,472 in commercial “rent tax”
and interest, fulfilling its liability to the City of New York.




In May
2003, the Company began negotiations with the State of New York Department of
Finance with regards to the Company’s sales tax in arrears. The Company paid
$100,000 as a down payment and entered into a tentative agreement to pay $25,000
a month until the total balance was paid-in-full. In July 2003, the Company
began making monthly payments. As of September 28, 2003, the Company owed
$423,593 in back sales tax and related penalties and interest. On January 24,
2004, the State of New York formally approved the $25,000 per month payment
agreement, which is scheduled to end in July 2005. For the fiscal year ended
September 26, 2004 the Company paid $300,000 in back sales tax and related
penalties and interest. As of September 26, 2004, the Company owed $215,726 to
the State of New York.





**Results
of Operations**





*Fiscal Year
Ended September 26, 2004 Compared to Fiscal Year Ended September 28,
2003* .





Net Revenues.
Grand Havana derives revenues from four principal sources: (1) membership
(humidor rental) fees; (2) sales of cigars and related merchandise; (3) private
events and club activities; and (4) food and beverage sales. For fiscal 2004,
Grand Havana had revenues of $8,020,992, compared to revenues of $6,312,155 for
fiscal 2003, an increase of $1,708,837, or approximately 27.1%. This increase in
revenues for fiscal 2004 was primarily due to an increase in membership (humidor
rental) fees from $2,215,211 in fiscal 2003 to $2,685,237 in fiscal 2004, an
increase in sales of cigars and related merchandise from $334,713 in fiscal 2003
to $442,842 in fiscal 2004, and an increase in food and beverage sales from
$2,901,269 in fiscal 2003 to $4,074,256 in fiscal 2004. The increase in
membership (humidor rental) fees 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. The increase in sales of cigars and smoking related
merchandise was primarily due to an increase in volume at the Grand Havana House
of Cigars in Beverly Hills. Revenues from private events and club activities
decreased from $860,961 in fiscal 2003 to $818,657 in fiscal 2004, a decrease of
$42,304, or 4.9%.





Expenses.
Total costs and expenses increased from $6,689,056 in fiscal 2003 to $7,172,385
in fiscal 2004, an increase of $483,329, or approximately 7.2%. This increase is
mainly due to an increase in new membership at the New York Grand Havana Room.
Cost of merchandise increased from $199,156 in fiscal 2003 to $219,836 in fiscal
2004, an increase of $20,680, or approximately 10.4%.





10


Direct labor
and benefit costs increased from $1,732,894 in fiscal 2003 to $1,821,142 in
fiscal 2004, an increase of $88,248, or approximately 5.1%. This increase was
mainly due to increased commission paid on new membership at the Grand Havana
Room in New York. Occupancy and other operating expenses decreased from
$2,590,964 in fiscal 2003 to $2,430,970 in fiscal 2004, a decrease of $159,994,
or 6.2%. This decrease was mainly due to the elimination of penalties and
interest from late or non-payment of sales tax owed to the State of New
York.





General and
administrative costs increased from $667,251 in fiscal 2003 to $731,575 in
fiscal 2004, an increase of $64,324, or approximately 9.6%. Depreciation and
amortization costs decreased from $358,129 in fiscal 2003 to $333,578 in fiscal
2004, a decrease of $24,551, or approximately 6.9%, due to certain items being
fully depreciated.





**** Other
income (expense) decreased from a net expense of $407,825 in fiscal 2003 to a
net expense of $11,457 in fiscal 2004, a decrease of approximately $396,000, or
approximately 97%. Interest expense on back taxes decreased approximately
$200,000 in fiscal 2004 compared to fiscal 2003, and gain on extinguishment of
debt increased approximately $187,000 in fiscal 2004 compared to fiscal 2003 as
the result of decreases in accrued liabilities relating to the closure of the
Company’s facilities in Washington, D.C. and Las Vegas, Nevada .





**Liquidity
and Capital Resources**





Cash and cash
equivalents totaled $121,338 at September 26, 2004 compared with $368,206 at
September 28, 2003.





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 Chief Executive Officer in the amount of
$2,500,900. In connection therewith, the former CEO 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 an affiliate, 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, 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 has agreed to pay its former
CEO 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 $286,043.





Cash
flows used in financing activities were $410,953.





Cash
flows used in investing activities were $121,958.




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 2004, the Company’s Beverly
Hills operations had net income of $523,592. The Company’s New York Grand Havana
Room had net income of $1,210,506. The Company anticipates that the Beverly
Hills and New York Grand Havana Rooms will maintain profitability in 2005,
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 fallen
significantly in the last twelve months and because it is not 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.







**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.**





None.





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





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





As of
September 26, 2004, 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 report 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**





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 Grand Havana. Ages are shown as of January 1, 2005.
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 Board of Directors. None of the executive
officers has any family relationship to any director or any other executive
officer of Grand Havana.







**Name**
    
    **Age**
    
    **Positions
      Currently Held****With
      the Company**
    
    **Director
      Since**Stanley
      Shuster
    
    44
    
    Chairman
      of the Board, Chief Executive Officer, President and Chief Financial
      Officer
    
    1995Steven
      T. Ousdahl
    
    58
    
    Vice
      President, Administration and Director
    
    2000Shannon
      Taylor
    
    35
    
    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
26, 2004, all officers, directors and greater-than-10% beneficial owners
complied with all Section 16(a) filing requirements applicable to them, except
that Mr. Shuster, Mr. Ousdahl and Ms. Taylor each filed one late report relating
to one transaction.





