<PAGE>

                                 UNITED STATES

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

                              -------------------

                                  FORM 10-KSB

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

                 For the fiscal year ended September 24, 2000

                        Commission file number 0-24828

                        GRAND HAVANA ENTERPRISES, INC.
             (Exact name of small business issuer in its charter)


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

             1990 Westwood Blvd, 3rd Floor, Los Angeles, CA 90025
             ----------------------------------------------------
                   (Address of principal executive offices)

         Issuer telephone number, including area code: (310) 475-5600

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

             Securities registered under Section 12(g) of the 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 Securities Exchange Act of 1934 during the preceding
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  [X]  No  [_]

     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. [X]

     The Issuer's revenues for the most recent fiscal year were $6,319,912.

     The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on December 15, 2000, based on the average
closing bid and asked price of the Common Stock as quoted on the OTC Bulletin
Board on such date, was approximately $391,946.

     The number of shares of the Registrant's Common Stock outstanding as of
December 15, 2000 was 14,174,306 shares.

                                       1
<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE

                                     None.

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



                        GRAND HAVANA ENTERPRISES, INC.

                         ANNUAL REPORT ON FORM 10-KSB

                                     INDEX



                                                                          Page

                                    PART I

Item 1.  Description of Business.........................................    3

Item 2.  Description of Property.........................................    8

Item 3.  Legal Proceedings...............................................    9

Item 4.  Submission of Matters to a Vote of Security Holders.............    9



                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters........    9

Item 6.  Management's Discussion and Analysis or Plan of Operation.......   10

Item 7.  Financial Statements............................................   12

Item 8.  Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure........................................   12



                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act...............   12

Item 10. Executive Compensation..........................................   13

Item 11. Security Ownership of Certain Beneficial Owners and Management..   14

Item 12. Certain Relationships and Related Transactions..................   15

Item 13. Exhibits and Reports on Form 8-K................................   16

Signatures...............................................................   19

                                       2
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                                    PART I

                   FORWARD-LOOKING AND CAUTIONARY STATEMENTS

     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
shareholders, including this Annual Report on Form 10-KSB ("Annual Report").
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. In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, 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 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, which are more fully described elsewhere in
Part I of the Annual Report and in Management's Discussion & Analysis or Plan of
Operations ("MD&A") on pages 10-12 of the Company's Annual Report, each of which
is incorporated into this section by reference, 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

     Grand Havana Enterprises, Inc. ("Grand Havana" or the "Company") owns,
operates and develops private membership restaurants and cigar clubs under the
name "Grand Havana Room" and retail cigar stores 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 two Grand
Havana House of Cigars retail stores which are located in Beverly Hills,
California and Las Vegas, Nevada. Grand Havana's primary business focus is on
operating its existing cigar clubs and retail stores.

     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's franchise

                                       3
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and restaurant operations due to less than anticipated 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. See Item 7, "Financial Statements and
Supplementary Data--Note 4 to Consolidated Financial Statements."

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

Restaurant and Cigar Club Operations; Retail Operations

     Grand Havana Rooms, the Company's private membership restaurant and 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 was closed in February 1999 and Grand Havana sold
substantially all of the assets of 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 memberships for a
one-time initiation fee and a monthly membership fee thereafter. In addition,
the New York Grand Havana Room offers a "social membership" which permits the
member to use the Grand Havana Room facilities but does not provide the member
with a locker or humidor. Each Grand Havana Room includes a private smoking
lounge, a full bar and an upscale restaurant. The Grand Havana Rooms also sell
premium cigars and cigar and tobacco accessories. All facilities of the Grand
Havana Room are available for use only by members and their guests.

     Grand Havana began offering its own brand of cigars at its Grand Havana
Rooms under the brand names "Grand Havana Reserve" and "Grand Havana Selection"
in the summer of 1997. These cigars are also offered at Grand Havana House of
Cigars retail stores. See "Trademarks and Service Marks" and "Grand
Havana House of Cigars."

     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. Membership at the Beverly Hills Grand Havana Room is also limited to the
number of humidors maintained by the Company.

     Beverly Hills Grand Havana Room

     The first Grand Havana Room opened in Beverly Hills, California in June
1995. In December 1998, the Beverly Hills Grand Havana Room was expanded in
response to the demand for more memberships. 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.

     Prior to the expansion of the Beverly Hills Grand Havana Room, memberships
at this location were fully subscribed and there was a waiting list for
membership. 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, which opened in May 1997, is located on the
39th floor of 666 Fifth Avenue in New York, New York. In addition to a smoking
lounge, bar and restaurant, the New York Grand Havana Room also includes a
billiards room. Approximately 80% of the available memberships at the New York
Grand Havana Room have been sold to date. The Company continues to seek new
members for its New York Grand Havana Room through word-of-mouth advertising. In
addition, the Company markets its New York Grand Havana Room by sponsoring
"event parties" featuring such items as fine wines and watches to introduce
prospective members to its facilities.

     Grand Havana House of Cigars

                                       4
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     Grand Havana House of Cigars retail stores specialize in premium cigars,
cigar accessories and related merchandise. In the summer of 1997, the Company
began offering its own brands of cigars, under the names "Grand Havana
Selection" and "Grand Havana Reserve" at its retail locations and its Grand
Havana Rooms. In the future, Grand Havana may enter into agreements for the
distribution of its brands of cigars to third party wholesalers or retailers.
The Company does not manufacture the cigars which use its trade names but orders
them directly from a cigar manufacturer and has its brand names applied to such
cigars. The Grand Havana brands of cigars do not currently account for a
significant portion of Grand Havana cigar sales.

     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 was opened adjacent to the Beverly Hills
Grand Havana Room in December 1997. The Washington D.C. location was closed in
February 1999 and Grand Havana sold the store's assets.

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 it's Grand Havana House of Cigar
locations. Grand Havana currently uses the "Grand Havana Selection" and "Grand
Havana Reserve" trademarks on its own brand of cigars. See "Restaurant and
Cigar Club Operations; Retail Operations." 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 environmental tobacco smoke ("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 the 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 and the Clinton Administration
have 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, including the Company 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 Cigar locations and a decrease in the
number of persons who smoke cigars, which could cause a reduction in memberships
at the Grand Havana Rooms. Effective July 2000, the excise tax on the wholesale
price of cigars sold in California decreased from approximately 67% to
approximately 55%, a decrease of approximately

                                       5
<PAGE>

12%. This tax decrease has not had a significant impact on both the pricing and
sales of cigar products sold by the Company in California.

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

     Health Effects of Smoking and Exposure to ETS.  Reports with respect to the
health risks of cigarette smoking have been publicized for many years, and the
sale, promotion and use of cigars and cigarettes continue to be subject to
increasing 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, establish anti-smoking
educational campaigns or anti-smoking programs, or provide additional funding
for governmental anti-smoking activities, further restrict the advertising of
tobacco products, including requiring additional warnings on packages and in
advertising, and allow state and local governments to restrict the sale and
distribution of cigars.

     It is not possible to determine the outcome of the FDA regulatory
initiative 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

                                       6
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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 business of the
Company.

     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. If other states in which the Company has Grand Havana Room and
Grand Havana House of Cigar locations should enact legislation similar to the
legislation adopted in California, and the Company were unable to qualify under
an exemption with respect to any such legislation, 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 it to sell liquor,
beer and wine, and each restaurant has food service licenses from local health
authorities. The failure of a restaurant 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
restaurants 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.

     Grand Havana 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.  Grand Havana
carries liquor liability coverage as part of its comprehensive general liability
insurance.  Grand Havana has never been the subject of a "dram-shop" claim.

     Other Regulations

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     Grand Havana 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 restaurants.

