**United
      States**


**Securities
      and Exchange Commission**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




(Mark
      One)


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


For
      the
      quarterly period ended December 25, 2005




or




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




For
      the
      transition period from ________ to ________




Commission
      file number 0-024828


________________________________




**GRAND
      HAVANA ENTERPRISES, INC.**


**(** **Exact
      name of small business issuer as specified in its charter** **)**




**DELAWARE**
            
            **95-4428370****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            **(IRS
                Employer Identification
                No.)**




**1990
      Westwood Boulevard, 3** **rd** **Floor**


**Los
      Angeles, CA 90025**


**(Address
      of principal executive offices)**




**(310)
      475-5600**


**(Issuer’s
      telephone number)**




**N/A**


**(Former
      name, former address and former fiscal year, if changed since last
      report)**  ****


________________________________





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act 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  ̈ No x





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





As
      of
      February 16, 2006, there were 14,764,306 shares of Common Stock outstanding.




Transitional
      Small Business Disclosure Format Yes  ̈ No x








INDEX





PART
                I.
            FINANCIAL
                INFORMATION (unaudited)Item
                1.
            Financial
                Statements: (unaudited)Condensed
                Consolidated Balance Sheets as of December 25, 2005 (unaudited)
              and
                September 25, 2005
            2Condensed
                Consolidated Statements of Operations for the quarter ended December
                25,
                2005
              and
                December 26, 2004 (unaudited)
            3Condensed
                Consolidated Statement of Stockholders’ Deficiency as of December 25, 2005
                (unaudited)
            4Condensed
                Consolidated Statements of Cash Flows for the quarter ended December
                25,
                2005
              and
                December 26, 2004 (unaudited)
            5Notes
                to the Condensed Consolidated Financial Statements
                (unaudited)
            6Item
                2.
            Management's
                Discussion and Analysis or Plan of Operations
            10Item
                3.
            Controls
                and Procedures
            14PART
                II.
            
            OTHER
                INFORMATIONItem
                5.
            Other
                Information
            15Item
                6.
            Exhibits
                and Reports on Form 8-K
            15SIGNATURES
            15











**PART
      I - FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




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


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**




December
                25,
            
            September
                25,2005
            
            2005ASSETS
            
            (unaudited)CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            307,892
            
            $
            103,207Accounts
                receivable, net
            
            
            124,342
            
            
            43,782Inventories,
                net
            
            
            326,380
            
            
            342,481Prepaid
                expenses
            
            
            109,899
            
            
            160,313TOTAL
                CURRENT ASSETS
            
            
            868,513
            
            
            649,783PROPERTY
                AND EQUIPMENT, net of accumulated depreciation
            
            
            1,695,495
            
            
            1,779,183OTHER
                ASSETSRestricted
                cash
            
            
            760,000
            
            
            760,000Deposits
                and other assets
            
            
            208,288
            
            
            45,888TOTAL
                OTHER ASSETS
            
            
            968,288
            
            
            805,888TOTAL
                ASSETS
            
            $
            3,532,296
            
            $
            3,234,854LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYCURRENT
                LIABILITIESCash
                overdraft
            
            $
            5,784
            
            $
            67,750Accounts
                payable and accrued liabilities
            
            
            500,355
            
            
            469,342Income
                taxes payable
            
            
            -
            
            
            1,140Sales
                taxes payable
            
            
            389,997
            
            
            346,327Notes
                payable
            
            
            185,000
            
            
            185,000Deferred
                revenues
            
            
            456,666
            
            
            494,439Notes
                payable to related parties
            
            
            120,000
            
            
            120,000TOTAL
                CURRENT LIABILITIES
            
            
            1,657,802
            
            
            1,683,998LONG
                TERM LIABILITIESNotes
                payable to related parties
            
            
            2,820,702
            
            
            2,920,702Interest
                payable to related parties
            
            
            177,496
            
            
            144,119Deferred
                rent payable
            
            
            513,622
            
            
            497,392Sublease
                security deposit
            
            
            48,308
            
            
            48,308TOTAL
                LONG TERM LIABILITIES
            
            
            3,560,128
            
            
            3,610,521STOCKHOLDERS'
                DEFICIENCYPreferred
                stock, $.01 par value; authorized -3,000,000
                shares; issued and outstanding - noneCommon
                stock, $.01 par value; authorized -50,000,000
                shares; issued and outstanding - 14,764,306 shares
            
            
            147,644
            
            
            147,644Additional
                paid-in capital
            
            
            13,280,044
            
            
            13,280,044Accumulated
                deficit
            
            
            (15,113,322
            )
            
            (15,487,353
            )TOTAL
                STOCKHOLDERS' DEFICIENCY
            
            
            (1,685,634
            )
            
            (2,059,665
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            3,532,296
            
            $
            3,234,854


See
      accompanying Notes to Condensed Consolidated Financial Statements.