**Code
of Ethics**





We have not
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. We are in the process of reviewing a code
of ethics with our attorneys and independent board members. We will adopt a code
of ethics upon completion of discussions.




****


**Audit
Committee Financial Expert**





We do not
have an audit committee. Since our securities are not currently listed on or
with a national securities exchange or national securities association, we are
not required to have an independent audit committee. As such, we have 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 us at 1990 Westwood Blvd.,
3 rd Floor, Los Angeles, CA 90025. Mr. Shuster will review all such correspondence
and will regularly forward to the Board 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 2004 (the “Named Executive Officers”) .




**Summary
Compensation Table**


**Annual
      Compensation**
    
    **Long-Term
      Compensation****Awards**
    
    **Payouts****Name
      and**
      **Principal
      Position**
    
    **Year**
    
    **Salary($)**
    
    **Bonus($)**
    
    **All
      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
    
    
    2004
      2003
      2002
    
    $
      $
      $
    255,744
      231,609
      214,840
    
    $
    7,500
      —
      —
    
    
    —
      —
      —
    
    
    —
      —
      —
    
    
    100,000
      —
      —
    
    
    —
      —
      —
    
    $
      $
      $
    9,924
      6,286
      12,935
 
 (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 2004 of options to purchase
common stock of the Company:





**Option
Grants in Last Fiscal Year**





**Name**
    
    **Number
      of**
      **Securities**
      **Underlying**
      **Options Granted**
      **(#)**
    
    **%
      of Total**
      **Options**
      **Granted**
      **to Employees**
      **in Fiscal Year**
    
    
    **Exercise or**
      **Base
      Price**
      **($/Sh)**
    
    **Expiration**
      **Date**Stanley
      Shuster
    
    100,000
    
    33.3%
    
    
    $
    0.01
    
    4/1/09








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





**Number
      of Securities**
      **Underlying Unexercised Options**
      **at
      Fiscal Year End (#)**
    
    **Value
      of UnexercisedIn-the-Money Options at Fiscal Year End
      ($)****Name**
    
    **Shares
      Acquiredon Exercise**
      **(#)**
    
    **Value**
      **Realized**
      **($)**
    
    **Exercisable**
    
    **Unexercisable**
    
    **Exercisable**
    
    **Unexercisable**Stanley
      Shuster
    
    
    —
    
    
    —
    
    
    100,000
    
    
    —
    
    $
    2,000
    
    
    —





**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**





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
our common stock as of January 3, 2005 by (i) each person or entity who is known
by us to own beneficially more than 5% of the outstanding shares of our common
stock, (ii) each of our 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
    
    
    .3%J.
      Brooke Johnston, Jr. (5)
    
    
    0
    
    
    0%Shannon
      Taylor (6)
    
    
    75,000
    
    
    .5%Stanley
      Shuster (7)
    
    
    6,816,542
    
    
    46.4%All
      executive officers and directors as a group (3 persons)
    
    
    6,941,542
    
    
    46.8%
  (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)
    J.
      Brooke Johnston, Jr. ceased being a director on November 11,
    2003.
 
 (6)
    Ms.
      Taylor became a director of the Company on November 11, 2003.
 
 (7)
    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 Harry Shuster**




As of March
1, 2004, the Company was indebted to Harry Shuster, the former Chief Executive
Officer and principal stockholder of the Company, in the total amount of
$2,500,901. On March 1, 2004, the Company and Mr. Shuster agreed to consolidate
all outstanding payables and accrued liabilities from advances made to the
Company by the former CEO, and, in lieu thereof, the Company issued a new
promissory note to Mr. Shuster in the amount of $2,500,901 (the “March 2004
Promissory Note”). In connection therewith, Mr. Shuster 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 CEO 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 has
agreed to pay its former CEO 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.





**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 lease was entered into with 1990 Westwood,
which is owned principally by Harry Shuster, the former Chief Executive Officer
and principal stockholder of the Company. In February 2003, Harry Shuster sold
the building to 1990 Westwood Boulevard, L.L.C., an unrelated company. The
monthly rent under the lease for the premises is currently $4,025.00.





As
of March 1, 2004, the Company was indebted to 1990 Westwood 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 such date. 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.





**Transactions
with United Films**





As
of March 1, 2004, the Company was indebted to United Films in the amount of
$782,916.88 as a result of monies due under a promissory note issued to United
Films in May 1997 (“1997 Promissory Note”). The president of United Films is
Brian Shuster, the son of Harry Shuster and 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 all
obligations due under the 1997 Promissory Note, and, in lieu thereof, issued a
new promissory note to United Films in the amount of $782,916.88 (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 a 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.





**Transactions
with Stanley Shuster**







On
September 26, 1999, the Company received a loan from Stanley Shuster, the
Company’s current Chief Executive Officer and principal stockholder, in the
amount of $60,000. T he note
bears interest at a rate of 10.3% per annum. On June 18, 2003, the Company
received an additional loan for $50,000 from Stanley Shuster. On September 14,
2004, the Company repaid all monies owed to Stanley Shuster, including all
accrued interest.