     Grand Havana is subject to federal and state environmental regulations
although these rules have not had a material effect on Grand Havana's
operations.

     Grand Havana 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.  Grand Havana believes
that it is in substantial compliance with all current applicable regulations
relating to restaurant accommodations for the disabled.  Under the ADA, Grand
Havana 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 and permit the smoking of
cigars. Many of the Grand Havana Rooms' competitors have substantially greater
financial, marketing, personnel and other resources than the Company.
Additionally, the Company's restaurant 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 Cigar locations compete 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, and 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 December 5, 2000, Grand Havana had 86 employees, including 17 full-
time and 69 part-time employees.  None of the Company's employees is 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 January 31, 2014.  The lease was entered into with 1990
Westwood Boulevard, Inc. which is owned principally by Harry Shuster, the former
Chairman of the Board, President, Chief Executive Officer and Chief Financial
Officer of the Company.  Harry Shuster is also a former director and principal
stockholder of the Company.  The monthly rent under the lease for these premises
is currently $3,200.  The Company believes that the rent and other terms of the
lease are no more favorable to the lessor than could have been obtained in a
similar building in the same area from an unrelated lessor.  See Item 12,
"Certain Relationships and Related Transactions."

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     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-year lease expiring June 30, 2004.  The lease has two five-year
options to extend, through June 30, 2014.

     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 on September 30, 2011.

     The Las Vegas Grand Havana House of Cigars is located in approximately 400
square feet of leased space in Bally's Hotel in Las Vegas, Nevada pursuant to a
seven-year lease expiring on November 30, 2004.

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

ITEM 3.   LEGAL PROCEEDINGS.

     On August 25, 2000, the Company filed a lawsuit in the Superior Court of
the District of Columbia against Thursdays Restaurant Group, L.L.C. after
Thursdays failed to timely pay the principal in the amount of $115,000 plus
accrued interest on a promissory note. Thursdays issued the promissory note to
the Company in connection with the sale of the Company's Washington D.C.
operations to Thursdays. The Superior Court entered an Order of Default on
October 5, 2000. On November 17, 2000, the Company filed a Request for Default
Judgment requesting that judgment be entered in the amount of $131,617.50, plus
accrued interest at the rate of 9% per annum from August 20, 2000.


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

     None.

                                    PART II

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

     Grand Havana's Common Stock is traded on the Over the Counter Bulletin
Board (the "OTC Bulletin Board") under the symbol "PUFF."  Prior to March 1997,
the Common Stock was traded on the Nasdaq SmallCap Market under the symbol
"UNIR."  The following table sets forth the high and low bid prices of the
Common Stock for the quarters indicated as quoted on the OTC Bulletin Board.


                                   1999                 2000
                             ----------------     ----------------
                              High      Low        High      Low
                             ------    ------     ------    ------

     First Quarter           $.125     $.0312     $.1875    $.1094
     Second Quarter           .0781     .0312      .1875     .0938
     Third Quarter            .125      .0625      .1875     .1094
     Fourth Quarter           .1094     .1094      .1875     .1094


     The above quotations represent prices between dealers without adjustments
for retail markups, markdowns or commissions and may not represent actual
transactions.

     As of December 15, 2000, there were approximately 85 holders of record of
Grand Havana Common Stock.

     Grand Havana 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

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foreseeable future.  Grand Havana 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 Grand
Havana 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.

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

Recent Developments

     On March 28, 2000, the Company entered into a sublease agreement with a
restaurant, Mistral Brasserie, LLC ("Mistral") whereby it agreed to sublease a
portion of the first floor of the Beverly Hills Grand Havana Room to Mistral for
a period of approximately four years. The Company believes that this arrangement
may result in a slight decrease in operating costs for the Beverly Hills Grand
Havana Room.

     On March 28, 2000, the Company entered into a catering agreement with
Mistral which expires at the same time as the sublease. Under the catering
agreement, the Company agreed to, with certain exceptions, purchase all of the
food provided to members in the Beverly Hills Grand Havana Room from Mistral.
The Company may terminate the catering agreement with or without cause upon 60
days written notice.

General

     Grand Havana owns, operates and develops private membership restaurants
and cigar clubs under the name "Grand Havana Rooms" and retail cigar stores
under the name "Grand Havana House of Cigars." For the fiscal year ended
September 24, 2000 ("fiscal 2000"), Grand Havana generated approximately 58% of
its net revenues from its restaurant and cigar club operations, approximately
32% of its revenue from membership fees and approximately 10% from sales of its
cigars and other merchandise.

     The Company has experienced operating losses since its inception with net
losses of $1,470,879 for the fiscal year ended September 26, 1999 and $524,857
for the fiscal year ended September 24, 2000.  There can be no assurance that
the cigar clubs and retail cigar stores will be profitable in the future.

Results of Operations

     Fiscal Year Ended September 24, 2000 Compared to Fiscal Year Ended
     September 26, 1999

     Net Revenues. Grand Havana derives revenues from three principal sources:
(1) membership fees (2) food and beverage sales; and (3) sales of cigars and
related merchandise. For the fiscal year ended September 24, 2000, Grand Havana
had revenues of $6,319,912 compared to revenues of $5,530,376 for the fiscal
year ended September 26, 1999, an increase of $789,536 or approximately 14%.
This increase in revenues for fiscal 2000 was due primarily to an increase in
food and beverage sales from $2,661,869 in fiscal 1999 to $3,076,495 in fiscal
2000, an increase of $414,626 or approximately 16%, and an increase in
membership revenues from $1,690,431 in fiscal 1999 to $2,045,054 in fiscal 2000,
an increase of $354,623 or approximately 21%. Revenues from sales of cigars and
related merchandise decreased from $652,527 in fiscal 1999 to $614,975 in fiscal
2000, a decrease of $37,552 or approximately 6%. This decrease is primarily the
result of the closure of the Washington, D.C. Grand Havana House of Cigars and a
decline in sales at both the Las Vegas and Beverly Hills Grand Havana House of
Cigars.

     Higher revenues were due to an increase in the number of members and an
increase in the members' use of the Company's facilities.  Food and beverage
revenues were higher as a result of an increase in the number of members and an
increase in the members' use of the Company's facilities. Revenues from
membership fees were higher due to an in increase in the number of members.
Memberships increased by approximately 20% at the New York Grand Havana Room.

     Expenses. Total costs and expenses decreased from $7,001,255 in fiscal 1999
to $6,844,769 in fiscal 2000, a decrease of $156,486 or approximately 2% . The
decrease is mainly due to reduced general and administrative expenses as a
result of more efficient operations and the closure of the Washington, D.C.
Grand Havana Room and Grand Havana House of Cigars in February 1999.

  Costs of food and beverages increased from $897,114 in fiscal 1999 to
$1,080,475 in fiscal 2000, an increase of $183,361 or approximately 20% due

                                       10
<PAGE>

primarily to an increase in the number of members and an increase in the
members' use of the Company's facilities. Cost of merchandise decreased from
$440,055 in fiscal 1999 to $359,477 in fiscal 2000, a decrease of $80,578 or
approximately 18% due primarily to reduced sales and the writedown of stock
from discontinued operations.

     Direct labor and benefits costs increased from $1,843,055 in fiscal 1999 to
$2,119,612 in fiscal 2000, an increase of $276,557 or approximately 15% mainly
as a result of an increase in the number of members and in the members' use of
the Company's facilities. In particular, the New York Grand Havana Room
experienced higher activity during the summer months than in past years.
Occupancy and other operating expenses increased from $2,079,816 in fiscal 1999
to $2,338,472 in fiscal 2000 an increase of $258,656 or approximately 12%. This
increase was also primarily the result of an increase in the number of members
and in the members' use of the Company's facilities.

