SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB

(Mark One)

[x]  Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the quarterly period ended June 28, 1998; or

[ ]  Transition  report  pursuant  to section  13 or 15(d) of the  Securities
     Exchange Act of 1934 for the transition period from  __________________  to
     ___________________ .

                         Commission File Number 0-24828

                         GRAND HAVANA ENTERPRISES, INC.
             (Exact Name of Registrant as Specified in its Charter)

           Delaware                                            95-4428370
  (State or Other Jurisdiction of                           (I.R.S. Employer
  Incorporation or Organization)                            Identification No.)

1990 WESTWOOD BOULEVARD, LOS ANGELES, CALIFORNIA                 90025
   (Address of Principal Executive Offices)                    (Zip Code)


                                  310/475-5600
              (Registrant's Telephone Number, Including Area Code)

Check  whether  the  Issuer  (1) filed all  reports to be filed by Section 13 or
15(d)  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 at least the past 90 days.

                 YES    [X]               NO       [ ]

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.


                Class                           Outstanding at August 10, 1998
         ---------------------                  ------------------------------
          Common Stock, par                            14,174,306 shares
         value $.01 per share


Transitional Small Business Disclosure Format (check one):

                 YES    [ ]               NO       [X]


<PAGE>



PART I   FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements (unaudited)


<TABLE>
<CAPTION>
                 GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS

                                                                                   June 28,      September 28,
                                                                                     1998            1997
                                                                                 ------------    ------------
                                                                                 (Unaudited)

                                     ASSETS
<S>                                                                                  <C>           <C>      
CURRENT ASSETS
     Cash and cash equivalents                                                   $     5,064     $   879,461
     Accounts receivable, net                                                        289,309          56,924
     Current portion of note receivable                                               16,697          24,829
     Subscriptions receivable                                                              -       1,288,950
     Inventories                                                                     633,913         786,168
     Prepaid expenses                                                                365,905         206,685
     Net assets of discontinued operations                                             2,706         237,143
                                                                                 ------------     ----------
            TOTAL CURRENT ASSETS                                                   1,313,594       3,480,160

PROPERTY AND EQUIPMENT, Net                                                        4,595,764       4,458,734

OTHER ASSETS
     Restricted cash                                                                 935,000         118,596
     Note receivable, net of current portion                                          55,171          55,171
     Pre-opening costs                                                                 5,447           6,895
     Due from related parties                                                         48,000          78,032
     Deferred charges                                                                 89,472         205,596
     Deposits and other assets                                                       118,827          95,650
                                                                                 ------------    ------------
            TOTAL OTHER ASSETS                                                     1,251,917         559,940
                                                                                 ------------    ------------
                                                                                 $ 7,161,275     $ 8,498,834
                                                                                 ============    ============
</TABLE>

     See accompanying notes to consolidated condensed financial statements.


<PAGE>

                 GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED

<TABLE>
<CAPTION>
                                                                                     June 28,      September 28,
                                                                                      1998             1997
                                                                                  -------------    -------------
                                                                                  (Unaudited)

                      LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                                   <C>                   <C>
CURRENT LIABILITIES
     Notes payable to related parties                                              $  1,027,000    $  1,482,000
     Accounts payable                                                                 1,418,076       1,054,547
     Accrued liabilities                                                                116,450         203,942
     Deferred revenues                                                                   73,845          57,026
     Due to related parties                                                             628,431         420,599
     Deferred rent payable                                                              541,760         488,606
     Accrued costs of discontinued operations                                              --           200,000
                                                                                   ------------    ------------
            TOTAL CURRENT LIABILITIES                                                 3,805,562       3,906,720

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 at                           141,744         117,994
        June 28, 1998 and 11,799,306 at September 28, 1997
     Additional paid-in capital                                                      13,279,044      12,684,723
     Accumulated deficit                                                            (10,065,075)     (8,210,603)
                                                                                   ------------    ------------
            TOTAL STOCKHOLDERS' EQUITY                                                3,355,713       4,592,114
                                                                                   ------------    ------------
                                                                                   $  7,161,275    $  8,498,834
                                                                                   ============    ============
</TABLE>

     See accompanying notes to consolidated condensed financial statements.


