**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 June 26,
                2005oro
            **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




As
      of
      July 15, 2005, 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 June 26, 2005 (unaudited)
              and
                September 26, 2004
            1Condensed
                Consolidated Statements of Operations for the three months and nine
                months
                ended
              June
                26, 2005 and June 27, 2004 (unaudited)
            2Condensed
                Consolidated Statement of Stockholders’ Deficiency as of June 26, 2005
                (unaudited)
            3Condensed
                Consolidated Statements of Cash Flows for the nine months ended June
                26,
                2005
              and
                June 27, 2004 (unaudited)
            4Notes
                to the Condensed Consolidated Financial Statements
                (unaudited)
            5Item
                2.
            Management's
                Discussion and Analysis or Plan of Operations
            10Item
                3.
            Controls
                and Procedures
            15PART
                II.
            OTHER
                INFORMATIONItem
                6.
            Exhibits
                and Reports on Form 8-K
            16SIGNATURES
            16








**PART
      I - FINANCIAL INFORMATION**




**ITEM
      1. FINANCIAL STATEMENTS**




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


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


June
                26,
            
            September
                26,2005
            
            2004ASSETS
            
            (unaudited)CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            172,329
            
            $
            121,338Accounts
                receivable, net
            
            
            96,783
            
            
            195,343Inventories,
                net
            
            
            357,210
            
            
            257,872Prepaid
                expenses
            
            
            101,679
            
            
            96,231TOTAL
                CURRENT ASSETS
            
            
            728,001
            
            
            670,784PROPERTY
                AND EQUIPMENT, net of accumulated depreciation
            
            
            1,843,047
            
            
            2,009,099OTHER
                ASSETSRestricted
                cash
            
            
            760,000
            
            
            760,000Deposits
                and other assets
            
            
            45,088
            
            
            77,088TOTAL
                OTHER ASSETS
            
            
            805,088
            
            
            837,088TOTAL
                ASSETS
            
            $
            3,376,136
            
            $
            3,516,971LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYCURRENT
                LIABILITIESCash
                overdraft
            
            $
            81,577
            
            $
            140,132Accounts
                payable and accrued liabilities
            
            
            397,633
            
            
            531,155Income
                taxes payable
            
            
            76,000
            
            
            -Sales
                taxes payable
            
            
            25,732
            
            
            250,397Notes
                payable
            
            
            185,000
            
            
            185,000Deferred
                revenues
            
            
            428,286
            
            
            491,254Current
                portion of notes payable to related parties
            
            
            120,000
            
            
            120,000TOTAL
                CURRENT LIABILITIES
            
            
            1,314,228
            
            
            1,717,938LONG
                TERM LIABILITIESNotes
                payable to related parties, net of current portion
            
            
            3,075,702
            
            
            3,284,702Interest
                payable to related parties
            
            
            110,164
            
            
            --Deferred
                rent payable
            
            
            506,634
            
            
            480,927Sublease
                security deposit
            
            
            48,308
            
            
            48,308TOTAL
                LONG TERM LIABILITIES
            
            
            3,740,808
            
            
            3,813,937STOCKHOLDERS'
                DEFICIENCYPreferred
                stock, $.01 par value; authorized -3,000,000
                shares; issued and outstanding - noneCommon
                stock, $.01 par value; authorized -50,000,000
                shares; issued and outstanding -14,764,306
                shares at June 26, 2005 and14,599,306
                shares at September 26, 2004
            
            
            147,644
            
            
            145,994Additional
                paid-in capital
            
            
            13,280,044
            
            
            13,279,044Accumulated
                deficit
            
            
            (15,106,588
            )
            
            (15,439,942
            )TOTAL
                STOCKHOLDERS' DEFICIENCY
            
            
            (1,678,900
            )
            
            (2,014,904
            )TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIENCY
            
            $
            3,376,136
            
            $
            3,516,971




See
      accompanying Notes to Condensed Consolidated Financial Statements.