     General and administrative costs decreased from $1,233,344 in fiscal 1999
to $492,576 in fiscal 2000, a decrease of $740,768 or approximately 60%,
primarily due to more efficient operations and the closure of the Washington
D.C. operations. Depreciation and amortization costs decreased from $507,871 in
fiscal 1999 to $454,157 in fiscal 2000, a decrease of $53,714 or approximately
11% due to full depreciation of certain items relating to the closure of the
Washington D.C. operations.

Liquidity and Capital Resources

     Cash and cash equivalents totaled $94,523 at September 26, 1999 compared
with $97,161 at September 24, 2000.

     At September 24, 2000 the Company owed an aggregate of $682,154 in
principal amount to United Leisure Corporation ("United Leisure") pursuant to a
financing agreement dated as of February 12, 1997. All principal plus accrued
interest thereon is due on or before April 30, 2000. In addition, as of
September 24, 2000, an aggregate of $507,000 had been advanced to the Company
under a financing agreement with United Film Distributors, Inc. ("United Film")
the full amount of which, together with all accrued but unpaid interest thereon,
is due and payable upon demand. See Item 12. "Certain Relationship and Related
Transactions," and Item 7 "Financial Statements and Supplementary Information--
Note 8 to Notes to Consolidated Financial Statements."

     The Company anticipates that revenues from the operation of its existing
Grand Havana Rooms and Grand Havana House of Cigars retail stores will provide
sufficient working capital during the next 12 months. In the fiscal year ended
September 24, 2000, the Company's Beverly Hills operations had gains of
approximately $204,000, although the Company's New York Grand Havana Room had
de minimis losses. The Company anticipates that the New York Grand Havana Room
may achieve and maintain profitability in 2001 although there can be no
assurance 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 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.

     If the Company is unable to raise additional funds through the private
placement of its securities it may seek financing from affiliated or
unaffiliated third parties.  There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
available, that it will be available on terms acceptable to the Company.  If the
Company is unable to obtain financing to meet its working capital needs and to
repay indebtedness as it becomes due, the Company may have to consider such
options as selling or pledging portions of its assets in order to meet such
obligations.

     Management does not expect that inflation will adversely affect the
Company's existing or planned operations in the future unless it increases
significantly over current levels.

                                       11
<PAGE>

Year 2000 Costs

     Grand Havana has implemented a Year 2000 project to identify and assess the
risks associated with its information systems, operations, infrastructure and
technology products, and customers and suppliers that are not Year 2000
compliant.   To date, Grand Havana has incurred approximately $26,000 in
expenses for Year 2000 compliance.  Grand Havana considers the impact of Year
2000 compliance to be insignificant and does not believe that it will have a
material adverse effect on Grand Havana's current and future operating results.

ITEM 7.  FINANCIAL STATEMENTS

     The financial statements and supplemental data required by this Item 7
follow the index to financial statements appearing at Item 13 of this Form 10-
KSB.

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

     None.



                                   PART III

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


Directors and Executive Officers

     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
December 20, 2000.  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 Grand Havana Board.
None of the executive officers has any family relationship to any director or
any other executive officer of Grand Havana.

<TABLE>
<CAPTION>
                                                     Positions Currently Held
Name                              Age                    With the Company                           Director Since
----                              ---      ----------------------------------------------           --------------
<S>                               <C>      <C>                                                      <C>

Stanley Shuster                   40       Chairman of the Board, Chief Executive                        1995
                                           Officer, President, Chief Financial
                                           Officer and Director

Steven T. Ousdahl                 54       Vice President -- Administration and Director                 2000

J. Brooke Johnston, Jr.           60       Director                                                      1998
</TABLE>

     Set forth below is a brief description of the business experience for the
of all current directors and executive officers of Grand Havana.

     Stanley Shuster has served as a director of Grand Havana since June 1995,
as Chairman of the Board, Chief Executive Officer, President and Chief Financial
Officer of Grand Havana since May 1999, and as Executive Vice President of Grand
Havana since June 1995.  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 Director since May 2000.  He also served as
Operations Administrator for LEI since September 1985, in which capacity he
managed the operations of the Love's restaurant chain until its disposition.
Prior to that,  Mr.

                                       12
<PAGE>

Ousdahl was engaged for over 15 years as an operations executive in the food
service business for several firms, including IHOP Corp.

     J. Brooke Johnston, Jr. has served as a director of the Company since March
1998.  Mr. Johnston is a partner of the law firm of Baker, Johnston & Wilson,
LLP, in Birmingham, Alabama.  He was Senior Vice President and General Counsel
for Med Partners, Birmingham, Alabama from April 1996 until July 1998.  Prior to
that, Mr. Johnston was a senior principal of the law firm of Haskell, Slaughter,
Young & Johnston, a professional association, in Birmingham, Alabama, where he
practiced securities law for over 17 years.  Mr. Johnston is also a director of
United Leisure.

Audit Committee

     The Company's Audit Committee consists of Steven T. Ousdahl and J. Brooke
Johnston, Jr.  There was one meeting of the Audit Committee in the year ended
September 24, 2000.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934 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 SEC 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 that no
reports on Form 4 were required, the Company believes that for the period
through September 24, 2000, all officers, directors and greater-than-10%
beneficial owners complied with all Section 16(a) filing requirements applicable
to them.

ITEM 10.  EXECUTIVE COMPENSATION.

     The following table sets forth all compensation received for services
rendered to Grand Havana in all capacities for the three fiscal years ended
September 24, 2000 by Grand Havana's Chief Executive Officer during fiscal 2000
and the most highly compensated executive officers at the end of fiscal 2000.

                          SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                       Annual Compensation
                                                                     --------------------------------

         All Other
Name and Principal Positions                                          Year             Salary/(1)/          Compensation/(2)/
----------------------------                                          ----             -----------          -----------------
<S>                                                                   <C>              <C>                  <C>
Harry Shuster/(3)/

 Chairman of the Board,                                               1999                     0                  15,638
 President, Chief Executive Officer and Chief                                          ---------               ---------
 Financial Officer                                                    1998                79,768                  22,832
                                                                                       ---------               ---------

Stanley Shuster/(4)/                                                  2000             $ 160,875               $   6,400
                                                                                       ---------               ---------
 Chairman of the Board,                                               1999               145,010                   6,000
 President, Chief Executive Officer, Chief                                             ---------               ---------
 Financial Officer and Executive Vice President                       1998               145,010                   6,000
                                                                                       ---------               ---------
</TABLE>

_____________________
     /(1)/  For the fiscal year ended September 27, 1998, includes $57,893
            deferred at the election of Harry Shuster. In addition, Harry
            Shuster waived payment of $229,174 under his consulting agreement
            for fiscal 1998, and $186,124 for fiscal 1999. See "Consulting and
            Employment Agreements" below.

     /(2)/  Includes (i) payments with respect to the apartment Harry Shuster
            used while in New York, 100% of which costs were paid by the Company
            for fiscal 1997 and 50% of which were paid by the Company for fiscal
            1998 and through May of fiscal 1999, and (ii) a $500 per month car
            allowance paid to Stanley Shuster for each of the three fiscal years
            ended September 26, 1999. Beginning June 2000 the car allowance paid
            to Stanley Shuster increased to $600 per month.

                                       13
<PAGE>

     /(3)/  Effective May 21, 1999, Harry Shuster resigned as a director and
            from all positions as an officer.

     /(4)/  Effective May 21, 1999, Stanley Shuster was appointed to serve as
            Chairman of the Board, Chief Executive Officer, President and Chief
            Financial Officer.