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 Canon 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 Canon 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 Canon 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 Canon 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
    1996
      Stock Option Plan of Grand Havana (incorporated by reference to Exhibit
      10.19 of the 1997 10-KSB).10.9
    Employment
      Agreement between Grand Havana and Stanley Shuster dated June 1, 2003(incorporated
      by reference to Exhibit 10.9 of the 2003 10-KSB).10.10
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      Harry Shuster(incorporated
      by reference to Exhibit 10.10 of the 2003 10-KSB).10.11
    Letter
      Agreement dated March 26, 2004 between Grand Havana and Harry Shuster(incorporated
      by reference to Exhibit 10.11 of the 2003 10-KSB).10.12
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      United Film Distributors, Inc.(incorporated
      by reference to Exhibit 10.12 of the 2003 10-KSB).10.13
    Letter
      Agreement dated March 26, 2004 between Grand Havana and United Film
      Distributors, Inc. (incorporated
      by reference to Exhibit 10.13 of the 2003 10-KSB).10.14
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      1990 Westwood Boulevard, Inc.(incorporated
      by reference to Exhibit 10.14 of the 2003 10-KSB).10.15
    Letter
      Agreement dated March 26, 2004 between Grand Havana and 1990 Westwood
      Boulevard, Inc.(incorporated
      by reference to Exhibit 10.15 of the 2003 10-KSB).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 2002.** Filed
      herewith.




****


18


****


**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 2003 and 2004, and fees billed for
other services provided by Weinberg & Company, P.A. for fiscal years 2003
and 2004.








******Fiscal
      Year Ended****2004**
    
    **2003**Audit
      Fees
    
    
    **—**
    ****
    ****
    **—**
    ****Audit-Related
      Fees
    
    $
    30,000
    
    $
    30,000Tax
      Fees
    
    
    —
    
    
    —All
      Other Fees
    
    
    —
    
    
    —Total
      Fees Paid
    ****
    **$**
    30,000
    
    $
    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 9,
    2005
    By:
    /s/ Stanley
  ShusterStanley ShusterTitle: Chairman 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
      9, 2005/S/    Steven
      T.
Ousdahl
      **Steven T. Ousdahl**
    
    Director
    
    February
      9, 2005/S/    Shannon
      Taylor
      **Shannon Taylor**
    
    Director
    
    February
      9, 2005







20







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


**INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
26, 2004 AND SEPTEMBER 28, 2003**





Report
      of Independent Registered Public Accounting Firm
    F-2Consolidated
      Balance Sheets as of September 26, 2004 and September 28,
    2003
    F-3Consolidated
      Statements of Operations for the Years Ended September 26, 2004 and
      September 28, 2003
    F-4Consolidated
      Statements of Stockholders' Deficiency for the Years Ended September 26,
      2004 and September 28, 2003
    F-5Consolidated
      Statements of Cash Flows for the Years Ended September 26, 2004 and
      September 28, 2003
    F-6Notes
      to Consolidated Financial Statements as of September 26, 2004 and
      September 28, 2003
    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 26, 2004 and
September 28, 2003, 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 audit 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 Grand Havana Enterprises,
Inc. and its subsidiaries, as of September 26, 2004 and September 28, 2003, and
the results of their operations and their cash flows for the years then ended,
in conformity with accounting principles generally accepted in the United States
of America.





****Boca Raton, FloridaDecember 17, 2004
    By:
    /s/ Weinberg & Company,
      P.A.








F-2


**GRAND
HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
BALANCE SHEETS**
 **September
      26,2004**
    
    **September
      28,2003**ASSETSCURRENT
      ASSETSCash
      and cash equivalents
    
    $
    121,338
    
    $
    368,206Accounts
      receivable, net
    
    
    195,343
    
    
    29,846Inventories,
      net
    
    
    257,872
    
    
    200,128Prepaid
      expenses
    
    
    96,231
    
    
    51,770TOTAL
      CURRENT ASSETS
    
    
    670,784
    
    
    649,950PROPERTY
      AND EQUIPMENT, net of accumulated depreciation
    
    
    2,009,099
    
    
    2,220,719OTHER
      ASSETSRestricted
      cash
    
    
    760,000
    
    
    760,000Due
      from related parties
    
    
    **—**
    
    
    21,458Deposits
      and other assets
    
    
    77,088
    
    
    34,821TOTAL
      OTHER ASSETS
    
    
    837,088
    
    
    816,279TOTAL
      ASSETS
    
    $
    3,516,971
    
    $
    3,686,948LIABILITIES
      AND STOCKHOLDERS' DEFICIENCYCURRENT
      LIABILITIESCash
      overdraft
    
    $
    140,132
    
    $
    313,528Accounts
      payable and accrued liabilities
    
    
    531,155
    
    
    868,599Taxes
      payable
    
    
    250,397
    
    
    514,065Note
      payable to bank
    
    
    185,000
    
    
    185,000Deferred
      revenues
    
    
    491,254
    
    
    464,284Notes
      payable to related parties
    
    
    120,000
    
    
    1,511,146Due
      to related parties
    
    
    —
    
    
    2,131,863TOTAL
      CURRENT LIABILITIES
    
    
    1,717,938
    
    
    5,988,485LONG
      TERM LIABILITIESNotes
      payable to related parties
    
    
    3,284,702
    
    
    —Deferred
      rent payable
    
    
    480,927
    
    
    502,959Other
      long term liabilities
    
    
    48,308
    
    
    48,308TOTAL
      LONG TERM LIABILITIES
    
    
    3,813,937
    
    
    551,267STOCKHOLDERS'
      DEFICIENCYPreferred
      stock, $.01 par value; authorized -3,000,000
      shares; issued and outstanding - none
    