1





**GRAND
                HAVANA ENTERPRISES, INC., AND SUBSIDIARIES****CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS****(Unaudited)**For
                the three months ended
            
            For
                the nine months endedJune
                26,
            
            June
                27,
            
            June
                26,
            
            June
                27,2005
            
            2004
            
            2005
            
            2004REVENUESFood
                and beverage
            
            $
            1,076,689
            
            $
            978,584
            
            $
            3,359,278
            
            $
            3,069,054Humidor
                rental fee
            
            
            746,157
            
            
            681,403
            
            
            2,145,737
            
            
            2,054,993Merchandise
                sales
            
            
            133,472
            
            
            113,040
            
            
            375,323
            
            
            342,465Other
                revenue
            
            
            112,993
            
            
            170,791
            
            
            490,347
            
            
            601,517TOTAL
                REVENUES
            
            
            2,069,311
            
            
            1,943,818
            
            
            6,370,685
            
            
            6,068,029COSTS
                AND EXPENSESFood
                and beverage
            
            
            435,118
            
            
            415,370
            
            
            1,305,111
            
            
            1,253,406Merchandise
            
            
            66,395
            
            
            61,333
            
            
            193,722
            
            
            181,431Operating
                expensesDirect
                labor
            
            
            467,527
            
            
            461,449
            
            
            1,372,589
            
            
            1,389,973Occupancy
                and other
            
            
            646,209
            
            
            591,594
            
            
            1,924,943
            
            
            1,798,470General
                and administrative
            
            
            258,356
            
            
            176,612
            
            
            775,047
            
            
            538,170Depreciation
                and amortization
            
            
            86,566
            
            
            80,326
            
            
            254,599
            
            
            244,870TOTAL
                COSTS AND EXPENSES
            
            
            1,960,171
            
            
            1,786,684
            
            
            5,826,011
            
            
            5,406,320INCOME
                BEFORE OTHER INCOME (EXPENSE)
            
            
            109,140
            
            
            157,134
            
            
            544,674
            
            
            661,709OTHER
                INCOME (EXPENSE)Interest
                income
            
            
            2,218
            
            
            51
            
            
            6,532
            
            
            894Interest
                expense
            
            
            (42,761
            )
            
            (54,024
            )
            
            (141,852
            )
            
            (158,821
            )Loss
                on disposal of asset
            
            
            -
            
            
            -
            
            
            -
            
            
            (791
            )TOTAL
                OTHER INCOME (EXPENSE)
            
            
            (40,543
            )
            
            (53,973
            )
            
            (135,320
            )
            
            (158,718
            )INCOME
                BEFORE INCOME TAXES
            
            
            68,597
            
            
            103,161
            
            
            409,354
            
            
            502,991INCOME
                TAXES
            
            
            (76,000
            )
            
            -
            
            
            (76,000
            )
            
            -NET
                (LOSS) INCOME
            
            $
            (7,403
            )
            $
            103,161
            
            $
            333,354
            
            $
            502,991NET
                INCOME PER COMMON SHAREBASIC
            
            $
            0.00
            
            $
            0.01
            
            $
            0.02
            
            $
            0.03DILUTED
            
            $
            0.00
            
            $
            0.01
            
            $
            0.02
            
            $
            0.03WEIGHTED
                AVERAGE NUMBER OF COMMON SHARESBASIC
            
            
            14,764,306
            
            
            14,524,306
            
            
            14,637,639
            
            
            14,524,306DILUTED
            
            
            14,924,306
            
            
            14,824,306
            
            
            14,874,306
            
            
            14,689,874





See
      accompanying Notes to Condensed Consolidated Financial Statements.








2





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


**CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIENCY**





**Additional****Paid
                in**
            
            **Accumulated****Common
                Stock**
            
            **Capital**
            
            **Deficiency**
            
            **Total****Shares**
            
            **Amount**Balance,
                September 27, 2004
            
            
            14,599,306
            
            $
            145,994
            
            $
            13,279,044
            
            $
            (15,439,942
            )
            $
            (2,014,904
            )Issuance
                of stock at $0.01 on February 8, 2005 (unaudited)
            
            
            65,000
            
            
            650
            
            
            -
            
            
            -
            
            
            650Issuance
                of stock at $0.02 on March 8, 2005 (unaudited)
            
            
            100,000
            
            
            1,000
            
            
            1,000
            
            
            -
            
            
            2,000Net
                income for nine months ended June 26, 2005 (unaudited)
            
            
            -
            
            
            -
            
            
            -
            
            
            333,354
            
            
            333,354Balance,
                June 26, 2005 (unaudited)
            
            
            14,764,306
            
            $
            147,644
            
            $
            13,280,044
            
            $
            (15,106,588
            )
            $
            (1,678,900
            )





See
      accompanying Notes to Condensed Consolidated Financial
      Statements.