     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.
Consulting and Employment Agreements

     The Company and Harry Shuster, the former Chairman of the Board, President
and Chief Executive Officer and a director of the Company, entered into a
consulting agreement in  June  1993 (the "Consulting Agreement").  Mr. Shuster
waived payment of his fees under the Consulting Agreement for each of fiscal
year 1998 and fiscal year 1999. The Consulting Agreement was terminated
concurrently with Mr. Shuster's resignation as Chairman of the Board, Chief
Executive Officer, President and director.

     As reflected in the Company's filings on Form 10-QSB filed on August 9,
2000, the Company has entered into a three (3) year employment agreement with
Stanley Shuster.

Stock Options

     1996 Stock Option Plan

     The Company's 1996 Stock Option Plan (the "Option Plan") provides officers,
directors, key employees and other key contributors of the Company an
opportunity to purchase the Common Stock of the Company pursuant to "non-
qualified stock options" which may be granted at the discretion of the Board of
Directors.

     Under the Option 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 grant of the
option, (iii) the individual to whom, and the time or times at which, options
shall be granted, (iv) the number of shares to be subject to each option and (v)
when an option can be exercised and whether in whole or installments.

     At December 15, 2000, there were outstanding presently exercisable non-
qualified stock options to purchase an aggregate of 200,000 shares of the Common
Stock of the Company held by directors of the Company.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 15, 2000, (a) by each
person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (b) by each of the Company's Directors and executive
officers and (c) by all executive officers and Directors of the Company as a
group:


Name and Address                          Number of Shares       Percentage of
Beneficial Owner/(1)/                Beneficially Owned/(2)(3)/    of Class

---------------------                     ----------------         --------

Steven T. Ousdahl                                --                   --
J. Brooke Johnston, Jr.                      55,200/(4)/               *
Stanley Shuster                           5,749,876/(5)/           40.57
United Leisure Corporation                  966,666                 6.82
Harry Shuster                               920,133                 6.49
All executive officers                    5,805,076                40.95
and directors as a group (3 people)

                                       14
<PAGE>

______________
*    less than 1%

     /(1)/  Each person's address is c/o the Company, 1990 Westwood Boulevard,
            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 60 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 60 days from the date hereof, have been
            exercised.

     /(4)/  Includes options to purchase 50,000 shares of Common Stock.

     /(5)/  Includes stock options to purchase 100,000 shares of Common Stock.

ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Lease of Office Premises.  The Company entered into a five-year lease with
1990 Westwood Boulevard, Inc. ("Westwood") covering approximately 6,000 square
feet of office space for its principal executive offices.  The lease provided
for rent of $4,000 per month through January 31, 1998, and $4,400 per month
thereafter through the end of the term in January 2001.  The Company and
Westwood have agreed to amend the lease whereby monthly rent was reduced to
$3,200 and the lease term was extended through January 2014.  The principal
shareholder of Westwood is Harry Shuster, former Chairman of the Board,
President, Chief Executive Officer, Chief Financial Officer of the Company and
the father of Stanley Shuster, the present Chairman of the Board, President,
Chief Executive Officer, Chief Financial Officer, a director and principal
stockholder of the Company. The Company believes that the rent and other terms
of the lease are no more favorable to the lessor than could have been obtained
in a similar building in the same area from an unrelated lessor.

     Transactions With United Leisure. On September 30, 1998, in replacement of
a previous loan from United Leisure to the Company, United Leisure agreed to
make a new installment loan to the Company in the amount of up to $1,250,000,
for which the Company executed and delivered a secured promissory note (the
"Promissory Note"). United Leisure may from time to time, but is not obligated
to make, future advances under the Promissory Note up to an aggregate amount of
$1,250,000. The Promissory Note is secured by a first lien on the assets of the
Company.

     The initial loan advance under the Promissory Note was $607,154, which
represents the principal amount due under the previous note of $536,000,
together with accrued interest of $71,154.  The Promissory Note was due and
payable on March 31, 1999, which due date was extended first to September 30,
1999 and then to April 30, 2000. At September 24, 2000, the Company owed an
aggregate of $682,154 in principal to United Leisure. As of September 24, 2000,
the Promissory Note was due and payable on demand.

     As of December 15, 2000,  United Leisure held 966,666 shares of the
Company's Common Stock.

     Transactions With United Film.   In May 1997, the Company entered into a
financing agreement with United Film, whereby United Film agreed to provide
advances to the Company from time to time.  Interest on any amount advanced
bears interest at the prime rate plus 3%.  The full principal amount and all
accrued but unpaid interest on any amounts advanced is due and payable on

                                       15

<PAGE>

demand. At September 24, 2000, an aggregate of $507,000 had been advanced
under this financing agreement. Stanley Shuster, the current Chairman of the
Board, President, Chief Executive Officer, Chief Financial Officer, a director
and a principal stockholder of the Company is the brother of Brian Shuster, the
President of United Film.

     Other Transactions.

     On August 15, 1998, Harry Shuster, the former Chairman of the Board,
President, Chief Executive Officer, Chief Financial Officer and director of the
Company, agreed to loan the Company $300,000 pursuant to a promissory note
secured by a second position lien on the Company's assets, all of which remained
outstanding as of September 26, 1999.  The note was due and payable on March 31,
1999, which due date was extended first to September 30, 1999 and then to April
30, 2000. As of September 24, 2000, the note was due and payable on demand. In
addition to the sums due under this note, as of September 24, 2000, the Company
is indebted to Harry Shuster in the amount of $1,044,869 for advances made from
time to time by Harry Shuster to the Company.

     On August 23, 1999, Stanley Shuster, Chairman of the Board, President,
Chief Executive Officer, Chief Financial Officer and director of the Company,
agreed to loan $60,000 to the Company pursuant to a promissory note. The note is
due and payable on August 23, 2000. As of September 24, 2000, the Company is
indebted to Mr. Shuster in the amount of $65,500. In addition, as of September
24, 2000, the note was due and payable on demand.

Bank Leumi Line of Credit

     The Company has a $200,000 line of credit with Bank Leumi. Stanley Shuster,
the Company's President, is a guarantor of the Company's credit line and has
pledged certain personal assets to secure the obligation.


                                    PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)  Financial Statements.
          --------------------

     The audited consolidated financial statements of Grand Havana Enterprises,
Inc. and Subsidiaries filed as a part of this Annual Report on Form 10-KSB are
listed in the "Index to Consolidated Financial Statements" preceding the
Company's Consolidated Financial Statements, which directly follow this Part IV
of this Annual Report on Form 10-KSB, which "Index to Consolidated Financial
Statements" is hereby incorporated herein by reference.

     (b)  Exhibits.
          --------

     See index to exhibits

     (c)  Reports on Form 8-K.
          --------------------

     None.


     3.    EXHIBITS.



EXHIBIT
 NUMBER    DESCRIPTION
-------    -----------


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

                                       16
<PAGE>

 3.3      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 (the "1997 10-KSB").

 3.4      Certificate of Amendment to the Restated Certificate of Incorporation
          of Grand Havana (incorporated by reference to Exhibit 3.4 of Grand
          Havana's Annual Report on Form 10-KSB for the fiscal year ended
          September 28, 1997 (the "1997 10-KSB").

 4.1      Warrant Agreement entered into as of April 20, 1994 by and between
          Grand Havana and OTR, Inc. (incorporated by reference to Exhibit 4.1
          of Grand Havana's Annual Report on Form 10-KSB for the fiscal year
          ended September 30, 1994 (the "1994 10-KSB")).

 10.1     Consulting Agreement dated June 1, 1993 between Grand Havana and
          Harry Shuster incorporated by reference to Exhibit 10.38 of the SB-2).

 10.2     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).