    
    —
    
    
    —Common
      stock, $.01 par value; authorized -50,000,000
      shares; issued and outstanding -14,599,306
      shares in 2004 and 14,524,306 shares in 2003
    
    
    145,994
    
    
    145,244Additional
      paid-in capital
    
    
    13,279,044
    
    
    13,279,044Accumulated
      deficit
    
    
    (15,439,942
    )
    
    (16,277,092
    )TOTAL
      STOCKHOLDERS' DEFICIENCY
    
    
    (2,014,904
    )
    
    (2,852,804
    )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIENCY
    
    $
    3,516,971
    
    $
    3,686,948




See
accompanying Notes to Consolidated Financial Statements.







F-3


**GRAND
HAVANA ENTERPRISES, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
STATEMENTS OF OPERATIONS**


For
      the Years EndedSeptember
      26, 2004
    
    September
      28, 2003REVENUE
    
    $
    8,020,992
    
    $
    6,312,155COSTS
      AND EXPENSESFood
      and beverage
    
    
    1,635,284
    
    
    1,140,662Merchandise
    
    
    219,836
    
    
    199,156Operating
      expensesDirect
      Labor
    
    
    1,821,142
    
    
    1,732,894Occupancy
      and other
    
    
    2,430,970
    
    
    2,590,964General
      and administrative
    
    
    731,575
    
    
    667,251Depreciation
      and amortization
    
    
    333,578
    
    
    358,129TOTAL COSTS AND EXPENSES
    
    
    7,172,385
    
    
    6,689,056INCOME
      (LOSS) FROM OPERATIONS BEFORE OTHER INCOME (EXPENSE)
    
    
    848,607
    
    
    (376,901
    )OTHER
      INCOME (EXPENSE)Gain
      on extinguishment of debt
    
    
    186,558
    
    
    —Interest
      income
    
    
    9,421
    
    
    11,246Interest
      expense
    
    
    (206,645
    )
    
    (419,071
    )Loss
      on disposal of asset
    
    
    (791
    )
    
    —TOTAL
      OTHER INCOME (EXPENSE)
    
    
    (11,457
    )
    
    (407,825
    )NET
      INCOME (LOSS)
    
    $
    837,150
    
    $
    (784,726
    )NET
      INCOME (LOSS) PER COMMON SHAREBASIC
    
    $
    0.06
    
    $
    (0.06
    )DILUTED
    
    
    0.06
    
    
    (0.06
    )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARESBASIC
    
    
    14,530,556
    
    
    14,203,473DILUTED
    
    
    14,724,306
    
    
    14,203,473
  See
accompanying Notes to Consolidated Financial Statements.


F-4


GRAND HAVANA ENTERPRISES, INC. AND
SUBSIDIARIES**CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIENCY**


**Additional****Common
      Stock**
    
    
    **Paid-In**
    
    
    **Accumulated****Shares**
    
    
    **Amount**
    
    
    **Capital**
    
    
    **Deficit**
    
    
    **Total**Balance-September
      29, 2002
    
    
    14,174,306
    
    $
    141,744
    
    $
    13,279,044
    
    $
    (15,492,366
    )
    $
    (2,071,578
    )Common
      stock issuedin
      private placement
    
    
    350,000
    
    
    3,500
    
    
    —
    
    
    —
    
    
    3,500Net
      Loss-Year EndedSeptember
      28, 2003
    
    
    —
    
    
    —
    
    
    —
    
    
    (784,726
    )
    
    (784,726
    )Balance-September
      28,2003
    
    
    14,524,306
    
    
    145,244
    
    
    13,279,044
    
    
    (16,277,092
    )
    
    (2,852,804
    )Exercise
      of stock options
    
    
    75,000
    
    
    750
    
    
    —
    
    
    —
    
    
    750Net
      Income-Year EndedSeptember
      26, 2004
    
    
    —
    
    
    —
    
    
    —
    
    
    837,150
    
    
    837,150Balance-September
      26, 2004
    
    
    14,599,306
    
    $
    145,994
    
    $
    13,279,044
    
    $
    (15,439,942
    )
    $
    (2,014,904
    )




See accompanying Notes to Consolidated Financial
Statements.