<PAGE>


<TABLE>
<CAPTION>
                 GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

                                                       Three Months Ended              Nine Months Ended
                                               ------------------------------   ------------------------------
                                                 June 28,          June 29,       June 28,        June 29,
                                                   1998              1997          1998             1997
                                               -------------    -------------   ------------     -------------
                                               (Unaudited)       (Unaudited)    (Unaudited)      (Unaudited)
<S>                                             <C>             <C>             <C>             <C>         
REVENUES
     Food and beverage                          $    650,997    $    739,211    $  2,275,614    $  2,055,359
     Merchandise sales                               219,423         117,716         644,506         253,513
     Initial territorial fees                           --           600,000            --           600,000
     Membership fees
         Initial                                     111,500         282,333         348,500         395,833
         Monthly                                     331,344         181,842         839,664         428,809
     Other                                            15,572          23,156         217,539          43,224
                                                ------------    ------------    ------------    ------------
            TOTAL REVENUES                         1,328,836       1,944,258       4,325,823       3,776,738

COSTS AND EXPENSES
     Food and beverage                               226,117         297,381         931,802         745,135
     Merchandise                                     123,956          82,375         342,029         159,381
     Operating expenses
         Direct labor                                511,985         625,907       1,769,827       1,405,845
         Occupancy and other                         560,000         391,328       2,129,693         777,803
     Pre-opening expenses                              7,224         166,550           7,224         241,550
     General and administrative                      285,777         334,790         569,344         792,509
     Depreciation and amortization                   101,761         103,323         296,434         206,161
                                                ------------    ------------    ------------    ------------
            TOTAL COSTS AND EXPENSES               1,816,820       2,001,654       6,046,353       4,328,384
                                                ------------    ------------    ------------    ------------

LOSS BEFORE OTHER INCOME (EXPENSE)                  (487,984)        (57,396)     (1,720,530)       (551,646)

OTHER INCOME (EXPENSE)
     Interest income                                     895           5,082           2,428          11,382
     Interest expense                                (44,152)       (107,309)       (136,370)       (143,867)
     Other income, net                                  --            72,909            --            76,964
                                                ------------    ------------    ------------    ------------
            TOTAL OTHER INCOME (EXPENSE)             (43,257)        (29,318)       (133,942)        (55,521)
                                                ------------    ------------    ------------    ------------

LOSS FROM CONTINUING OPERATIONS                     (531,241)        (86,714)     (1,854,472)       (607,167)

DISCONTINUED OPERATIONS
     Loss from operations                               --              --              --           (94,809)
     Estimated gain (loss) on disposal                  --           286,942            --          (587,306)
                                                ------------    ------------    ------------    ------------
            LOSS FROM DISCONTINUED OPERATIONS           --           286,942            --          (682,115)
                                                ------------    ------------    ------------    ------------

NET INCOME (LOSS)                               $   (531,241)   $    200,228    $ (1,854,472)   $ (1,289,282)
                                                ============    ============    ============    ============

WEIGHTED AVERAGE NUMBER OF COMMON
     SHARES OUTSTANDING                           14,174,306       8,356,461      12,501,306       7,791,131
                                                ============    ============    ============    ============

BASIC AND DILUTED LOSS PER SHARE
     Loss from continuing operations            $      (0.04)   $      (0.01)   $      (0.15)   $      (0.08)
     Loss from discontinued operations                  --              --              --             (0.01)
     Estimated gain (loss) on disposal                  --              0.03            --             (0.08)
                                                ------------    ------------    ------------    ------------
                                                $      (0.04)   $       0.02    $      (0.15)   $      (0.17)
                                                ============    ============    ============    ============

</TABLE>

     See accompanying notes to consolidated condensed financial statements.