 10.3     Village On Canon Lease dated July 1, 1994 between Pinkwood Properties
          Corp. and Grand Havana (incorporated by reference to Exhibit 10.37 of
          the 1994 10-KSB).

 10.4     Territory Rights Agreement dated August 22, 1994 between LEI and PT
          Transpacific Ekagraha (incorporated by reference to Exhibit 10.29 of
          the 1994 10-KSB).

 10.5     Lease Agreement dated December 1, 1994 between 1990 Westwood
          Boulevard, Inc. and Grand Havana (incorporated by reference to Exhibit
          10.32 of Grand Havana's Annual Report on Form 10-KSB for the fiscal
          year ended September 30, 1995).

 10.6     Agreement of Lease dated September 16, 1996 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")).

 10.7     Office Building Lease dated August 23, 1996 between Writ Limited
          Partnership and Grand Havana  (incorporated by reference to Exhibit
          10.39 of the Form S-3).

 10.8     Financing Agreement dated September 10, 1996 between United Leisure
          Corporation and Grand Havana (incorporated by reference to Exhibit
          10.40 of the Form S-3).

 10.9     Financing Agreement dated February 12, 1997 between United Leisure
          Corporation and Grand Havana (incorporated by reference to Exhibit
          10.15 of the 1997 10-KSB).

 10.10    Amendment No. 1 to Financing Agreement dated July 15, 1997 between
          United Leisure Corporation and Grand Havana (incorporated by reference
          to Exhibit 10.17 of the 1997 10-KSB).

 10.11    Amendment No. 1 to Financing Agreement dated September 30, 1997
          between United Leisure Corporation and Grand Havana (incorporated by
          reference to Exhibit 10.16 of the 1997 10-KSB).

 10.12    Financing Agreement dated May 1, 1997 between United Film
          Distributors, Inc. and Grand Havana incorporated by reference to
          Exhibit 10.18 of the 1997 10-KSB).

 10.13    1996 Stock Option Plan of Grand Havana (incorporated by reference to
          Exhibit 10.19 of the 1997 10-KSB).

                                       17
<PAGE>


 10.15    Secured Promissory Note dated August 15, 1998 between Grand Havana
          and Harry Shuster (incorporated by reference to Exhibit 10.1 of Grand
          Havana's Quarterly Report on Form 10-QSB for the period ended
          December 27, 1998 (the "December 27, 1998 10-QSB").

 10.16    Security Agreement dated August 15, 1998 between Grand Havana and
          Harry Shuster (incorporated by reference to Exhibit 10.2 the "December
          27, 1998 10-QSB").

 10.17    Secured Promissory Note dated September 30, 1998 between Grand Havana
          and United Leisure Corporation (incorporated by reference to Exhibit
          10.3 of the December 27, 1998 10-QSB).

 10.18    Security Agreement dated September 30, 1998 between Grand Havana and
          United Leisure (incorporated by reference to Exhibit 10.4 of the
          "December 27, 1998 10-QSB).

 10.19    Subordination Agreement dated November 30, 1998 between Grand Havana
          and Harry Shuster (incorporated by reference to Exhibit 10.5 of the
          December 27, 1998 10-QSB).

 10.20    Asset Purchase Agreement dated February 1, 1999 between Grand Havana
          and Thursdays Restaurant Group, LLC (incorporated by reference to
          Exhibit 10.1 of Grand Havana's Quarterly Report on Form 10-QSB for the
          period ended March 28, 1999 (the "March 28, 1999 10-QSB")).

 10.21    Option Agreement dated January 4, 1999 between Grand Havana and Alvin
          Cassel (incorporated by reference to Exhibit 10.2 of the March 28,
          1999 10-QSB).

 10.22    Option Agreement dated January 4, 1999 between Grand Havana and J.
          Brooke Johnston, Jr. (incorporated by reference to Exhibit 10.3 of the
          March 28, 1999 10-QSB).

 10.22    Settlement Agreement dated April 13, 1999 among Grand Havana, Harry
          Shuster, Stanley Shuster, Brian Shuster, Cowrie Holdings, Ltd., Strata
          Equities Limited, Sparta Capital Ltd., Baytree Capital Associates,
          LLP, Baytree Associates, Inc. and Michael Gardner (incorporated by
          reference to Exhibit 10.1 of Grand Havana's Quarterly Report on Form
          10-QSB for the period ended June 27, 1999).


 10.23    Employment Agreement between Grand Havana and Stanley Shuster dated
          June 1, 2000 (incorporated by reference to Exhibit 10.1 of Grand
          Havana's Quarterly Report on Form 10-QSB filed August 9, 2000).


 27.1      Financial Data Schedule.


      (b)     REPORTS ON FORM 8-K.

      None.

                                       18
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1943, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

     GRAND HAVANA ENTERPRISES, INC.


     By:    /s/ Stanley Shuster
            --------------------------------------------------
            Stanley Shuster
            President, Chief Executive Officer and Director

     Date:  December 22, 2000
            --------------------------------------------------

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



      SIGNATURE                                                TITLE
      ---------                                                -----

/s/ Stanley Shuster
------------------------------
  Stanley Shuster                      Chairman of the Board, President, Chief
                                 Executive Officer and Chief Financial Officer
                                  (Principal Financial and Accounting Officer)

/s/ Steven T. Ousdahl
------------------------------
Steven T. Ousdahl                                             Director


/s/ J. Brooke Johnston, Jr.
------------------------------
J. Brooke Johnston, Jr.                                       Director

                                       19
<PAGE>

                GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 26, 1999 AND SEPTEMBER 24, 2000

<TABLE>
<S>                                                                 <C>
Report of Independent Auditors                                      F-1

Consolidated Balance Sheets
 as of September 24, 2000 and September 26, 1999                    F-2

Consolidated Statements of Operations
 for the Years Ended September 24, 2000 and September 26, 1999      F-3

Consolidated Statements of Cash Flows
 for the Years Ended September 24, 2000 and September 26, 1999      F-4

Notes to Consolidated Financial Statements
 as of September 24, 2000 and September 26, 1999                    F-5
</TABLE>
<PAGE>

                        REPORT OF INDEPENDENT AUDITORS


     To 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 as of September 24, 2000 and
     September 26, 1999 and the related consolidated statements of operations,
     stockholders' equity, and cash flows for the years then ended. These
     financial statements are the responsibility of the Company's management.
     Our responsibility is to express an opinion on these financial statements
     based on our audits.

     We conducted our audits in accordance with generally accepted auditing
     standards of the United States of America. Those standards require that we
     plan and perform the audit to obtain reasonable assurance about whether the
     financial statements are free of material misstatements. 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 Subsidiaries at September 24, 2000 and
     September 26, 1999, and the results of operations and cash flows for the
     years then ended in conformity with generally accepted accounting
     principles of the United States of America.