F-5





GRAND HAVANA ENTERPRISES, INC. AND
SUBSIDIARIES


**CONSOLIDATED
STATEMENTS OF CASH FLOWS**








For
      the Years EndedSeptember 26,2004
    
    
    September 28,2003CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
    
    $
    837,150
    
    $
    (784,726
    )Adjustments
      to reconcile net income (loss)to
      net cash provided by (used in) operating activities:Depreciation
      and amortization
    
    
    333,578
    
    
    358,129Changes
      in operating assets and liabilities:Accounts
      receivable
    
    
    (165,497
    )
    
    13,953Inventories,
      net
    
    
    (57,744
    )
    
    10,513Prepaid
      expenses
    
    
    (44,461
    )
    
    49,623Due
      from related parties
    
    
    21,458
    
    
    (12,015
    )Deposits
      and other assets
    
    
    (42,267
    )
    
    7,664Accounts
      payable and accrued liabilities
    
    
    (337,444
    )
    
    214,791Taxes
      payable
    
    
    (263,668
    )
    
    —Other
      current liabilities
    
    
    —
    
    
    (3,600
    )Deferred
      revenues
    
    
    26,970
    
    
    (50,528
    )Deferred
      rent payable
    
    
    (22,032
    )
    
    (22,032
    )NET
      CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
    
    286,043
    
    
    (218,228
    )CASH
      FLOWS FROM INVESTING ACTIVITIESPurchases
      of property and equipment
    
    
    (121,958
    )
    
    (43,942
    )NET
      CASH USED IN INVESTING ACTIVITIES
    
    
    (121,958
    )
    
    (43,942
    )CASH
      FLOWS FROM FINANCING ACTIVITIESCash
      overdraft
    
    
    (173,396
    )
    
    (141,848
    )Notes
      and due to related parties
    
    
    (238,307
    )
    
    154,456Bank
      loan & other financing
    
    
    —
    
    
    185,000Proceeds
      from the issuance of common stock
    
    
    750
    
    
    3,500NET
      CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
    
    
    (410,953
    )
    
    201,108NET
      DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (246,868
    )
    
    (61,062
    )CASH
      AND CASH EQUIVALENTS, beginning of year
    
    
    368,206
    
    
    429,268CASH
      AND CASH EQUIVALENTS, end of year
    
    $
    121,338
    
    $
    368,206SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATIONInterest
      paid
    
    $
    38,797
    
    $
    169,947Income
      taxes paid
    
    $
    6,072
    
    $
    4,705
 See accompanying Notes to Consolidated Financial
Statements.
  F-6


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


**NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
26, 2004 AND SEPTEMBER 28, 2003**





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 - New York, New
York and Beverly Hills, California.




Principles
of Consolidation : The
consolidated financial statements include the accounts of Grand Havana
Enterprises, Inc. and its wholly-owned subsidiaries. All significant
inter-company 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, trade
account receivables, trade account payables, accrued expenses, related party
payables, 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 : Trade
account receivables 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 $21,775 at September 26, 2004 and September
28, 2003.




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, and net of an allowance for inventory obsolescence. The reserve for
inventory obsolescence and damage was $29,889 and $40,756 as of September 26,
2004 and September 28, 2003, 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


The
Company evaluates the carrying amount of its property and equipment when events
or changes in business circumstances have occurred, which indicate the carrying
amount of such assets may not be fully realizable. Determination of impairment
is based on an estimate of undiscounted future cash flows resulting from the use
of the assets and their eventual disposition. If the Company determines that any
of these assets have been impaired, the impairment charge is recorded based on a
comparison of the net book value of the assets and the fair value. The fair
value of the assets is calculated using the present value of future cash flows
resulting from the use of the assets over their average remaining useful lives.




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.





F-7


Income
Taxes : The
Company accounts for income taxes in accordance with provisions of Statement of
Financial Accounting Standards 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 derives revenues from four principal sources: (1) membership (humidor
rental) fees; (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 the sale. The Company recognizes
two types of membership (humidor rental) fees, an initial fee, or set up fee,
and a monthly rental fee. The entire initial fee is recognized at the time the
member joins. The monthly rental fee is charged in advance for a three-month
period, and recognized ratably over the three-month period. Deferred revenue
represents those humidor fees charged in advance and recognized ratably over the
three-month period.




Earnings
Per Share : Basic
income (loss) per share amounts are computed by dividing the net income (loss)
by the weighted average of common shares outstanding during the period. Diluted
income per share is computed assuming the issuance of common shares, if
dilutive, resulting from the exercise of stock options and warrants. These
potentially dilutive securities were not included in the calculation of loss per
share for the year ended September 28, 2003, because the Company incurred a loss
during the periods, and thus, their effect would have been 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 May
2003, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 150, “Accounting For Certain Financial
Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”).
SFAS 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under previous
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS 150 requires that those instruments be classified as
liabilities in the balance sheet.




SFAS 150
affects the issuer’s accounting for three types of freestanding financial
instruments. One type is mandatory redeemable shares, which the issuing company
is obligated to buy back in exchange for cash or other assets. A second type
includes put options and forward purchase contracts, which involves instruments
that may require the issuer to buy back some of its shares in exchange for cash
or other assets. The third type of instruments that are liabilities under SFAS
150 are obligations that can be settled with shares, the monetary value of which
is fixed, tied solely or predominantly to a variable such as a market index, or
that vary inversely with the value of the issuer’s shares. SFAS 150 does not
apply to features embedded in a financial instrument that are not a derivative
in their entirety.




Most of
the provisions of SFAS 150 are consistent with the existing definition of
liabilities in FASB Concepts Statement No. 6, “Elements of Financial
Statements.” The remaining provisions of SFAS 150 are consistent with the FASB’s
proposal to revise that definition to encompass certain obligations that a
reporting entity can settle by issuing its own shares. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
will be effective at the beginning of the first interim period beginning after
June 15, 2003, except for mandatory redeemable financial instruments of a
non-public entity, as to which the effective date is the fiscal period beginning
after December 15, 2004.