2


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


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(Unaudited)**




For
                the Quarter EndedDecember
                25,
              2005
            
            December
                26,
              2004REVENUESFood
                and beverage
            
            $
            1,302,500
            
            $
            1,269,344Membership
                fees
            
            
            796,485
            
            
            647,033Merchandise
                sales
            
            
            175,038
            
            
            134,893Club
                activities
            
            
            166,906
            
            
            245,240TOTAL
                REVENUES
            
            
            2,440,929
            
            
            2,296,510COSTS
                AND EXPENSESFood
                and beverage
            
            
            459,761
            
            
            452,212Merchandise
            
            
            78,850
            
            
            72,602Operating
                expensesDirect
                Labor
            
            
            452,742
            
            
            460,050Occupancy
                and other
            
            
            670,075
            
            
            652,104General
                and administrative
            
            
            261,956
            
            
            211,055Depreciation
                and amortization
            
            
            84,253
            
            
            83,051TOTAL
                COSTS AND EXPENSES
            
            
            2,007,637
            
            
            1,931,074INCOME
                BEFORE OTHER INCOME (EXPENSE)
            
            
            433,292
            
            
            365,436OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            12,349
            
            
            1,894Interest
                expense
            
            
            (44,610
            )
            
            (49,687
            )TOTAL
                OTHER (EXPENSE)
            
            
            (32,261
            )
            
            (47,793
            )INCOME
                BEFORE INCOME TAXES
            
            
            401,031
            
            
            317,643INCOME
                TAXES
            
            
            (27,000
            )
            
            --NET
                INCOME
            
            $
            374,031
            
            $
            317,643NET
                INCOME PER COMMON SHAREBASIC
            
            $
            0.03
            
            $
            0.02DILUTED
            
            $
            0.03
            
            $
            0.02WEIGHTED
                AVERAGE NUMBER OF COMMON SHARESBASIC
            
            
            14,764,306
            
            
            14,599,306DILUTED
            
            
            14,824,306
            
            
            14,824,306





See
      accompanying Notes to Condensed Consolidated Financial
      Statements.


3





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


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ DEFICIENCY**


**December
      25, 2005**


**(Unaudited)**





**Additional****Paid
                in**
            
            **Accumulated****Common
                Stock**
            
            **Capital**
            
            **Deficiency**
            
            **Total****Shares**
            
            **Amount**Balance,
                September 25, 2005
            
            
            14,764,306
            
            $
            147,644
            
            $
            13,280,044
            
            $
            (15,487,353
            )
            $
            (2,059,665
            )Net
                income for three months ended
              December
                25, 2005 (unaudited)
            
            
            -
            
            
            -
            
            
            -
            
            
            374,031
            
            
            374,031Balance,
                December 25, 2006 (unaudited)
            
            
            14,764,306
            
            $
            147,644
            
            $
            13,280,044
            
            $
            (15,113,322
            )
            $
            (1,685,634
            )










See
      accompanying Notes to Condensed Consolidated Financial Statements.




4




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


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**




For
                the quarter endedDecember
                25, 2005
            
            December
                26, 2004CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income (loss)
            
            $
            374,031
            
            $
            317,643Adjustments
                to reconcile net loss to net cash used in (provided by)operating
                activities:Depreciation
                and amortization
            
            
            84,253
            
            
            83,051Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (80,560
            )
            
            52,567Inventories,
                net
            
            
            16,101
            
            
            (52,403
            )Prepaid
                expenses
            
            
            50,414
            
            
            21,078Accounts
                payable and accrued liabilities
            
            
            31,013
            
            
            (65,197
            )Sales
                taxes payable
            
            
            43,670
            
            
            (37,226
            )Income
                taxes payable
            
            
            (1,140
            )
            
            -Interest
                payable to related party
            
            
            33,337
            
            
            40,331Deferred
                revenues
            
            
            (37,773
            )
            