<PAGE>

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

<TABLE>
<CAPTION>
                                                                                           Nine Months Ended        
                                                                                ---------------------------------   
                                                                                    June 28,         June 29,       
                                                                                      1998             1997         
                                                                                --------------   ----------------   
                                                                                  (Unaudited)       (Unaudited)     
<S>                                                                               <C>            <C>                
CASH FLOWS FROM OPERATING ACTIVITIES                                                                                
     Net income (loss)                                                            $(1,854,472)   $(1,289,282)       
     Adjustments to reconcile net loss to net cash used                                                             
          in operating activities:                                                                                  
              Depreciation and amortization                                           296,434        206,161        
              Common stock issued for services and fees                                99,681           --          
              Changes in operating assets and liabilities:                                                          
                  Accounts receivable                                                (232,385)       (74,284)       
                  Inventories                                                         152,255       (525,682)       
                  Prepaid expenses                                                   (159,220)       137,919        
                  Pre-opening costs                                                     1,448           --          
                  Net assets of discontinued operations                               234,437       (359,924)       
                  Deposits and other                                                   92,947       (131,173)       
                  Accounts payable and accrued liabilities                            276,037        652,630        
                  Accrued costs of discontinued operations                           (200,000)          --          
                  Deferred revenues                                                    16,819         71,085        
                  Deferred rent payable                                                53,154        584,967        
                                                                                  -----------    -----------        
                  NET CASH USED IN OPERATING ACTIVITIES                            (1,222,865)      (727,583)       
                                                                                  -----------    -----------        
                                                                                                                    
CASH FLOWS FROM INVESTING ACTIVITIES                                                                                
     Purchases of property and equipment                                             (433,464)    (3,435,471)       
     Due from related parties                                                          30,032           --          
     Collection of note receivable                                                      8,132           --          
     Restricted cash                                                                 (816,404)          --          
                                                                                  -----------    -----------        
                  NET CASH USED IN INVESTING ACTIVITIES                            (1,211,704)    (3,435,471)       
                                                                                  -----------    -----------        
                                                                                                                    
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                
     Principal reductions of notes payable                                           (455,000)      (172,571)       
     Due to related parties                                                           207,832      1,112,542        
     Collections of subscriptions receivable                                        1,288,950           --          
     Sale of common stock                                                             518,390      2,440,550        
                                                                                  -----------    -----------        
                  NET CASH PROVIDED BY FINANCING ACTIVITIES                         1,560,172      3,380,521        
                                                                                  -----------    -----------        
                                                                                                                    
NET DECREASE IN CASH AND CASH EQUIVALENTS                                            (874,397)      (782,533)       
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                        879,461      1,010,062        
                                                                                  -----------    -----------        
CASH AND CASH EQUIVALENTS, END OF PERIOD                                          $     5,064    $   227,529        
                                                                                  ===========    ===========        
</TABLE>

     See accompanying notes to consolidated condensed financial statements.

<PAGE>



                 GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BASIS OF PRESENTATION

     The interim consolidated  financial statements presented have been prepared
     by Grand Havana Enterprises, Inc. (the "Company") without audit and, in the
     opinion of the management,  reflect all  adjustments of a normal  recurring
     nature  necessary for a fair statement of (a) the  consolidated  results of
     operations  for the three and nine months  ended June 28, 1998 and June 29,
     1997, (b) the consolidated  financial position at June 28, 1998 and (c) the
     consolidated  cash flows for the nine  months  ended June 28, 1998 and June
     29, 1997.  Interim results are not necessarily  indicative of results for a
     full year.

     The consolidated  balance sheet presented as of September 28, 1997 has been
     derived from the consolidated  financial  statements that have been audited
     by the Company's independent public accountants. The consolidated financial
     statements  and notes are  condensed as permitted by Form 10-QSB and do not
     contain certain information included in the annual financial statements and
     notes of the  Company.  The  consolidated  financial  statements  and notes
     included herein should be read in conjunction with the financial statements
     and notes included in the Company's Annual Report on Form 10-KSB.