In
December 2004, FASB issued SFAS No. 123(R), "Share-Based Payment” (“SFAS
123(R)”). SFAS 123(R) revises FASB Statement No. 123, "Accounting for
Stock-Based Compensation,” and supersedes 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 such
awards (with limited exceptions). SFAS 123(R) is effective as of the first
reporting period beginning after June 15, 2005 for large business issuers, and
December 15, 2005 for small business issuers. Accordingly, the Company will
adopt SFAS 123(R) in its second quarter of fiscal 2006. The Company is currently
evaluating the provisions of SFAS 123(R), and has not yet determined the impact
that this statement will have on its results of operations or financial
position.




F-8


The
implementation of the provisions of these pronouncements is not expected to have
a significant effect on the Company’s consolidated financial statement
presentation.




2.   
SEGMENT INFORMATION




The
Company maintains two locations - 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 making
internal operating decisions. Financial information by product sector is as
follows:




2004
    
    2003Food
      and beverage
    
    $
    4,074,256
    
    $
    2,901,270Merchandise
    
    
    442,842
    
    
    334,713Humidor
      rental fees
    
    
    2,685,237
    
    
    2,215,211Club
      activities
    
    
    818,657
    
    
    860,961Total
      revenue by product segment
    
    $
    8,020,992
    
    $
    6,312,155




Information
concerning principal geographic areas is set forth below:





2004
    
    2003RevenuesNew
      York, New York
    
    $
    5,237,746
    
    $
    3,796,077Beverly
      Hills, California
    
    
    2,783,246
    
    
    2,516,078Total
    
    $
    8,020,992
    
    $
    6,312,155








2004
    
    2003Cost
      of Goods SoldNew
      York, New York
    
    $
    2,218,000
    
    $
    1,610,098Beverly
      Hills, California
    
    
    1,458,262
    
    
    1,462,614Total
    
    $
    3,676,262
    
    $
    3,072,712




F-9






2004
    
    2003Gross
      ProfitNew
      York, New York
    
    $
    3,019,746
    
    $
    2,185,979Beverly
      Hills, California
    
    
    1,324,984
    
    
    1,053,464Total
    
    $
    4,344,730
    
    $
    3,239,443





2004
    
    2003Net
      Income (Loss)New
      York, New York
    
    $
    1,210,506
    
    $
    (373,416
    )Beverly
      Hills, California
    
    
    523,592
    
    
    179,298Los
      Angeles, California (corporate)
    
    
    (896,948
    )
    
    (590,608
    )Total
    
    $
    837,150
    
    $
    (784,726
    )





2004
    
    2003Total
      AssetsNew
      York, New York
    
    $
    2,341,337
    
    $
    2,220,704Beverly
      Hills, California
    
    
    1,038,292
    
    
    1,015,771Los
      Angeles, California (corporate)
    
    
    137,342
    
    
    450,473Total
    
    $
    3,516,971
    
    $
    3,686,948





2004
    
    2003Total
      LiabilitiesNew
      York, New York
    
    $
    1,362,904
    
    $
    1,538,481Beverly
      Hills, California
    
    
    142,240
    
    
    240,761Los
      Angeles, California (corporate)
    
    
    4,026,731
    
    
    4,760,510Total
    
    $
    5,531,875
    
    $
    6,539,752










F-10





3.    
PROPERTY AND EQUIPMENT





Property
and equipment is comprised of the following at September 26, 2004 and September
28, 2003:





2004
    
    2003Leasehold improvements
    
    $
    4,010,246
    
    $
    3,944,210Restaurant equipment
    
    
    1,014,584
    
    
    989,158Office equipment
    
    
    215,416
    
    
    209,836Signage
    
    
    1,870
    
    
    1,8705,242,116
    
    
    5,145,074Less accumulated depreciation
    
    
    (3,233,017
    )
    
    (2,924,355
    )$
    2,009,099
    
    $
    2,220,719
The
depreciation expense charged to operation for the years ended September 26, 2004
and September 28, 2003 were $333,578 and $358,129,
respectively.





4.   
INCOME TAXES





Significant
components of the Company’s deferred income tax assets at September 26, 2004 and
September 28, 2003 are as follows:





2004
    
    2003Deferred
      income tax assetNet operating loss carry forward
    
    $
    5,300,000
    
    $
    5,600,000Total deferred income tax asset
    
    
    5,300,000
    
    
    5,600,000Valuation allowance
    
    
    (5,300,000
    )
    
    (5,600,000
    )Net deferred income tax asset
    
    $
    —
    
    $
    —





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





2004
    
    2003Tax 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 a long-term
deferred tax benefit of $5,300,000 at September 26, 2004, resulting from the
accumulated net operating loss carry forwards of approximately $15,570,000.
There is approximately $5,300,000 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 that
time, the allowance will be increased or reduced.




The
operating losses expire in various years through 2024.





F-11








5.   
COMMITMENTS AND CONTINGENCIES





Employment
Agreement : In June
2003, the Company entered into an employment agreement with its Chief Executive
Officer for an initial term of three 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%.