            (59,164
            )Deferred
                rent payable
            
            
            16,230
            
            
            (5,508
            )NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            529,616
            
            
            295,172CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property and equipment
            
            
            (565
            )
            
            (5,951
            )Increase
                in deposits and other assets
            
            
            (162,400
            )
            
            -NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (161,965
            )
            
            (5,951
            )CASH
                FLOWS FROM FINANCING ACTIVITIESCash
                overdraft
            
            
            (61,966
            )
            
            (42,570
            )Notes
                payable and due to related parties
            
            
            (100,000
            )
            
            (70,000
            )NET
                CASH USED IN FINANCING ACTIVITIES
            
            
            (161,966
            )
            
            (112,570
            )NET
                INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            204,685
            
            
            176,651CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            103,207
            
            
            121,338CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            307,892
            
            $
            297,989Supplemental
                disclosures:Interest
                paid
            
            $
            2,815
            
            $
            1,869Income
                tax paid
            
            $
            14,578
            
            $
            705




See
      accompanying Notes to Condensed Consolidated Financial Statements.





5


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


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**QUARTERS
      ENDED DECEMBER 25, 2005 AND DECEMBER 26, 2004**


**(Unaudited)**




1.
      BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




The
      interim consolidated condensed 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 presentation of statements of (a) the consolidated results
      of operations for the three months ended December 25, 2005 and December 26,
      2004, (b) the consolidated financial position at December 25, 2005 and (c)
      the
      consolidated cash flows for the three months ended December 25, 2005 and
      December 26, 2004. Interim results are not necessarily indicative of the results
      for a full year. The consolidated balance sheet presented as of September 25,
      2005 has been derived from the consolidated financial statements that have
      been
      audited by the Company's independent auditors. 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.




Use
      of
      Estimates .
      The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires the Company to
      make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities, disclosure of contingent assets and liabilities at the date of
      the
      financial statements, and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those
      estimates.




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




Income
      Per Share .
      Basic
      income per share is calculated by dividing net income by the weighted average
      number of common shares outstanding during the period. Diluted income per share
      is calculated assuming the issuance of common shares, if dilutive, resulting
      from the exercise of stock options and warrants.




Principles
      of Consolidation .
      The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries. All significant inter-company transactions and
      balances have been eliminated in consolidation.




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





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





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





6


In
      May
      2005, the FASB
      published SFAS No. 154, “Accounting changes and Error Corrections a replacement
      of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”), which changes
      the requirements for the accounting for and reporting of a change in accounting
      principle and redefines restatement as the revising of previously issued
      financial statements to reflect the correction of an error. SFAS
      No.
      154 requires retrospective application to prior periods’ financial statements of
      changes in accounting principle, unless it is impracticable to determine the
      period-specific effects of the cumulative effect of the change.  This
      Statement carries forward without change the guidance contained in Accounting
      Principle Board Opinion No. 20 for reporting the correction of an error in
      previously issued financial statements and a change in accounting estimate.
      SFAS
      No. 154is
      effective for the Company’s fiscal year beginning September 25, 2006.  At
      this time, the Company does not believe that this Statement will have an impact
      on its financial statements.




2. SEGMENT
      INFORMATION





The
      following segment information for the three months ended December 25, 2005
      and
      December 26, 2004 is broken down into geographic areas as follows:




Revenues
            
            December
                25,
              2005
            
            December
                26,
              2004New
                York, New York
            
            $
            1,798,951
            
            $
            1,671,121Beverly
                Hills, California
            
            
            641,978
            
            
            625,389Total
            
            $
            2,440,929
            
            $
            2,296,510Gross
                ProfitNew
                York, New York
            
            $
            1,138,198
            
            $
            1,032,745Beverly
                Hills, California
            
            
            311,378
            
            
            278,901Total
            
            $
            1,449,576
            
            $
            1,311,646Net
                Income/(Loss)New
                York, New York
            
            $
            571,625
            
            $
            494,768Beverly
                Hills, California
            
            
            119,409
            
            
            89,551Los
                Angeles, California (corporate)
            
            
            (317,003
            )
            
            (266,676
            )Total
            
            $
            374,031
            
            $
            317,643Total
                AssetsNew
                York, New York
            