<PAGE>



Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The following  discussion  should be read in conjunction with the Company's
consolidated  financial  statements and the notes thereto appearing elsewhere in
this Quarterly Report on Form 10-QSB.  Certain statements  contained herein that
are  not  related  to  historical  results,   including,   without  limitations,
statements  regarding the Company's  business  strategy and  objectives,  future
financial position and estimated cost savings,  are  forward-looking  statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities  Act") and Section 21E of the  Securities  Exchange  Act, as amended
(the "Exchange Act"), and involve risks and uncertainties.  Although the Company
believes that the  assumptions  on which these  forward-looking  statements  are
based are reasonable, there can be no assurance that such assumptions will prove
to be accurate and actual results could differ  materially  form those discussed
in the  forward-looking  statements.  Factors that could cause or  contribute to
such  differences  include,  but are not  limited  to,  risks and  uncertainties
associated  with  the  ability  to  obtain  adequate  working  capital  on terms
favorable to the Company, the costs of the development of new Grand Havana Rooms
and  Grand  Havana  House  of  Cigars  locations,   compliance  with  regulatory
requirements,  the Company's ability to sell  significantly  more memberships at
its Washington,  D.C.  location,  a decline in public  consumption of cigars and
other  tobacco  products,  significant  increases  in excise  taxes  which could
substantially  increase the price of cigars and general  economic  factors.  All
forward-looking statements contained in this Quarterly Report on Form 10-QSB are
qualified in their entirety by this statement.

OVERVIEW

     The Company is engaged in the  business  of the  ownership,  operation  and
development of private  membership  cigar clubs and restaurants  known as "Grand
Havana  Rooms" and the  ownership,  operation  and  development  of retail cigar
stores  known as "Grand  Havana House of Cigars."  Unless the context  otherwise
indicates,   the  "Company"  means  Grand  Havana  Enterprises,   Inc.  and  its
consolidated subsidiaries.

     The Company  currently owns and operates  three Grand Havana Rooms,  one in
Beverly Hills, California,  which opened in June 1995; one in Washington,  D.C.,
which opened in March 1997; and one in New York,  New York,  which opened in May
1997. In addition,  the Company  currently  owns and operates three Grand Havana
House of


<PAGE>



Cigar  locations,  one in Beverly  Hills,  California,  which opened in December
1997; one in Washington, D.C., which opened in March 1997; and one in Las Vegas,
Nevada,  which opened in November  1997. As its principal  business  focus,  the
Company intends to continue the operation of its existing Grand Havana Rooms and
Grand Havana House of Cigar locations, and develop additional Grand Havana Rooms
and Grand Havana House of Cigar  locations in other selected major cities in the
United States.

     Management  of the  Company  expects  that for the  foreseeable  future the
Washington,  D.C.  Grand Havana Room will  continue to operate at a  substantial
loss and that  during the period the  Company is working on the  development  of
additional  Grand Havana Rooms and Grand  Havana House of Cigar  locations,  the
Company will continue to experience consolidated losses until such time as there
are  enough  profitable  Grand  Havana  Rooms  and Grand  Havana  House of Cigar
locations  developed to absorb the  increased  expenses and  overhead.  However,
there can be no assurance  that  additional  Grand Havana Rooms and Grand Havana
House of Cigar  locations  will be  opened  or,  if  opened,  that  they will be
profitable. The Company has experienced operating losses since its inception.

     During  the  fiscal  quarter  ended  March 29,  1998,  the  Company  ceased
operations of its On Canon  restaurant in Beverly Hills,  California,  and is in
the process of converting the restaurant  space,  which is located on the ground
floor below the Company's  Beverly Hills Grand Havana Room, into an expansion of
that Grand Havana Room. As a result of this additional capacity, the Company has
reopened the membership  list at the Beverly Hills Grand Havana Room,  which was
fully subscribed, and has begun to accept names off the waiting list.