                                   HOLLANDER, LUMER & CO. LLP



     Los Angeles, California
     December 18, 2000

                                      F-1
<PAGE>

                GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            September 24,   September 26,
                                                                                2000            1999
                                                                            -------------   -------------
<S>                                                                         <C>             <C>
                                ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                                 $     97,161    $     94,523
   Accounts receivable, net                                                        73,098          86,030
   Short-term note receivable                                                     115,000         115,000
   Inventories                                                                    395,545         435,999
   Prepaid expenses                                                               133,438         218,008
                                                                            -------------   -------------

      TOTAL CURRENT ASSETS                                                        814,242         949,560
                                                                            -------------   -------------

PROPERTY AND EQUIPMENT, net                                                     3,356,589       3,679,983

OTHER ASSETS
   Restricted cash                                                                895,729         875,000
   Due from related parties                                                       158,875         130,001
   Deposits and other assets                                                       51,666          63,730
                                                                            -------------   -------------

      TOTAL OTHER ASSETS                                                        1,106,270       1,068,731
                                                                            -------------   -------------

                                TOTAL                                        $  5,277,101    $  5,698,274
                                                                            =============   =============
                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Notes payable to related parties                                          $  1,554,654    $  1,549,154
   Bank overdraft                                                                 248,403          84,671
   Accounts payable                                                               854,631       1,029,301
   Accrued liabilities                                                            264,941         422,479
   Deferred revenues                                                              321,391         189,194
   Due to related parties                                                       1,679,915       1,397,648
   Deferred rent payable                                                          505,913         462,054
   Other current liabilities                                                       23,308               -
                                                                            -------------   -------------

      TOTAL CURRENT LIABILITIES                                                 5,453,156       5,134,501
                                                                            -------------   -------------

STOCKHOLDERS' EQUITY
  Preferred 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 -
    14,174,306 shares in 2000 and 1999                                            141,744         141,744
   Additional paid-in capital                                                  13,279,044      13,279,044
   Accumulated deficit                                                        (13,596,843)    (12,857,015)
                                                                            -------------   -------------

      TOTAL STOCKHOLDERS' EQUITY                                                 (176,055)        563,773
                                                                            -------------   -------------

                                TOTAL                                        $  5,277,101    $  5,698,274
                                                                            =============   =============
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                      F-2
<PAGE>

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

<TABLE>
<CAPTION>
                                                         September 24,   September 26,
                                                             2000             1999
                                                         -------------   -------------
<S>                                                      <C>             <C>
REVENUES
   Food and beverage                                     $  3,076,495    $  2,661,869
   Merchandise sales                                          614,975         652,527
   Membership fees                                          2,045,054       1,690,431
   Catering rental                                            583,388         525,549
                                                         -------------   -------------

      TOTAL REVENUES                                        6,319,912       5,530,376
                                                         -------------   -------------

COSTS AND EXPENSES
   Food and beverage                                        1,080,475         897,114
   Merchandise                                                359,477         440,055
   Operating expenses
      Direct labor and benefits                             2,119,612       1,843,055
      Occupancy and other                                   2,338,472       2,079,816
   General and administrative                                 492,576       1,233,344
   Depreciation and amortization                              454,157         507,871
                                                         -------------   -------------

      TOTAL COSTS AND EXPENSES                              6,844,769       7,001,255
                                                         ------------    ------------

INCOME (LOSS) BEFORE OTHER INCOME (EXPENSE)                  (524,857)     (1,470,879)

OTHER INCOME (EXPENSE)
   Interest income                                             49,327          25,293
   Interest expense                                          (225,972)       (205,817)
   Other, net                                                 (38,326)         48,557
                                                         ------------    ------------

TOTAL OTHER INCOME (EXPENSE)                                 (214,971)       (131,967)
                                                         ------------    ------------

LOSS BEFORE CUMULATIVE EFFECT OF                             (739,828)     (1,602,846)
     CHANGE IN ACCOUNTING PRINCIPLE

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
     PRINCIPLE                                                    --          (23,844)
                                                         ------------    ------------

NET LOSS                                                 $   (739,828)   $ (1,626,690)
                                                         ============    ============

WEIGHTED AVERAGE NUMBER OF
  COMMON SHARES OUTSTANDING                                14,174,306      14,174,306

BASIC AND DILUTED LOSS PER SHARE
Loss before cumulative change in accounting principle    $     (0.052)   $     (0.113)
   Cumulative effect of change in accounting principle            --           (0.002)
                                                         ------------    ------------

                                                         $     (0.052)   $     (0.115)
                                                         ============    ============
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                      F-3
<PAGE>

                GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   September 24,     September 26,
                                                                       2000              1999
                                                                   -------------     -------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss                                                        $  (739,828)      $(1,626,690)
   Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation and amortization                                    454,157           507,871
      Gain on sale of Washington D.C. operation                            --            (18,353)
      Amortization of deferred charges                                     --             67,106
      Conversion of accrued interest to notes payable                      --             71,154
      Changes in operating assets and liabilities:
         Accounts receivable                                            12,932            47,182
         Inventories                                                    40,454           227,956
         Prepaid expenses                                               84,570            (3,453)
         Pre-opening costs                                                 --             23,844
         Deposits and other assets                                         --             21,897
         Accounts payable and other accrued liabilities                (49,941)          359,334
         Deferred revenues                                             132,197            59,289
         Deferred rent payable                                          43,859           (97,424)
         Other current liabilities                                      23,308               --
                                                                   -----------       -----------

         NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES             1,708          (360,287)
                                                                   -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES                                  (130,763)         (293,955)
   Purchases of property and equipment
   Proceeds from sale of Washington D.C. operation                        --             110,000
   Due from related parties                                            (28,874)           15,736
   Deferred charges, deposits and other assets                          12,064              --
   Restricted cash                                                     (20,729)           62,057
                                                                   -----------       -----------

         NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES          (168,302)            8,838
                                                                   -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES
   Bank overdraft                                                      163,732            (4,412)
   Collection of note receivable                                          --              55,171
   Borrowings from related parties                                       5,500           414,869
                                                                   -----------       -----------

         NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES           169,232           350,628
                                                                   -----------       -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                     2,638              (821)

CASH AND CASH EQUIVALENTS, beginning of period                          94,523            95,344
                                                                   -----------       -----------

CASH AND CASH EQUIVALENTS, end of period                           $    97,161       $    94,523
                                                                   ===========       ===========

OTHER CASH INFORMATION

   Interest paid                                                   $    13,113       $     4,990
                                                                   ===========       ===========
   Interest received                                               $    46,234       $    25,293
                                                                   ===========       ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements

                                      F-4
<PAGE>

                GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   SEPTEMBER 24, 2000 AND SEPTEMBER 26, 1999

1.   BASIS OF PRESENTATION AND 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/restaurants 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.

     Principles of Consolidation: The consolidated financial statements include
     ---------------------------
     the accounts of Grand Havana Enterprises, Inc. and its wholly-owned
     subsidiaries. All significant intercompany transactions and balances have
     been eliminated in consolidation.

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

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

     Fair Value of Financial Instruments: The Company's financial instruments
     -----------------------------------
     consist of cash equivalents, trade accounts receivable, notes receivable,
     trade accounts payable and term loans. The fair value of the Company's
     financial instruments approximates the carrying value of the instruments.

     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.

     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 years
          Restaurant equipment                         2 to 8 years
          Other equipment                              3 to 15 years

     Property and equipment are reviewed for impairment whenever events or
     changes in circumstances indicate that the carrying amount may not be
     recoverable. An impairment loss should be recognized when the aggregate of
     estimated future cash inflows (less estimated future cash outflows) to be
     generated by an asset is less than the asset's carrying value. Future cash
     inflows include an estimate of the proceeds from eventual disposition. For
     purposes of this comparison, estimated future cash flows are determined
     without reference to their discounted present value. If the sum of
     undiscounted estimated future cash inflows is equal to or greater than the
     asset's carrying value, impairment does

                                      F-5
<PAGE>

     not exist. If, however, expected future cash inflows are less than carrying
     value, a loss on impairment should be recorded. Such a loss is measured as
     the excess of the asset's carrying value over its fair value. Fair value of
     an asset is the amount at which an asset could be bought or sold in a
     current transaction between a willing buyer and seller other than in a
     forced or liquidation sale. The Company measures an impairment loss by
     comparing the fair value of the asset to its carrying amount. Fair value of
     an asset is calculated as the present value of expected future cash flows.