            $
            2,183,405
            
            $
            2,317,715Beverly
                Hills, California
            
            
            915,396
            
            
            1,100,348Los
                Angeles, California (corporate)
            
            
            433,495
            
            
            177,217Total
            
            $
            3,532,296
            
            $
            3,595,280







7





3. RELATED
      PARTY TRANSACTIONS





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








December
                25,
              2005
            
            September
                25,
              2005(A)
                Promissory notes, former chief executive officer
            
            $
            2,120,050
            
            $
            2,190,050(B)
                Affiliated company
            
            
            798,786
            
            
            798,786(C)
                Former landlord
            
            
            21,866
            
            
            51,8662,940,702
            
            
            3,040,702Less
                current portion
            
            
            (120,000
            )
            
            (120,000
            )$
            2,820,702
            
            $
            2,920,702





(A)
      At
      March 1, 2004, the Company was indebted to its former chief executive officer
      in
      the total amount of $2,500,901 as a result of monies owed pursuant to notes
      issued to the former CEO in 1998 and 2001, and as a result of accrued
      liabilities to advances made by the former CEO. On March 1, 2004, the Company
      and its former chief executive agreed to cancel and terminate the obligations
      owed by the Company as of such date, and, in lieu thereof, issued a new
      promissory note to the former CEO in the amount of $2,500,901 (the “March 2004
      Note”). On September 26, 2004, the Company canceled the March 2004 Note and
      issued a new, unsecured promissory note for principal and unpaid interest of
      $2,435,050 (the “September 2004 Note”). The September 2004 Note bears interest
      at 5% per annum. The Company has the right to prepay the September 2004 Note
      in
      whole or in part at any time. In addition, the Company has agreed to pay its
      former chief executive officer successive monthly payments of at least $10,000,
      commencing on October 1, 2004 and continuing on the first day of each month
      until the loan matures. The September 2004 Note is due and payable upon the
      earlier of (1) September 30, 2007, (2) the sale of all or substantially all
      of
      the assets of the Company, or (3) a change in control of the Company. During
      the
      quarter ended December 25, 2005, the Company paid its former chief executive
      officer $70,000.





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





(C)
      At
      March 1, 2004, the Company was indebted to its former landlord for its corporate
      office in the amount of $181,720 for outstanding rent due under its lease
      agreement. On March 1, 2004, the Company and the Company’s former landlord
      entered into a letter agreement, whereby the Company issued a promissory note
      to
      the former landlord in the amount of $181,720 (the “March 2004 Westwood Note’).
      On September 26, 2004, the Company canceled the March 2004 Westwood Note and
      issued a new, unsecured promissory for principal and unpaid interest of $170,886
      (the “September 2004 Westwood Note’). The September 2004 Westwood Note bears
      interest at 5% per annum. The Company has the right to prepay the September
      2004
      Westwood Note in whole or in part at any time. The September 2004 Westwood
      Note
      is due on and payable upon the earlier of (1) September 30, 2007, (2) the sale
      of all or substantially all of the assets of the Company, or (3) a change in
      control of the Company. During the fiscal quarter ended December 25, 2005,
      the
      Company paid the former landlord $30,000.




8




Interest
      Payable to related parties .
      Interest payable to related parties at December 25, 2005 and September 25,
      2005
      consisted of the following:




December
                25,
              2005
            
            
            September
                25,
              2005Interest
                payable, former chief executive officer
            
            $
            137,670
            
            $
            111,990Interest
                payable, affiliated company
            
            
            33,941
            
            
            26,609Interest
                payable, former landlord
            
            
            5,885
            
            
            5,520$
            177,496
            
            $
            144,119




4.
      SALES
      TAXES IN ARREARS





A
      sales
      tax audit for the period August 1, 2000 to August 31, 2005 was conducted in
      October 2005 by the State of New York Department of Taxation and Finance (the
      “Department of Taxation”) resulting in a proposed assessment of approximately
      $710,000 plus interest for delinquent sales taxes on the Company’s revenue in
      that state generated from monthly dues, minimum spending requirements, and
      rental fees for the use of private rooms. The amount of the proposed assessment
      is based on the Department of Taxation’s assertion that 100% of the Company’s
      revenue generated in New York from monthly dues and other revenue are subject
      to
      sales tax. Furthermore, even if it is determined that a portion of such revenue
      is subject to sales taxes, the Company estimates it will be no more than
      $234,000 plus interest of $91,000, which was accrued at the Company’s year end
      of September 25, 2005. The Department of Taxation has represented that it will
      not assess penalties and potential penalties have been excluded from the
      Company’s estimates.