     The  Company  was  incorporated  under the laws of the State of Delaware on
April 13, 1993. The Company was originally formed in order to acquire all of the
capital  stock of Love's  Enterprises,  Inc.  ("Love's"),  which company was the
franchisor,  owner and  operator  of the  Love's  restaurant  chain.  Love's was
acquired  by the  Company  in May  1993.  In  December  1996,  due to less  than
anticipated  operating  results from the Love's  restaurant  chain,  the Company
adopted a plan of discontinuance with respect thereto.

     In  furtherance  and complete  implementation  of such plan,  the following
transactions  took place. The Company's  wholly-owned  subsidiary,  Love's,  and
Custom Food Concepts, Inc. ("Concepts") entered into an agreement dated February
24, 1998,  pursuant to which Love's agreed to sell the assets of the Love's Wood
Pit  Barbecue  Restaurant  in  Lakewood,  California  and assign  its  leasehold
interest in the premises,  for a total  purchase price of $18,000 (the "Lakewood
Agreement"). The sale of the property closed on July 30, 1998.

     Love's and Custom Food Franchise Group,  Inc.  ("Franchise  Group") entered
into an agreement dated February 24, 1998, pursuant


<PAGE>



to which Love's (i) sold its rights as franchisor  of the remaining  Love's Wood
Pit  Barbecue  restaurants  operating  in the  United  States,  and its  related
leasehold  interests;  (ii)  granted an option to  Franchise  Group to franchise
Love's Wood Pit  Barbecue  restaurants  in Canada and Mexico,  said option to be
exercisable until February 23, 2001 (the "Franchise Option"); and (iii) assigned
to Franchise Group intellectual  property rights in the United States associated
with Love's Wood Pit Barbecue restaurants,  including trademarks, service marks,
logos,  slogans  and  designs,  for a total  purchase  price  of  $117,000  (the
"Franchise  Agreement").  This  transaction  has also closed.  If the  Franchise
Option is  exercised,  Franchise  Group will pay Love's  the  additional  sum of
$10,000.

     The Company  guaranteed  certain of Love's  undisclosed  obligations  as of
February  24, 1998 with  respect to the  foregoing  transactions,  for which the
Company was paid $50,000.  The Company's  maximum liability under said guarantee
is $185,000.


RESULTS OF  OPERATIONS  - THREE  MONTHS  ENDED JUNE 28,  1998  COMPARED TO THREE
MONTHS ENDED JUNE 29, 1997

     The  Company  derives  revenues  from  continuing   operations  from  three
principal  sources:  food and beverage sales,  merchandise  sales and membership
fees. During the fiscal quarter ended June 28, 1998, the Company had revenues of
$1,328,836  compared to revenues of $1,944,258 for the fiscal quarter ended June
29,  1997,  a decrease of  $615,422 or  approximately  31.7%.  This  decrease in
revenues  is  primarily  due to the fact that a  one-time  licensing  fee in the
amount of $600,000  relating to territorial  rights for nine Asian countries was
earned in the fiscal  quarter ended June 29, 1997.  Of this amount,  the Company
established a reserve of $300,000 on its balance sheet at September 28, 1997, as
a result of the  then-developing  Asian financial  crisis.  Because of continued
deteriorating  financial  conditions  in Asia,  the Company does not now believe
that it will receive the second  $300,000  payment with respect to this one-time
licensing fee.

     The   operations  of  Love's  was   discontinued   in  December  1996  and,
accordingly,  its results of  operations  for the fiscal  quarter ended June 29,
1997 are shown under "Discontinued  Operations" in the accompanying statement of
operations.

     Revenue  from food and  beverage  decreased  from  $739,211  in the  fiscal
quarter  ended June 29, 1997 to $650,997  in the fiscal  quarter  ended June 28,
1998, a decrease of $88,214 or approximately  11.9%.  This decrease is primarily
attributable  to the  fact  that  the  Company's  On  Canon  Restaurant  was not
operating  during  the  fiscal  quarter  ended  June 28,  1998,  whereas  it was
operational  during the fiscal quarter ended June 29, 1997. The decrease in food
and beverage  revenue  would have been greater but for the fact that the Company
had three Grand Havana Rooms  operational  in the fiscal  quarter ended June 28,
1998 compared to two Grand Havana Rooms

<PAGE>



operational during the full fiscal quarter ended June 29, 1997.