Leases : The
Company leases cigar clubs and corporate facilities under operating leases with
original terms ranging from 5 to 15 years. The lease obligations include
provisions requiring the payment of property taxes, insurance, repairs and
maintenance, and contain renewal options and calls 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, owned principally by
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 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.




The
Company subleases a portion of its California cigar club facility to Luce of
Beverly Hills, LLC (“Luce”). The sublease expires on May 31, 2010. Luce has one
option to extend the sublease until May 31, 2015. Sublease rental income totaled
$156,647 and $152,085 during the years ended September 26, 2004 and September
28, 2003, respectively.




Minimum
lease payments required under non-cancelable leases and subleases, respectively,
at September 26, 2004 are as follows:





Fiscal
      Year Ending
    
    Gross
      Rentals
    
    Sublease
      Rentals
    
    Net
      Rentals2005
    
    $
    1,080,479
    
    $
    (153,591
    )
    $
    926,8882006
    
    
    1,083,331
    
    
    (152,826
    )
    
    930,5052007
    
    
    1,146,500
    
    
    (156,647
    )
    
    989,8532008
    
    
    1,113,349
    
    
    (161,347
    )
    
    952,0022009
    
    
    1,123,030
    
    
    (166,187
    )
    
    956,843Thereafter
    
    
    1,695,178
    
    
    (113,867
    )
    
    1,581,311$
    7,241,867
    
    $
    (904,465
    )
    $
    6,337,402





Rent
expense was $1,080,209 in 2004 and $1,065,820 in 2003. At
September 26, 2004 and September 28, 2003, the Company had a $700,000
certificate of deposit that was used as collateral for an irrevocable letter of
credit issued to guarantee the lease of its Grand Havana Room in New York, New
York. This certificate of deposit exceeds the federally insured limits. At
September 26, 2004 and September 28, 2003, the Company had a $60,000 certificate
of deposit that has been pledged as a guarantee for its lease deposit of its
Grand Havana Room in Beverly Hills, California.





6.   
STOCKHOLDERS' DEFICIENCY




Stock
Options : 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 may be
granted. The purchase price shall be no less than 85% of the fair market value
of the common stock on the date of grant. The Board of Directors of the Company,
or a committee established by the Board of Directors, shall determine, among
other things (i) the purchase price of the shares covered by each option, (ii)
whether any payment will be required upon an option grant, (iii) the individual
to whom, and the time or times at which, options shall be granted, (iv) the
number of shares subject to each option and (v) whether an option can be
exercised in whole or in part. The options granted under the Plan expired on
January 3, 2004.








F-12




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 on March 1,
2009. The options were granted pursuant to Rule 701 of the Securities Act of
1933, as amended.




The
following table summarizes information concerning outstanding and exercisable
options:





Number
      of Options
    
    Weighted
      Average Exercise PriceOptions
      outstanding as of September 28, 2003
    
    
    100,000
    
    $
    .40Granted
    
    
    300,000
    
    
    .01Exercised
    
    
    (75,000
    )
    
    .01Canceled
    
    
    (100,000
    )
    
    .40Options
      outstanding at September 26, 2004
    
    
    225,000
    
    $
    .01


As of
September 26, 2004, all outstanding stock options were exercisable at an
exercise price of $.01. The options expire on March 1, 2009.





7.   
RELATED PARTY TRANSACTIONS





Notes
Payable to Related Parties : Notes
payable to related parties at September 26, 2004 and September 28, 2003
consisted of principal amounts due to the following:





2004
    
    2003(A)
      Promissory notes, former CEO
    
    $
    2,435,050
    
    $
    940,246(B)
      Affiliated company
    
    
    798,786
    
    
    489,000(C)
      Former landlord
    
    
    170,866
    
    
    —(D)
      President and CEO
    
    
    —
    
    
    81,900Total
    
    $
    3,404,702
    
    $
    1,511,146





(A) At
March 1, 2004, the Company was indebted to Harry Shuster, its former Chief
Executive Officer, in the amount of $2,500,901 as a result of outstanding
payables and accrued liabilities from advances made to the Company by the former
CEO. On Mach 1, 2004, the Company and Mr. Shuster agreed to cancel and terminate
all outstanding obligations owed to Mr. Shuster, and, in lieu thereof, the
Company issued a new promissory note in the amount of $2,500,901 (the “March
2004 Note”). On September 26, 2004, the Company cancelled the March 2004 Note
and issued a new, unsecured promissory note to Mr. Shuster for principal and
unpaid interest of $2,435,050 (the “September 2004 Note”). The September 2004
Note bears interest at 5% per annum. The Company has the right to prepay the
September 2004 Note in whole or in part at any time. In addition, the Company
has agreed to pay its former Chief Executive Officer successive monthly payments
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 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
the fiscal year ended September 26, 2004, the Company paid its former Chief
Executive Officer principal payments of $220,000 as a result of outstanding
payables and accrued liabilities from advances made to the Company by the former
CEO.