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





5.
      NOTE
      PAYABLE





The
      Company has an $185,000 loan with Bank Leumi. The note is dated February 28,
      2005 and matures on September 12, 2006. The interest rate is LIBOR plus 2%.
      The
      Company's Chief Executive Officer is a guarantor of the Company's credit line,
      and has pledged certain personal assets to secure the obligation.





6.
      INCOME
      TAXES





The
      significant components of the Company’s deferred income tax assets at December
      25, 2005 and September 25, 2005 are as follows:





December25,
            
            September
                25,2005
            
            2005Deferred
                income tax assetNet
                operating loss carryforward
            
            $
            4,000,000
            
            $
            4,400,000Valuation
                allowance
            
            
            (4,000,000
            )
            
            (4,400,000
            )Net
                deferred income tax asset
            
            $
            —
            
            $
            —





The
      benefit for income taxes from operations consisted primarily of a long-term
      deferred tax benefit of $4,000,000 at December 25, 2005, resulting from the
      accumulated net operating loss carryforward of approximately $11,700,000 at
      an
      effective rate of 34%. The operating losses expire in various years though
      2024.
      There is a $4,000,000 valuation allowance against the deferred tax benefit
      because it is more likely than not that the deferred tax asset will not be
      utilized.





The
      valuation allowance will be evaluated at the end of each year, considering
      positive and negative evidence about the asset will be realized. At that time,
      the allowance will be increased or reduced.





The
      Company determined in the quarter ended December 25, 2005 that is was
      appropriate to estimate federal alternative minimum tax, New York state and
      local income taxes, and California state income tax. The provision of income
      taxes of $27,000 includes $4,000 in federal alternative minimum tax, $22,000
      for
      New York state and local income tax, and $1,000 in California state income
      tax.




9




**ITEM
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATIONS**





OVERVIEW





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 limitation, 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 of 1934, 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 from 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, compliance with regulatory requirements, the
      Company’s ability to sell more memberships, 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 the Quarterly Report on Form 10-QSB
      are qualified in their entirety by this statement.





The
      Company is engaged in the business of the ownership and operation of private
      membership cigar clubs known as “Grand Havana Rooms,” and in the ownership and
      operation 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 was incorporated under the laws of the State of Delaware on April 13,
      1993.





The
      Company currently owns and operates two Grand Havana Rooms, which are located
      in
      Beverly Hills, California and in New York, New York, and one Grand Havana House
      of Cigars location, in Beverly Hills, California. The Company’s primary business
      focus is operating its existing cigar clubs and retail store.





For
      the
      quarter ended December 25, 2005, the Company had net income of $374,031 compared
      to net income of $317,643 for the fiscal quarter ended December 26, 2004. This
      is primarily due to the increased membership and club usage at the Grand Havana
      Room in New York City.





RESULTS
      OF OPERATIONS





THREE
      MONTHS ENDED DECEMBER 25, 2005 COMPARED TO THREE MONTHS ENDED DECEMBER 26,
      2004.





REVENUES





The
      Company derives revenues from continuing operations from four principal sources:
      (1) membership dues; (2) sales of cigars and related merchandise; (3) club
      activities; and (4) food and beverage sales. During the fiscal quarter ended
      December 25, 2005, the Company had revenues for $2,440,929, compared to revenues
      of $2,296,510 for fiscal quarter ended December 26, 2004, an increase of
      $144 ,419 ,
      or
      approximately 6 . 3 %.
      This
      increase in revenue is primarily due to an increase in membership dues from
      the
      New York Grand Havana Room.





Membership
      Dues .
      Revenue
      from membership dues increased from $647,033 in the fiscal quarter ended
      December 26, 2004 to $796,485 in the fiscal quarter ended December 25, 2005,
      an
      increase of $149,452, or approximately 23.1%. This was primarily due to an
      increase in monthly membership dues at the New York Grand Havana Room.





Merchandise
      Sales .
      Revenue
      from merchandise sales increased from $134,893 in the fiscal quarter ended
      December 26, 2004 to $175,038 in the fiscal quarter ended December 25, 2005,
      an
      increase of $40,145, or approximately 29.8%. This was due to increased traffic
      in the New York Grand Havana Room.