     Stock-Based Compensation: Statement of Financial Accounting Standard
     ------------------------
     ("SFAS") No. 123, "Accounting for Stock-Based Compensation", encourages,
     but does not require, companies to record compensation cost for stock-based
     employee compensation plans at fair value. The Company has chosen to
     continue to account for stock-based compensation using the intrinsic value
     method as prescribed in Accounting Principles Board ("APB") Opinion No. 25,
     "Accounting for Stock Issued to Employees", and related Interpretations,
     under which no compensation cost related to stock options has been
     recognized as the exercise price of each option at the date of grant was
     equal to the fair value of the underlying common stock.

     Lease Commitment: Rent expense is recognized on a straight-line basis over
     ----------------
     the term of the lease.

     Earnings (Loss) per Share: The Company adopted SFAS No. 128 "Earnings per
     -------------------------
     Share" during its fiscal year ended September 27, 1998. SFAS No. 128
     requires the presentation of basic earnings per common share and diluted
     earnings per common share. A basic earnings per common share is computed by
     dividing income available to common stockholders by the weighted average
     number of common shares outstanding. A diluted earnings per common share
     includes the diluting effect of stock options and warrants using the
     treasury stock method. The Company had loss from continuing operations,
     and, as a result, basic and diluted loss per share is the same amount.

     Reclassifications: Portion of revenues from food and beverage for fiscal
     -----------------
     year ended September 26, 1999 has been reclassified to catering rental to
     conform to 2000 presentation.

     Recent Accounting Pronouncements: SFAS No. 131, "Disclosure about Segments
     --------------------------------
     of an Enterprise and Related Information", establishes standards for public
     business enterprises to report information about operating segments in
     annual financial statements and requires those enterprises to report
     selected information about operating segments in interim financial reports
     issued to stockholders. It also establishes the standards for related
     disclosures about products and services, geographic areas, and major
     customers. This statement requires a public business enterprise to report
     financial and descriptive information about its reportable operating
     segments. The financial information is required to be reported on the basis
     that is used internally for evaluating segment performance and deciding how
     to allocate resources to segments. Operating segments are components of an
     enterprise about which separate financial information is available that is
     evaluated regularly by the chief operating decision-maker in deciding how
     to allocate resources and in assessing performance. This statement is
     effective for financial statements for periods beginning after December 15,
     1997.

     Statement of Position ("SOP") No. 98-5 "Reporting on the Costs of Start-Up
     Activities" requires that costs of start-up activities, including
     organization costs, be expensed as incurred. This SOP is effective for
     financial statements for fiscal year beginning after December 15, 1998.
     Initial application of this SOP should be reported as the cumulative effect
     of a change in accounting principle as described in APB Opinion No. 20

                                      F-6
<PAGE>

     "Accounting Changes". Starting fiscal year 1999, the Company changed its
     accounting policy on Pre-Opening Costs upon adoption of this statement.
     Prior to fiscal year 1999, restaurant and cigar club pre-opening costs are
     deferred and charged to operations when the location is opened or the
     location plans are abandoned.


2.   DISCLOSURE OF CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES

     Significant Operating Losses: The Company has experienced operating losses
     ----------------------------
     since its inception. For the fiscal years ended September 24, 2000 and
     September 26, 1999, the Company experienced net losses of $739,828 and
     $1,626,690, respectively. The Company anticipates that it will continue to
     experience losses as it continues working on its ongoing development and
     reorganization plans, including the establishment of additional Grand
     Havana Rooms and Grand Havana House of Cigars. Even after the Company's
     development and reorganization plans are completed, there can be no
     assurance that the cigar clubs/restaurants owned by the Company will be
     profitable.

     Significant Capital Requirements: The Company's capital requirements have
     --------------------------------
     been and will continue to be significant. At September 24, 2000, the
     Company had cash and cash equivalents of $97,161 and a working capital
     deficit of $4,638,914. As a result of its expansion activities, the
     Company's working capital has continually been reduced. The Company will
     need additional financing, which the Company may raise through the private
     placements of its securities. There can be no assurance that additional
     financing will be available to the Company on acceptable terms, or at all.
     Effective the close of business on October 27, 1998, the NASDAQ Stock
     Market, Inc. delisted the Company's common stock from NASDAQ for failure to
     meet the minimum bid requirement. Since that time the Company's common
     stock has been quoted on the OTC Bulletin Board.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and satisfaction of
     liabilities in the normal course of business. The financial statements do
     not include any adjustments relating to the recoverability of the recorded
     assets or the classification of the liabilities that might be necessary
     should the Company be unable to continue as a going concern.

     California Smoke-Free Workplace Act of 1994: In 1994 the California
     -------------------------------------------
     legislature enacted the California Smoke-Free Workplace Act of 1994 which
     prohibits smoking in enclosed spaces at places of employment with certain
     exemptions. 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. Although the Company believes it is justified in relying on the
     "private smoker's lounge" exemption, if it should be determined in the
     future that the Company is not a "private smoker's lounge", but rather a
     restaurant or a bar to which the California Smoke-Free Workplace Act of
     1994 were applicable, this would have a material adverse effect on the
     Company's business, financial condition and results of operations.

3.   SEGMENT INFORMATION

     The Company is principally engaged in the operation of private membership
     cigar clubs/restaurants known as "Grand Havana Rooms" and retail cigar
     stores known as "Grand Havana House of Cigars". Currently, the Company owns
     and operates two Grand Havana Rooms, one in New York, New York and one in
     Beverly Hills, California. The Company also owns and operates two Grand
     Havana House of Cigars, one in New York, New York and one in Las Vegas,
     Nevada.

4.   PROPERTY AND EQUIPMENT

     Property and equipment is comprised of the following at September 24, 2000
     and September 26, 1999:

                                                        2000            1999
                                                        ----            ----
     Leashold improvements                           $ 4,004,481    $ 3,962,751
     Restaurant equipment                                969,375        911,880

                                      F-7
<PAGE>

     Office equipment                                    212,089        179,299
     Signage                                               1,870          4,794
                                                     -----------    -----------
                                                       5,187,815      5,058,724
     Less: accumulated depreciation                   (1,831,226)    (1,378,741)
                                                     -----------    -----------
                                                     $ 3,356,589    $ 3,679,983
                                                     ===========    ===========

     The depreciation expense charged to operation for the years ended September
     24, 2000 and September 26, 1999 were $454,157 and $507,871, respectively.

5.   INCOME TAXES

     At September 24, 2000, the Company had approximate net operating loss
     carryforwards for federal tax purposes expiring as follows (in millions):

               Year Expires                                 Amount
               ------------                                 ------
                   2009                                     $    1
                   2010                                          2
                   2011                                          1
                   2012                                          3
                   2013                                          3
                   2014                                          2
                                                            ------
                                                            $   12
                                                            ======

     The Company had provided 100% allowance on all of its deferred income taxes
     benefits.

6.   COMMITMENTS AND CONTINGENCIES

     Employment Agreement: In June 2000, the Company entered into an Employment
     --------------------
     agreement with Stanley Shuster pursuant to which Stanley Shuster has agreed
     to continue to serve as President, Chief Executive Officer and Chief
     Financial Officer of the Company for an initial term of three (3) years,
     which agreement shall be renewed automatically thereafter for additional
     terms of one year each. Pursuant to this agreement, Stanley Shuster is to
     receive minimum compensation of $185,000 per annum and an automobile lease
     allowance of $600 per month. In May 1999, Stanley Shuster effectively
     became President of Grand Havana upon the resignation of Harry Shuster, his
     father.

                                      F-8
<PAGE>

     Operating Leases: The Company leases restaurant, club and corporate
     ----------------
     facilities under operating leases with original terms ranging from 10 to 25
     years. The lease obligations include provisions requiring the payment of
     property taxes, insurance, repairs and maintenance, and generally contain
     renewal options and call for contingency rentals based on percentages of
     sales. Restaurant facilities subleased to franchisees are subleased under
     similar terms to the lease the Company has with the lessor.