(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
(the “1997 Promissory Note”). On March 1, 2004, the Company and the affiliated
company agreed to cancel and terminate the obligations due under the 1997
Promissory Note, and, in lieu thereof, the Company issued a promissory note in
the amount of $782,917 (the “March 2004 United Films Note”). On September 26, 2004, the Company cancelled
the March 2004 United Films Note and issued a new, unsecured promissory note for
principal and unpaid interest of $798,786 (the “September 2004 United Films
Note”). The September 2004 United Films Note bears interest at 5% per annum. The
Company has the right to prepay the September 2004 United Films Note in whole or
in part at any time. The September 2004 United Film Notes is due on 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 to the former
landlord in the amount of $181,720 (the “March 2004 Westwood Note”). On
September 26, 2004, the Company cancelled the March 2004 Westwood Note and
issued a new, unsecured promissory note for principal and unpaid interest in the
amount of $170,866 (the “September 2004 Westwood Note”). The September 2004
Westwood Note bears interest at 5% per annum. The Company has the right to
prepay the September 2004 Westwood Note in whole or in part at any time. The
September 2004 Westwood Note is due on 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 the fiscal year
ended September 26, 2004, the Company paid its former landlord
$15,565.




(D) In
September 1999, the Company received a loan from its current Chief Executive
Officer in the amount of $60,000. The note bears interest at a rate of 10.3% per
annum. On June 13, 2003, the Company entered into a financing agreement with its
CEO to borrow an additional $50,000. The note bears interest at a rate of 7%,
and was due and payable on September 15, 2004. On September 14, 2004, the
Company repaid its CEO all monies due under both notes, including accrued
interest.





Maturities
of notes payable to related parties are as follows:







Fiscal year2005
    
    $
    120,0002006
    
    
    120,0002007
    
    
    120,000Thereafter
    
    
    3,044,702$
    3,404,702




Due
from Related Parties : Amounts
due from related parties at September 26, 2004 and September 28, 2003 consisted
of the following:





2004
    
    2003Affiliated
      Company
    
    $
    —
    
    $
    20,794Expenses
      owed by related party
    
    
    —
    
    
    664Total
    
    $
    —
    
    $
    21,458





Due to
Related Parties : Amounts
due to related parties at September 26, 2004 and September 28, 2003 consisted of
the following:





2004
    
    2003Advances
      from the former CEO
    
    $
    —
    
    $
    725,530Accrued
      interest expense to affiliate
    
    
    —
    
    
    306,399Accrued
      consulting fee interest expense to former CEO
    
    
    —
    
    
    874,161Accrued
      salary and interest expense to CEO
    
    
    —
    
    
    44,053Accrued
      interest expense or rent for corporate offices
    
    
    —
    
    
    181,720Total
    
    $
    —
    
    $
    2,131,863




F-14


Advances
from the Company’s former CEO in 2003 represented unsecured loans. The loans
accrued interest at a rate of 10% per annum, and were due and payable on demand.
The other advances were also unsecured and bore no interest. Such advances were
due and payable on demand.





8.   
NOTE PAYABLE TO BANK





The
Company has a $185,000 loan with Bank Leumi. The note is dated March 1, 2004 and
matures on February 28, 2005. The interest rate is LIBOR plus 2%. The Company's
Chief Executive Officer is a guarantor of the Company's credit line and has
pledged certain personal assets to secure the obligation.





9.   
TAXES PAYABLE





In May
2003, the Company began negotiations with the State of New York Department of
Taxation with regards to the Company’s sales tax in arrears. An agreement, which
was formally approved in January 2004, called for the Company to pay $25,000 per
month. As of September 26, 2004, the Company owes the New York State Department
of Taxation $215,726 in back sales tax and related interest and
penalties.





10.   GAIN
ON EXTINGUISHMENT OF DEBT





For the
year ended September 26, 2004, $186,558 in debt was extinguished primarily as
the result of decreases in accrued liabilities related to the closure of the
Company’s facilities in Washington, D.C. and Las Vegas, Nevada in prior
years.






F-15




EXHIBIT
      INDEX3.1
    
    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 Canon 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 Canon 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 Canon 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 Canon 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
    
    1996
      Stock Option Plan of Grand Havana (incorporated by reference to Exhibit
      10.19 of the 1997 10-KSB).10.9
    
    Employment
      Agreement between Grand Havana and Stanley Shuster dated June 1, 2003(incorporated
      by reference to Exhibit 10.9 of the 2003 10-KSB).10.10
    
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      Harry Shuster(incorporated
      by reference to Exhibit 10.10 of the 2003 10-KSB).10.11
    
    Letter
      Agreement dated March 26, 2004 between Grand Havana and Harry Shuster(incorporated
      by reference to Exhibit 10.11 of the 2003 10-KSB).10.12
    
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      United Film Distributors, Inc.(incorporated
      by reference to Exhibit 10.12 of the 2003 10-KSB).10.13
    
    Letter
      Agreement dated March 26, 2004 between Grand Havana and United Film
      Distributors, Inc. (incorporated
      by reference to Exhibit 10.13 of the 2003 10-KSB).10.14
    
    Amended
      and Restated Promissory Note dated March 26, 2004 between Grand Havana and
      1990 Westwood Boulevard, Inc.(incorporated
      by reference to Exhibit 10.14 of the 2003 10-KSB).10.15
    
    Letter
      Agreement dated March 26, 2004 between Grand Havana and 1990 Westwood
      Boulevard, Inc.(incorporated
      by reference to Exhibit 10.15 of the 2003 10-KSB).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 2002.**
      Filed herewith.