10


Club
      Activities .
      Revenue
      from club activities or private events decreased from $245,240 in the fiscal
      quarter ended December 26, 2004 to $166,906 in the fiscal quarter ended December
      25, 2005, a decrease of $78,334, or approximately 31.9%. This was due to a
      decrease in private events, and an increase in “ala carte” or individual
      revenues versus revenues from large parties including room rentals.





Food
      and Beverage .
      Revenue
      from food and beverage increased from $1,269,344 in the fiscal quarter ended
      December 26, 2004 to $1,302,500 in the fiscal quarter ended December 25, 2005,
      an increase of $33,156, or approximately 2.6%. This increase is primarily due
      to
      a greater number of members associated with the New York Grand Havana Room.




COSTS
      AND
      EXPENSES





During
      the fiscal quarter ended December 25, 2005, the Company incurred total costs
      and
      expenses of $2,007,637, compared to $1,931,074 for the fiscal quarter ended
      December 26, 2004, an increase of $76,563, or approximately 4.0%. This was
      primarily due to an increase in corporate overhead due to outside professional
      expenses and salary increases.





Food
      and Beverage .
      During
      the quarter ended December 25, 2005, food and beverage expenses were $459,761,
      an increase of $7,549, or 1.7%, over food and beverage expenses for the quarter
      ended December 26, 2004. This increase was attributable to a 2.6% increase
      in
      food and beverage revenue.





Merchandise .
      During
      the quarter ended December 25, 2005, merchandise expenses were $78,850, an
      increase of $6,248, or 8.6%, over merchandise expenses for the quarter ended
      December 26, 2004. This increase was due to the increase in merchandise sales.





Direct
      Labor and Occupancy and Other Expenses . During
      the quarter ended December 25, 2005, direct labor and benefit costs decreased
      $7,308 or approximately 1.6% from the quarter ended December 26, 2004. This
      slight decrease was due to the elimination of a commission paid on new
      membership at the Grand Havana Room in New York. Occupancy and other operating
      expenses increased $17,971 from $652,104 in the quarter ended December 26,
      2004
      to $670,075 in the quarter ended December 25, 2005. This was mainly due to
      the
      increased traffic at the Grand Havana Room in New York.





Depreciation
      and Amortization .
      Depreciation and amortization expenses increased by approximately 1.4%, from
      $83,051 in the fiscal quarter ended December 26, 2004, to $84,253 in the fiscal
      quarter ended December 25, 2005. This was due to additional depreciation expense
      related to the purchase of new operating equipment.





General
      and Administrative .
      General
      and administrative expenses increased by approximately 24.1%, from $211,055
      in
      the fiscal quarter ended December 26, 2004, to $261,956 in the fiscal quarter
      ended December 25, 2005. This was due to increased outside professional
      expenses, and salary increases associated with corporate overhead.





Income
      Tax Expense . The
      provision for income taxes of $27,000 includes $4,000 for federal alternative
      minimum tax, $22,000 for New York state and local income taxes, and $1,000
      for
      California state income taxes. There was no income tax provision recorded for
      the three months ended December 26, 2004.





NET
      INCOME





The
      Company had net income of $374,031, or $0.03 per share, for the fiscal quarter
      ended December 25, 2005, compared to a net income of $317,643, or $0.02 per
      share, for fiscal quarter ended December 26, 2004, an increase in net income
      of
      $56,388, or approximately 17.8%.





LIQUIDITY
      AND CAPITAL RESOURCES





At
      December 25, 2005, the Company had cash or cash equivalents of
      $307,892 .
      Operating activities for the three months ended December 25, 2005 generated
      $529,616 compared to $295,172 for the three months ended December 26, 2004.
      Investing activities used $565 for the purchase of new equipment, $22,400 as
      a
      deposit for the purchase of new equipment, and $140,000 for a potential
      investment. The potential investment did not materialize, and the $140,000
      is
      scheduled to be returned to the Company. Financing activities used $161,966
      as a
      result of reducing the Company’s cash overdraft and payments for notes payable
      to related parties.