     Minimum lease payments required under noncancelable leases and subleases,
     respectively, at September 24, 2000 are as follows:

             Fiscal Year Ending                          Amount
             ------------------                          ------
                   2001                                $ 1,043,989
                   2002                                  1,118,478
                   2003                                  1,127,337
                   2004                                  1,137,486
                   2005                                    843,238
                Thereafter                               5,089,896
                                                       -----------
                                                       $10,360,424
                                                       ===========

     Rent expense was $1,093,774 in 2000 and $990,125 in 1999. At September 24,
     2000, the Company had $832,845 in 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. This deposit exceeds federally
     insured limits. At September 24, 2000, the Company had $62,883 in
     certificate of deposit to guarantee the lease of its Grand Havana Room in
     Beverly Hills.

7.   STOCKHOLDERS' EQUITY

     Stock Options: During fiscal year ended September 28, 1997, the Company
     -------------
     adopted the 1996 Stock Option Plan (the "Plan") to provide to officers,
     directors, key employees and other key contributors to the Company an
     opportunity to purchase the 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 grant of the option, (iii) the individual to whom, and the time or
     times at which, options shall be granted, (iv) the number of shares to be
     subject to each option and (v) when an option can be exercised and whether
     in whole or installments.

                                      F-9
<PAGE>

     The following table summarizes information concerning outstanding and
     exercisable options:

                                                                   Weighted
                                                    Number         Average
                                                      of           Exercise
                                                    Options         Price
                                                    --------       --------

     Options Outstanding at September 28, 1998       125,000       $   1.40
     Granted                                         100,000           0.40
     Exercised                                             -              -
     Canceled                                              -              -
                                                    --------       --------
     Options Outstanding at September 26, 1999       225,000           0.80

     Granted                                               -              -
     Exercised                                             -              -
     Canceled                                        (25,000)          3.00
                                                    --------       --------

     Options Outstanding at September 25, 2000       200,000           0.52
                                                    ========       ========

     At September 24, 2000, all outstanding stock options were exercisable at
     exercise price ranging from $.04 to $1.00. The average remaining
     contractual life of the outstanding stock options at September 24, 2000 was
     2.7 years.

8.   RELATED PARTY TRANSACTIONS

     The Company entered into a five-year lease with 1990 Westwood Boulevard,
     Inc. ("Westwood") covering approximately 6,000 square feet of office space
     for its principal executive offices. The lease provided for rent of $4,000
     per month through January 31, 1998, and $4,400 per month thereafter through
     the end of the term in January 2001. The Company and Westwood have agreed
     to amend the lease whereby monthly rent, effective January 2000, was
     reduced to $3,200 and the lease term was extended through January 2014. The
     principal shareholder of Westwood is Harry Shuster, former Chairman of the
     Board, President, Chief Executive Officer, Chief Financial Officer of the
     Company and the father of Stanley Shuster, the present Chairman of the
     Board, President, Chief Executive Officer, Chief Financial Officer, a
     director and principal stockholder of the Company.

     Notes Payable to Related Parties: Notes payable to related parties at
     --------------------------------
     September 24, 2000 and September 26, 1999 consisted of principal amounts
     due to the following:

                                             2000                   1999
                                          ----------             ----------
     Harry Shuster                        $  300,000             $  300,000
     United Leisure Corporation              682,154                682,154
     United Film Distributors, Inc.          507,000                507,000
     Stanley Shuster                          65,500                 60,000
                                          ----------             ----------
                                          $1,554,654             $1,549,154
                                          ==========             ==========

     The Promissory Note to Harry Shuster is secured by a lien in substantially
     all assets of the Company. The Promissory Note bears interest at 10% per
     annum and is due and payable upon demand. This loan has been subordinated
     to the payable to United Leisure Corporation.

                                      F-10
<PAGE>

United Leisure: On September 30, 1998, the Company executed a Secured Promissory
--------------
Note dated September 30, 1998 with its affiliate, United Leisure Corporation
(the "Promissory Note") in replacement of the previous note to United Leisure.
The Promissory Note bears interest at 8% per annum and is due and payable in
full on demand. The Promissory Note is secured by a first lien in substantially
all assets of the Company. The initial loan advance under the Promissory Note on
September 30, 1998 was $607,154, which represents the principal amount due under
the previous note of $536,000, together with accrued interest of $71,154. On
March 1999, the Company borrowed additional $75,000. United Leisure may from
time to time, but is not obligated, to make future advances under the Promissory
Note up to a total mount of $1,250,000. Grand Havana issued a total of 100,000
shares of its common stock to United Leisure in return for extending this loan
facility.

                                      F-11
<PAGE>

     As of September 24, 2000, United Leisure owned 966,666 shares of the
     Company's common stock.

     United Film: In May 1997 the Company entered into a financing agreement
     -----------
     with United Film Distributors, Inc., an affiliate of the Company ("United
     Film"), whereby United Film agreed to provide advances to the Company from
     time to time. Interest on any amount advanced bears interest at the rate of
     prime plus 3% (11% at September 24, 2000). The full principal amount and
     all accrued but unpaid interest on any amounts advanced is due and payable
     on demand. Brian Shuster, the Brother of Stanley Shuster, is the President
     of United Film.

     Due from Related Parties: Due from related parties at September 24, 2000
     ------------------------
     and September 26, 1999 consisted of the following:

                                                 2000            1999
                                               --------        --------
     Harry Shuster                             $ 48,616        $ 48,000
     United Leisure Corporation                  96,576          67,384
     Hit Entertainment                            4,074           4,063
     United Film Distributors, Inc.               6,032           5,990
     1990 Westwood Blvd, Inc.                     3,526           4,564
     Medical Monitors                                51               -
                                               --------        --------
                                               $158,875        $130,001
                                               ========        ========

     Due To Related Parties: Due to related parties at September 24, 2000 and
     ----------------------
     September 26, 1999 consisted of the following:

                                                          2000         1999
                                                       ----------   ----------
     Advances from Harry Shuster                       $  744,869   $  744,869
     Accrued health insurance premiums and
      interest expense to United Leisure                  142,903       50,615
     Accrued interest expense to United Film              183,484      127,867
     Accrued consulting fees and interest expense to
      Harry Shuster                                       482,339      372,928
     Accrued rent to 1990 Westwood Blvd                   126,320      101,369
                                                       ----------   ----------
                                                       $1,679,915   $1,397,648
                                                       ==========   ==========

     Advances from Harry Shuster represents unsecured loans. The loans bear
     interest at 10.5% per annum (prime rate plus 2%) and is due and payable on
     demand.

     Bank Leumi Line of Credit: The Company has a $200,000 line of credit
     -------------------------
     with Bank Leumi. Stanley Shuster, the Company's President, is a guarantor
     of the Company's credit line and has pledged certain personal assets to
     secure the obligation.

9.   LEGAL PROCEEDINGS

     On August 25, 2000, the Company filed a lawsuit in the Superior Court of
     the District of Columbia against Thursdays Restaurant Group, L.L.C. after
     Thursdays failed to timely pay the principal in the amount of $115,000 plus
     accrued interest on a promissory note. Thursdays issued the promissory note
     to the Company in connection with the sale of the Company's Washington D.C.
     operations to Thursdays. The Superior Court entered an Order of Default on
     October 5, 2000. On November 17, 2000, the Company filed a Request for
     Default Judgment requesting that judgment be entered in the amount of
     $131,617.50, plus accrued interest at the rate of 9% per annum from August
     20, 2000.

                                      F-12