3





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


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(Unaudited)**


For
                the nine months endedJune
                26, 2005
            
            June
                27, 2004CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income
            
            $
            333,354
            
            $
            502,991Adjustments
                to reconcile net income to net cash providedby
                operating activities:Depreciation
                and amortization
            
            
            254,599
            
            
            244,870Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            98,560
            
            
            (38,943
            )Inventories,
                net
            
            
            (99,338
            )
            
            (42,806
            )Prepaid
                expenses
            
            
            (5,448
            )
            
            (2,235
            )Due
                from related parties
            
            
            -
            
            
            17,406Deposits
                and other assets
            
            
            -
            
            
            (24,105
            )Accounts
                payable and accrued liabilities
            
            
            (133,522
            )
            
            (170,276
            )Income
                taxes payable
            
            
            76,000
            
            
            -Taxes
                payable
            
            
            (224,665
            )
            
            (226,207
            )Interest
                payable to related party
            
            
            110,164
            
            
            -Deferred
                revenues
            
            
            (62,968
            )
            
            14,499Deferred
                rent payable
            
            
            25,707
            
            
            (16,524
            )NET
                CASH PROVIDED BY OPERATING ACTIVITIES
            
            
            372,443
            
            
            258,670CASH
                FLOWS FROM INVESTING ACTIVITIESPurchases
                of property and equipment
            
            
            (56,547
            )
            
            (93,230
            )CASH
                FLOWS FROM FINANCING ACTIVITIESCash
                overdraft
            
            
            (58,555
            )
            
            (212,697
            )Notes
                payable and due to related parties
            
            
            (209,000
            )
            
            (101,238
            )Proceeds
                from the issuance of common stock
            
            
            2,650
            
            
            -NET
                CASH USED IN FINANCING ACTIVITIES
            
            
            (264,905
            )
            
            (313,935
            )NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            50,991
            
            
            (148,495
            )CASH
                AND CASH EQUIVALENTS, beginning of period
            
            
            121,338
            
            
            368,206CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            172,329
            
            $
            219,711Supplemental
                disclosures:Interest
                paid
            
            $
            71,405
            
            $
            35,999Income
                tax paid
            
            $
            31,362
            
            $
            4,705




See
      accompanying Notes to Condensed Consolidated Financial
      Statements.


4





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


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      THE THREE AND NINE MONTHS ENDED JUNE 26, 2005 AND JUNE 27,
      2004**


**(Unaudited)**




1.
      BASIS
      OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICES




The
      interim condensed 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 presentation of statements of (a) the condensed
      consolidated results of operations for the three months and nine months ended
      June 26, 2005 and June 27, 2004, (b) the condensed consolidated financial
      position at June 26, 2005 and (c) the condensed consolidated cash flows for
      the
      nine months ended June 26, 2005 and June 27, 2004. Interim results are not
      necessarily indicative of the results for a full year. The consolidated balance
      sheet presented as of September 26, 2004 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 (humidor
      rental) fees; (2) sales of cigars and related merchandise; (3) private events
      and club activities; and (4) food and beverage sales. Revenue from sales of
      cigars and related merchandise, private events and club activities, and food
      and
      beverage sales are recognized at the time of the sale. The Company recognizes
      two types of membership (humidor rental) fees, an initial fee, or set up fee,
      and a monthly rental fee. The initial fee is recognized at the time the member
      joins. The monthly rental fee is charged in advance for a three month period,
      and recognized equally over the three month period. Deferred revenue represents
      those humidor fees 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. Inter-company accounts and transactions have been
      eliminated in consolidation.




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




Recent
      Accounting Pronouncements .
      In
      December 2004, the 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 of the first fiscal
      year that begins after June 15, 2005 for non-small business issuers, and after
      the first fiscal year that begins after December 15, 2005 for small business
      issuers. Accordingly, the Company will adopt SFAS 123 (R) in its quarter ending
      March 26, 2006. The Company is currently evaluating the provisions of SFAS
      123
      (R) , and  has
      not
      yet determined the impact, if any, that SFAS 123 (R)  will
      have
      on its financial statement presentation or disclosures.