     Revenue  from  merchandise  sales  increased  from  $117,716  in the fiscal
quarter  ended June 29, 1997 to $219,423  in the fiscal  quarter  ended June 28,
1998, an increase of $101,707 or  approximately  86.4%.  This increase is due to
the fact  that the  Company  had one  Grand  Havana  House  of  Cigars  location
operational  during the full fiscal  quarter  ended June 29,  1997,  compared to
three Grand Havana House of Cigar locations being operational  during the fiscal
quarter ended June 28, 1998.

     Monthly membership fees increased from $181,842 in the fiscal quarter ended
June 29, 1997 to $331,344 in the fiscal quarter ended June 28, 1998, an increase
of  $149,502  or  approximately  82.2%.  Conversely,   initial  membership  fees
decreased from $282,333 in the fiscal quarter ended June 29, 1997 to $111,500 in
the fiscal quarter ended June 28, 1998, a decrease of $170,833 or  approximately
60.5%.  This  primarily  reflects the fact that with all three of the  Company's
Grand Havana Rooms now having been open for more than one year,  the  allocation
of membership  fees has shifted from initial  membership  fees earned during the
clubs'  opening  periods to monthly  membership  fees earned  during a period of
regular operations at these clubs.

     During the fiscal quarter ended June 28, 1998,  the Company  incurred total
costs and expenses of $1,816,820  compared to $2,001,654  for the fiscal quarter
ended June 29,  1997,  a decrease  of  $184,834  or  approximately  10.1%.  This
decrease is primarily  due to decreases in  pre-opening  expenses,  direct labor
costs, food and beverage costs, and general and administrative expenses,  offset
in part by increases in occupancy  and  merchandise  costs.  These factors arose
chiefly as a result of there  being one Grand  Havana  House of Cigars  location
operational  during the full fiscal  quarter  ended June 29,  1997,  compared to
there being three Grand Havana House of Cigar locations  operational  during the
fiscal quarter ended June 28, 1998.

     The Company  experienced  a net loss of ($531,241)  for the fiscal  quarter
ended June 28, 1998  compared to net income of $200,228  for the fiscal  quarter
ended June 29, 1997, an increase in loss of ($731,469)  or  approximately  365%.
Net income for the fiscal quarter ended June 29, 1997 included estimated gain on
disposal  of  certain  Love's  assets  of  $286,942.  The  Company's  loss  from
continuing  operations increased from ($86,714) in the fiscal quarter ended June
29, 1997 to ($531,241) in the fiscal quarter ended June 28, 1998, an increase in
loss from continuing operations of $444,527 or approximately 512%. This increase
in loss was due primarily to the fact that during the fiscal  quarter ended June
29, 1997 there was revenue from licensing of $600,000,  and there was no revenue
from licensing in the fiscal quarter ended June 28, 1998.


RESULTS OF  OPERATIONS - NINE MONTHS ENDED JUNE 28, 1998 COMPARED TO NINE MONTHS
ENDED JUNE 29, 1997


<PAGE>



     During the nine-month  period ended June 28, 1998, the Company had revenues
of $4,325,823 compared to revenues of $3,776,738 for the nine-month period ended
June 29, 1997, an increase of $549,085 or approximately  14.5%. This increase in
revenues is primarily due to increases in merchandise  sales,  membership  fees,
and food and  beverage  revenue,  partially  offset by the fact that a  one-time
licensing fees in the amount of $600,000 relating to territorial  rights in nine
Asian countries was earned in the nine-month period ended June 29, 1997. Of this
amount,  the Company  established  a reserve of $300,000 on its balance sheet at
September 28, 1997, as a result of the  then-developing  Asian financial crisis.
Because of continued  deteriorating  financial  conditions in Asia,  the Company
does not now believe  that it will  receive  the second  $300,000  payment  with
respect to this one-time licensing fee.