11


At
      March
      1, 2004, the Company was indebted to its former chief executive officer in
      the
      total amount of $2,500,901 as a result of monies owed pursuant to notes issued
      to the former CEO in 1998 and 2001, and as a result of accrued liabilities
      to
      advances made by the former CEO. On March 1, 2004, the Company and its former
      chief executive officer agreed to cancel and terminate the obligations owed
      by
      the Company as of such date, and, in lieu thereof, issued a new promissory
      note
      to the former CEO in the amount of $2,500,901. The March 2004 Note provided
      for
      interest at the rate of 5% per annum.





On
      September 26, 2004, the Company cancelled the March 2004 Note. In consideration
      for cancellation and termination of the note, the Company issued its former
      chief executive officer a new, unsecured promissory note in the amount of
      $2,435,050. The September 2004 Note bears interest at a rate of 5% per annum.
      The Company has the right to prepay the September 2004 Note in whole or in
      part
      at any time. In addition, the Company has agreed to pay its former chief
      executive officer successive monthly installments of at least $10,000,
      commencing on October 1, 2004 and continuing on the first day of each month
      until the loan matures. The September 2004 Note is due and payable upon the
      earlier of (1) September 30, 2007, (2) the sale of all or substantially all
      of
      the assets of the Company, or (3) a change in control of the Company. During
      the
      three months ended December 25, 2005, the Company paid its former chief
      executive officer $70,000.





As
      of
      December 28, 2003, an aggregate of $801,495 remained outstanding under a note
      issued to United Film Distributors, Inc. (“United Films”), an affiliate of the
      Company, in May 1997. The full amount due under the 1997 Promissory Note,
      together with all accrued but unpaid interest, was due and payable by the
      Company on demand. The president of United Films is Brian Shuster, the son
      of
      Harry Shuster and the brother of Stanley Shuster, the current chief executive
      officer and principal stockholder of the Company. On March 1, 2004, the Company
      and United Films agreed to cancel and terminate the obligations due under the
      1997 Promissory Note, and, in lieu thereof, the Company issued a new promissory
      note to United Films in the amount of $782,917. The March 2004 United Films
      Note
      provided for interest at the rate of 5% per annum.





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





As
      of
      December 28, 2003, the Company was indebted its former landlord, 1990 Westwood
      Boulevard, Inc. (“1990 Westwood”), in the amount of $181,720 for outstanding
      rent due under its lease for its corporate headquarters. On March 1, 2004,
      the
      Company and 1990 Westwood entered into a letter agreement, whereby the Company
      issued a promissory note to 1990 Westwood in the amount of $181,720. The
      promissory note provided for interest at the rate of 5% per annum.




On
      September 26, 2004, the Company canceled the note issued to 1990 Westwood on
      March 1, 2004. In consideration for cancellation and termination of the note,
      the Company issued 1990 Westwood, a new, unsecured promissory note in the amount
      of $170,866 for principle and unpaid interest owed as of September 26, 2004.
      The
      new note bears interest at a rate of 5% per annum. The Company has the right
      to
      prepay the note in whole or in part at any time. The promissory note is due
      and
      payable upon the earlier of (1) September 30, 2007, (2) the sale of all or
      substantially all of the assets of the Company, or (3) a change in control
      of
      the Company. During the three months ended December 25, 2005, the Company paid
      its former landlord $30,000.





The
      Company believes that it will meet its working capital needs in the current
      fiscal year from the operations of its Grand Havana Rooms and Grand Havana
      House
      of Cigars locations. Due to the fact that the trading price of the Company’s
      common stock has remained low in the last twelve months and because it currently
      is not trading on a nationally recognized exchange, 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 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.





12


CRITICAL
      ACCOUNTING POLICIES





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





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





In
      May
      2005, the FASB published SFAS No. 154, which changes the requirements for the
      accounting for and reporting of a change in accounting principle and redefines
      restatement as the revising of previously issued financial statements to reflect
      the correction of an error.  SFAS No. 154 requires retrospective
      application to prior periods’ financial statements of changes in accounting
      principle, unless it is impracticable to determine the period-specific effects
      of the cumulative effect of the change.  This Statement carries forward
      without change the guidance contained in APB Opinion No. 20 for reporting the
      correction of an error in previously issued financial statements and a change
      in
      accounting estimate. SFAS No. 154 is
      effective for the Company’s fiscal year beginning September 25, 2006.  At
      this time, the Company does not believe that this Statement will have an impact
      on its financial statements.