5


In
      November 2004, the FASB issued SFAS No. 151, “Inventory Costs - An Amendment of
      ARB No. 43, Chapter 4” (“SFAS 151”). SFAS 151 amends the guidance given in ARB
      No. 43, Chapter 4, “Inventory Pricing” (“ARB 43”), to clarify the accounting for
      abnormal amounts of idle facility expense, freight, handling cost, and wasted
      material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that
      “under some circumstances, items such as idle facility expense, excessive
      spoilage, double freight, and rehandling cost may be so abnormal as to require
      treatment as current period charges.” SFAS 151 requires that those items be
      recognized as current-period charges regardless of whether they meet the
      criterion of “so abnormal.” In addition, SFAS 151 requires that allocation of
      fixed production overheads to the costs of conversion be based on the normal
      capacity of the production facilities. SFAS 151 is effective for inventory
      costs
      incurred during fiscal years beginning after June 15, 2005. Management does
      not
      believe that the adoption of this statement will have any immediate impact
      on
      the Company.





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





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




2. SEGMENT
      INFORMATION





The
      Company maintains two locations, New York, New York and Beverly Hills,
      California. Information concerning principal geographic areas is set forth
      below:




Revenues
              
              Three
                  months
                ended
                June
                  26,2005
              
              Three
                  months
                Ended
                June
                  27,2004New
                  York, New York
              
              $
              1,398,808
              
              $
              1,259,138Beverly
                  Hills, California
              
              
              670,503
              
              
              684,680Total
              
              $
              2,069,311
              
              $
              1,943,818
  Gross
                    ProfitNew
                    York, New York
                
                $
                792,131
                
                $
                695,593Beverly
                    Hills, California
                
                
                308,140
                
                
                310,073Total
                
                $
                1,100,271
                
                $
                1,005,666Net
                    Income (loss)New
                    York, New York
                
                $
                253,373
                
                $
                210,573Beverly
                    Hills, California
                
                
                88,641
                
                
                141,206Los
                    Angeles, California (corporate)
                
                
                (349,417
                )
                
                (248,618
                )Total
                
                $
                (7,403
                )
                $
                103,161
  6
 Revenues
                  
                  
                  Nine
                      months ended
                    June
                      26, 2005
                  
                  
                  Nine
                      months ended
                    June
                      27, 2004New
                      York, New York
                  
                  $
                  4,425,565
                  
                  $
                  4,011,960Beverly
                      Hills, California
                  
                  
                  1,945,120
                  
                  
                  2,056,069Total
                  
                  $
                  6,370,685
                  
                  $
                  6,068,029Gross
                      ProfitNew
                      York, New York
                  
                  $
                  2,619,196
                  
                  $
                  2,314,776Beverly
                      Hills, California
                  
                  
                  880,065
                  
                  
                  928,443Total
                  
                  $
                  3,499,261
                  
                  $
                  3,243,219Net
                      Income (Loss)New
                      York, New York
                  
                  $
                  1,029,764
                  
                  $
                  835,404Beverly
                      Hills, California
                  
                  
                  278,859
                  
                  
                  358,056Los
                      Angeles, California (corporate)
                  
                  
                  (975,269
                  )
                  
                  (690,469
                  )Total
                  
                  $
                  333,354
                  
                  $
                  502,991
  June
                      26,
                  
                  
                  June
                      27,Total
                      Assets
                  
                  
                  2005
                  
                  
                  2004New
                      York, New York
                  
                  $
                  2
                      ,282,121
                  
                  $
                  2,257,066Beverly
                      Hills, California
                  
                  
                  988,845
                  
                  
                  1,069,172Los
                      Angeles, California (corporate)
                  
                  
                  105,170
                  
                  
                  151,256Total
                  
                  $
                  3,376,136
                  
                  $
                  3,477,494





7


3. RELATED
      PARTY TRANSACTIONS





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





June
                26,
              2005
            
            September
                26,
              2004(A)
                Promissory notes, former chief executive officer
            
            $
            2,315,050
            
            $
            2,435,050(B)
                Affiliated company
            
            
            798,786
            
            
            798,786(C)
                Former landlord
            
            
            81,866
            
            
            170,8663,195,702
            
            
            3,404,702Less
                current portion
            
            
            (120,000
            )
            
            (120,000
            )$
            3,075,702
            
            $
            3,284,702





(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 and 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”). 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 nine months ended June 26, 2005, the Company paid its
      former chief executive officer $120,000.