     During the  nine-month  period  ended June 28, 1998,  the Company  incurred
total costs and expenses of $6,046,353 compared to $4,328,384 for the nine-month
period ended June 29, 1997, an increase of $1,717,969  or  approximately  39.7%.
This increase is primarily due to increases in occupancy, direct labor, food and
beverage and merchandise  costs,  partially  offset by a decrease in general and
administrative costs. These factors arose chiefly as a result of there being one
Grand Havana House of Cigars  location  operational  during the full  nine-month
period ended June 29, 1997,  compared to there being three Grand Havana House of
Cigar locations  operational  during the nine-month  period ended June 28, 1998,
together with reduced administrative costs.

     The  Company  experienced  a net loss of  ($1,854,472)  for the  nine-month
period  ended  June 28,  1998  compared  to a net loss of  ($1,289,282)  for the
nine-month  period ended June 29, 1997, an increase of $565,190 or approximately
43.8%.  The net loss for the  nine-month  period  ended June 29,  1997  included
results of the discontinued operations of Love's restaurants of ($682,115).  The
Company's  loss from  continuing  operations  increased  from  ($607,167) in the
nine-month  period ended June 29, 199 to ($1,854,472)  in the nine-month  period
ended  June  28,  1998,  an  increase  in loss  from  continuing  operations  of
$1,247,305 or approximately 205%. This increase in loss was due primarily to the
fact that the Company had one Grand Havana House of Cigars location  operational
during the full  fiscal  quarter  ended June 29,  1997,  compared to three Grand
Havana House of Cigar  locations  being  operational  during the fiscal  quarter
ended June 28,  1998,  and the new  operations  were not  profitable  during the
entire period of their operations.

LIQUIDITY AND CAPITAL RESOURCES

     The Company  intends to continue the expansion of its  business,  primarily
through the development and operation of additional Grand Havana Rooms and Grand
Havana House of Cigar locations.  In order to decrease its cash  expenditures in
connection with its future planned expansion activities, the

<PAGE>



Company is currently  investigating  the  possibility  of pursuing its expansion
plans with one or more joint  venturers.  However,  since no agreements have yet
been reached with respect to such  possibility,  there can be no assurance  that
the Company will be able to reach any such  agreements  in the future or, if any
such  agreements  are reached,  whether  they will be on terms  favorable to the
Company.

     As a result of its previous expansion  activities and operating losses, the
Company's  working capital has been  continually  reduced.  At June 28, 1998 the
Company had cash and cash  equivalents of $5,064.  In addition,  the Company had
net accounts  receivable of $289,309 at such date. The Company  anticipates that
it will need  significant  additional  working  capital  during the next  twelve
months.  The Company's  New York and  Washington,  D.C.  Grand Havana Rooms have
experienced continuing losses since their respective openings.  Although the New
York Grand Havana Room is now  approximately at a break-even  point, the Company
anticipates  that  it  will  continue  to  incur  substantial  losses  from  the
Washington,  D.C.  Grand Havana Room until such time, if ever, as  significantly
more memberships are sold at that club. The Company is currently  marketing each
of these clubs for use for event parties with the goal of attracting  additional
members to these clubs.

     In order to raise  additional  capital to fund its existing  operations and
develop future Grand Havana Rooms and Grand Havana House of Cigar locations, the
Company anticipates that it will seek to raise additional funds through the sale
of its securities  (and/or the exercise of outstanding  warrants to purchase the
Company's common stock) over the next 12-month period.  The Company has reduced,
and may continue to reduce,  the exercise price of stock purchase  warrants that
the Company has previously issued.