TRENDS
      AND UNCERTAINTIES





The
      Department of Health and Mental Hygiene (“DOHMH”) of the City of New York passed
      the Smoke-Free Act (“SFA”), which prohibited smoking in restaurants and bars
      after September 26, 2003. Local Law 47 of 2002 amended the SFA, providing that
      an establishment considered a “Tobacco Bar” could allow smoking indoors past the
      September 26, 2003 deadline. On March 26, 2003, DOHMH passed an amendment to
      Local Law 47 of 2002 which stated that “Tobacco Bars” must prohibit smoking
      indoors as of July 25, 2003, unless they register with DOHMH. DOHMH defines
      a
“Tobacco Bar” as an entity that generates less than 40% of total revenue from
      food, and more than 10% of revenue from the sale of tobacco products and
      accessories, including humidor rentals. The entity must also not have expanded
      or changed its size or location as of December 31, 2001. The Company feels
      that
      it conforms to all aspects of this exemption. On June 25, 2003, the Company
      submitted its application to DOHMH. On July 22, 2003, DOHMH approved the
      Company’s application. The exemption is valid until July 31, 2006. There can be
      no assurances that the Company will be able to maintain its “Tobacco Bar”
status. Failure to do so could have a material adverse effect on the Company’s
      business, financial condition and results of operations.





A
      sales
      tax audit for the period August 1, 2000 to August 31, 2005 was conducted in
      October 2005 by the State of New York Department of Taxation and Finance (the
      “Department of Taxation”) resulting in a proposed assessment of approximately
      $710,000 plus interest for delinquent sales taxes on the Company’s revenue in
      that state generated from monthly dues, minimum spending requirements, and
      rental fees for the use of private rooms. The amount of the proposed assessment
      is based on the Department of Taxation’s assertion that 100% of the Company’s
      revenue generated in New York from monthly dues and other revenue are subject
      to
      sales tax. Furthermore, even if it is determined that a portion of such revenue
      is subject to sales taxes, the Company estimates it will be no more than
      $234,000 plus interest of $91,000, which was accrued at the Company’s year end
      of September 25, 2005. The Department of Taxation has represented that it will
      not assess penalties and potential penalties have been excluded from the
      Company’s estimates.





13


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





**ITEM
      3. CONTROLS AND PROCEDURES**





(a)Evaluation
                of Disclosure Controls and Procedures.




Stanley
      Shuster, the Company’s chief executive officer and chief financial officer,
      after evaluating the Company’s disclosure controls and procedures (as defined in
      the rules and regulations of the Securities and Exchange Commission under the
      Exchange Act as of the end of the period covered by this Quarterly Report on
      Form 10-QSB), concluded that as of such date, the Company’s disclosure controls
      and procedures were effective to ensure that information the Company is required
      to disclose in reports that the Company files or submits under the Exchange
      Act
      is recorded, processed, summarized and reported within the time periods
      specified in Securities and Exchange Commission rules and forms.




(b) Changes
      in Internal Controls .




During
      the period covered by the Quarterly Report on Form 10-QSB, there were no
      significant changes in the Company’s internal controls over financial reporting
      or in other factors that have materially affected, or are reasonably likely
      to
      materially affect, the Company’s internal controls over financial
      reporting.




14


**PART
      II - OTHER INFORMATION**





**ITEM
      5. OTHER**





The
      Company intends to file a Form 15 with the SEC to deregister its common stock
      and suspend its reporting obligations under the Exchange Act. The Company
      expects the deregistration to become effective within ninety (90) days of the
      filing with the Securities
      and Exchange Commission .
      The
      Form 15 will be filed immediately after the Company files this Form 10-QSB
      with
      the Securities
      and Exchange Commission .
      The
      Company anticipates that its shares of common stock will continue to be traded
      on the over the counter Pink Sheets, but can make no assurances that any broker
      will make a market in the Company’s common stock.




**ITEM
                6.**
            **EXHIBITS
                AND REPORTS ON FORM 8-K**Exhibits




31.1
            Certification
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                302 of the Sarbanes-Oxley Act of 200232.1
            Certification
                of Chief Executive Officer and Chief Financial Officer under Section
                906
                of the Sarbanes-Oxley Act of 2002





**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.




GRAND
                  HAVANA ENTERPRISES, INC.Date: April
                  12, 2006
              
              /s/ Stanley
                ShusterChief
                Executive Officer and Chief Financial Officer


15