(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 principal 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. The former landlord is a corporation owned by the Company’s former
      chief executive officer. 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 its 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 principal 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 nine
      months ended June 26, 2005, the Company paid its former landlord
      $89,000.





8




Interest
      Payable to Related Parties .
      Interest payable to related parties at June 26, 2005 and September 26, 2004
      consisted of the following:





June
                  26,
                2005
              
              
              September
                  26,
                2004Interest
                  payable, former chief executive officer
              
              $
              85,426
              
              $
              -Interest
                  payable, affiliated company
              
              
              19,946
              
              
              -Interest
                  payable, former landlord
              
              
              4,792
              
              
              -$
              110,164
              
              $
              -





4.
      SALES
      TAXES PAYABLE





In
      May
      2003, the Company began negotiations with the State of New York Department
      of
      Taxation with regards to the Company’s sales tax in arrears. The Company paid
      $100,000 as a down payment and entered into a tentative agreement to pay $25,000
      a month until the total balance was paid-in-full. In July 2003, the Company
      began making monthly payments. On January 24, 2004, the State of New York
      formally approved the $25,000 per month payment agreement, which is scheduled
      to
      end in July 2005. As of June 26, 2005, the Company owed the New York State
      Department of Taxation $2,641 in back sales tax, interest and penalties, and
      $24,091 in current sales tax.





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 June 26,
      2005 and September 26, 2004 are as follow:




June
                  26,
                2005
              
              September
                  26,
                2004Deferred
                  income tax assetNet operating loss carryforward
              
              
              4,000,000
              
              
              5,300,000Valuation allowance
              
              
              (4,000,000
              )
              
              (5,300,000
              )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 June 26, 2005, resulting from the
      accumulated net operating loss carry forward of approximately $11,600,000 at
      an
      effective rate of 34%. The operating losses expire in various years through
      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 June 26, 2005 that it was appropriate
        to
        estimate federal alternative minimum tax, New York state and local income
        taxes,
        and California state income taxes for the current fiscal year. The provision
        for
        income taxes of $76,000 includes $7,000 for federal alternative minimum tax,
        $49,000 for New York state and local income taxes, and $20,000 for California
        state income taxes.





9





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





FORWARD-LOOKING
      STATEMENTS





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 Acts (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.





OVERVIEW





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 under the name United Restaurants, Inc. The Company was originally formed
      in order to acquire all of the capital stock of Love’s Enterprises, Inc.
      (“LEI”), which was the franchiser, owner and operator of the Love’s restaurant
      chain. The Company acquired LEI in May 1993. In December 1996, due to less
      than
      anticipated operating results, the Company adopted a plan of discontinuance
      with
      respect to the Love’s restaurant chain, which was completed in July
      1998.





The
      Company currently owns and operates two Grand Havana Rooms, one in Beverly
      Hills, California, which opened in June 1995, and one in New York, New York,
      which opened in May 1997. In addition, the Company currently owns and operates
      one Grand Havana House of Cigars location, in Beverly Hills, California, which
      opened in December 1997. The Company’s primary business focus is operating its
      existing cigar clubs and retail store.





For
      the
      nine months ended June 26, 2005, the Company had net income of $333,354,
      compared to net income of $502,991 for the nine months ended June 27, 2004.
      This
      is primarily due to the increase in general and administrative expense
      pertaining to legal and accounting expenses of filing quarterly and annual
      reports with the Securities and Exchange Commission to bring the Company
      current.





RESULTS
      OF OPERATIONS





THREE
      MONTHS ENDED JUNE 26, 2005 COMPARED TO THREE MONTHS ENDED JUNE 27,
      2004





REVENUES





The
      Company derives revenues from continuing operations from four principal sources:
      (1) membership (humidor rental) fees; (2) sales of cigars and related
      merchandise; (3) club activities; and (4) food and beverage sales. During the
      fiscal quarter ended June 26, 2005, the Company had revenues of $2,069,311,
      compared to revenues of $1,943,818 for fiscal quarter ended June 27, 2004,
      an
      increase of $125 ,493 ,
      or
      approximately 6 . 5 %.