     Due to the fact that the trading  price of the  Company's  common stock has
fallen during recent months,  there can be no assurance that the Company will be
able to sell its  securities  on terms that are  acceptable  to the Company.  In
addition,  the  Company  does not  currently  meet the new  minimum  bid listing
requirements (the "New Listing  Requirements")  for maintenance of the Company's
common stock on the SmallCap Market of The Nasdaq Stock Market  ("Nasdaq").  The
New Listing  Requirements  became  effective in February 1998. In June 1998, the
Company was notified that Nasdaq  intended to delist the Company's  common stock
for failure to meet the New Listing  Requirements.  The Company has appealed the
proposed Nasdaq delisting,  which appeal is pending. During the pendency of this
appeal,  the  Company's  common  stock will not be  delisted  by Nasdaq.  If the
Company's  common  stock  is  ultimately   delisted  from  Nasdaq,   it  may  be
automatically eligible to trade on the OTC Bulletin Board.  Nonetheless,  such a
development  could result in the  Company's  having  difficulty  in offering and
selling its securities to prospective investors.

     The Company has prepared and filed with the Securities

<PAGE>



and Exchange Commission, and mailed to stockholders of record as of the close of
business  on  April  24,  1998,  an  Information   Statement  (the  "Information
Statement") proposing an amendment to the Company's Certificate of Incorporation
to effect a 1-for-10  reverse  stock split of the  Company's  common  stock (the
"Reverse Stock Split"). If a majority of the Company's  stockholders  approve of
the  amendment to the Company's  Certificate  of  Incorporation  and the Reverse
Stock  Split is  effected,  it is  expected  that the  minimum  bid price of the
Company's  common  stock on Nasdaq  would be  greater  than $1.00 per share and,
among other  things,  the Company  would be in  compliance  with the New Listing
Requirements.

     However,  since the mailing of the Information  Statement,  the Company has
not sought to obtain the  approval of the  Company's  stockholders  to amend the
Company's Certificate of Incorporation and effect the Reverse Stock Split, while
the Company first pursues other financing alternatives. The Company has recently
held  meaningful   discussions  with  several  potential  investors  to  provide
substantial additional capital. However, no definitive agreement has been signed
and there can be no  assurance  that the Company  will be able to reach any such
agreement in the future or, if any such agreement is reached, whether it will be
on terms favorable to the Company.

     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
it is available,  that it will be available on terms  acceptable to the Company.
If the Company is unable to sell its securities or obtain  financing to meet its
working  capital needs and to repay  indebtedness as it becomes due, the Company
may have to consider such  alternatives  as selling or pledging  portions of its
assets, among other possibilities, in order to meet such obligations.

     At June 28, 1998,  the Company owed an aggregate of $1,027,000 in principal
amount to two affiliates of the Company. At such date, the Company owed $520,000
in  principal  amount to United  Leisure  Corporation,  pursuant  to a financing
agreement  dated as of  February  12,  1997,  as  amended.  All  principal  plus
unaccrued  interest thereon is due on or before September 30, 1998. In addition,
at June 28, 1998,  the Company owed $507,000 in principal  amount to United Film
Distributors, Inc. ("UFD"). The full principal amount, together with all accrued
but unpaid  interest  thereon,  is due and payable by the Company upon demand by
UFD, which may not be made prior to November 1, 1998.

     Substantially  all of the funds raised in previous  private  offerings,  as
well as funds loaned by entities affiliated with the Company, have been spent by
the Company in connection  with the  development  of the Company's  Grand Havana
House of Cigar  locations,  as well as for general working capital  purposes and
repayment of indebtedness.


<PAGE>



PART II   OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

          (a)  Exhibits

               (27) Financial Data Schedule

          (b)  Reports on Form 8-K

               No reports on Form 8-K were filed  during the quarter  ended June
               28, 1998.

                                   SIGNATURES

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

                                            GRAND HAVANA ENTERPRISES, INC.


Dated:  August 12, 1998                     By /s/ Harry Shuster
                                              --------------------------------
                                               Harry Shuster,
                                               Chairman of the Board,
                                               Chief Executive Officer and
                                               Chief Financial Officer