Membership
      (Humidor Rental) Fees .
      Revenue
      from humidor rental fees increased from $681,403 in the fiscal quarter ended
      June 27, 2004 to $746,157 in the fiscal quarter ended June 26, 2005, an increase
      of $64,754, or approximately 9.5%. This was primarily due to a rental increase
      of $25 per month per member at the New York Grand Havana Room which took effect
      on January 1, 2005. The New York Grand Havana Room is now maintaining a waiting
      list for membership.





10


Merchandise
      Sales .
      Revenue
      from merchandise sales increased from $113,040 in the fiscal quarter ended
      June
      27, 2004 to $133,472 in the fiscal quarter ended June 26, 2005, an increase
      of
      $20,432, or approximately 18.1%. This increase is principally due to an increase
      in membership in the New York Grand Havana Room.





Club
      Activities .
      Revenue
      from club activities or private events decreased from $170,791 in the fiscal
      quarter ended June 27, 2004 to $112,993 in the fiscal quarter ended June 26,
      2005, a decrease of $57,798, or approximately 33.8%, due to a decrease in
      private events.





Food
      and Beverage .
      Revenue
      from food and beverage increased from $978,584 in the fiscal quarter ended
      June
      27, 2004 to $1,076,689 in the fiscal quarter ended June 26, 2005, an increase
      of
      $98,105, or approximately 10.0%. 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 June 26, 2005, the Company incurred total costs and
      expenses of $1,960,171, compared to $1,786,684 for the fiscal quarter ended
      June
      27, 2004, an increase of $173,487, or approximately 9.7%. This was due to an
      increase in legal and auditing fees associated with the filing of quarterly
      and
      annual reports, and $76,000 in estimated income taxes.





Food
      and Beverage .
      During
      the quarter ended June 26, 2005, food and beverage expenses were $435,118,
      an
      increase of $19,748, or 4.8%, over food and beverage expenses for the quarter
      ended June 27, 2004. This increase was attributable to a 10.0% increase in
      food
      and beverage revenue.




Merchandise .
      During
      the quarter ended June 26, 2005, merchandise expenses were $66,395, an increase
      of $5,062, or 8.3%, over merchandise expenses for the quarter ended June 27,
      2004. This increase was due to an 18.1% increase in merchandise sales.





Direct
      Labor and Occupancy and other Expenses .
      During
      the quarter ended June 26, 2005, d irect
      labor and occupancy and other expenses were
      $1,113,736, an increase of $60,693, or 5.8%, from d irect
      labor and occupancy and other expenses for the
      quarter ended June 27, 2004. This was attributable to increased activity at
      the
      New York Grand Havana Room.





Depreciation
      and Amortization .
      Depreciation and amortization expenses increased by approximately 7.8%, from
      $80,326 in the fiscal quarter ended June 27, 2004, to $86,566 in the fiscal
      quarter ended June 26, 2005. This was primarily due to additional depreciation
      related to the acquisition of $64,000 in operating equipment.





General
      and Administrative .
      General
      and administrative expenses increased by approximately 46.3%, from $176,612
      in
      the fiscal quarter ended June 27, 2004, to $258,356 in the fiscal quarter ended
      June 26, 2005. This was due to an increase in legal and auditing fees associated
      with the filing of quarterly and annual reports.





Income
        Tax Expenses . The
        Company determined in the quarter ended June 26, 2005 that it was appropriate
        to
        estimate federal alternative minimum tax, New York state and local income
        taxes,
        and California state income taxes for the current fiscal year. The provision
        for
        income taxes of $76,000 includes $7,000 for federal alternative minimum tax,
        $49,000 for New York state and local income taxes, and $20,000 for California
        state income taxes. There was no income tax provision recorded in the fiscal
        quarter ended June 27, 2004.
  NET
        INCOME





The
      Company had a net loss of $7,403, or $0.00 per share, for the fiscal quarter
      ended June 26, 2005, compared to a net income of $103,161, or $0.01 per share,
      for fiscal quarter ended June 27, 2004. This decrease in net income of $110,564,
      or approximately 107.2%, was primarily due to an increase in legal and
      accounting expenses associated with the filing of quarterly and annual reports
      with the Securities and Exchange Commission, and $76,000 in estimated income
      taxes.





11


NINE
      MONTHS ENDED JUNE 26, 2005 COMPARED TO NINE MONTHS ENDED JUNE 27,
      2004.





REVENUES





During
      the nine months ended June 26, 2005, the Company had revenues of $6,370,685,
      compared to revenues of $6,068,029 for the nine months ended June 27, 2004,
      an
      increase of $302,656, or approximately 4.9%. This increase in revenues is
      primarily due to an increase in humidor rental fees and food and beverage
      revenue from the New York Grand Havana Room.





Humidor
      Rental Fees .
      Revenue
      from humidor rental fees increased from $2,054,993 in the nine months ended
      June
      27, 2004 to $2,145,737 in the nine months ended June 26, 2005, an increase
      of
      $90,744, or approximately 4.4%. This was due to a $25 per month per member
      increase in rental fees at the Grand Havana Room in New York.





Merchandise
      Sales .
      Revenue
      from merchandise sales increased from $342,465 in the nine months ended June
      27,
      2004 to $375,323 in the nine months ended June 26, 2005, an increase of $32,858,
      or approximately 9.6%. This was due to increased traffic in the Grand Havana
      Room in New York and the availability of better products.





Club
      Activities .
      Revenue
      from club events decreased from $601,517 in the nine months ended June 27,
      2004
      to $490,347 in the nine months ended June 26, 2005, a decrease of $111,170,
      or
      approximately 18.5%. This was due to a decrease in private events held at the
      Grand Havana Room in New York.





Food
      and Beverage .
      Revenue
      from food and beverage increased from $3,069,054 in the nine months ended June
      27, 2004 to $3,359,278 in the nine months ended June 26, 2005, an increase
      of
      $290,224, or approximately 9.5%. This is primarily due to an increase in members
      utilizing the New York Grand Havana Room.





COST
      AND
      EXPENSES





During
      the nine months ended June 26, 2005, the Company incurred total costs and
      expenses of $5,826,011, compared to $5,406,320 for the nine months ended June
      27, 2004, an increase of $419,691, or approximately 7.8%. This was due to an
      increase in legal and auditing fees associated with the filing of quarterly
      and
      annual reports, and $76,000 in estimated income taxes.





Food
      and Beverage .
      During
      the nine months ended June 26, 2005, food and beverage expenses were $1,305,111,
      an increase of $51,705, or 4.1%, over food and beverage expenses for nine months
      ended June 27, 2004. This is primarily due to the increase in food and beverage
      revenue.





Merchandise .
      During
      the nine months ended June 26, 2005, merchandise expenses were $193,722, an
      increase of $12,291, or 6.8% over merchandise expenses for the nine months
      ended
      June 27, 2004. This was primarily due to the purchase of higher end tobacco
      and
      other merchandise.





D irect
      Labor and Occupancy and other Expenses .
      During
      the nine months ended June 26, 2005, d irect
      labor and occupancy and other expenses were
      $3,297,532, an increase of $109,089, or 3.4% over d irect
      labor and occupancy and other expenses for the
      nine months ended June 27, 2004. This was due to a slight decrease in direct
      labor and an offsetting increase in occupancy and other expenses.





Depreciation
      and Amortization .
      Depreciation and amortization expenses increased by approximately 4.0%, from
      $244,870 in the nine months ended June 27, 2004, to $254,599 in the nine months
      ended June 26, 2005. This is due to the additional depreciation related to
      the
      purchase of new operating equipment.





General
      and Administrative .
      General
      and administrative expenses increased by approximately 44.0%, from $538,170
      in
      the nine months ended June 27, 2004, to $775,047 in the nine months ended June
      26, 2005. This is due to increased legal and professional expenses associated
      with the filing of quarterly and annual reports.




Income
        Tax Expenses . The
        provision for income taxes of $76,000 includes $7,000 for federal alternative
        minimum tax, $49,000 for New York state and local income taxes, and $20,000
        for
        California state income taxes. There was no income tax provision recorded
        in the
        nine months ended June 27, 2004.





12


NET
      INCOME





The
      Company experienced a net income of $333,354, or $.02 per share, for the nine
      months ended June 26, 2005, compared to a net income of $502,991, or $.03 per
      share, for the nine months ended June 27, 2004. This decrease in net income
      of
      $169,637, or 33.7%, was due to an increase in legal, accounting and other
      professional expenses related to filing quarterly and annual reports with the
      Securities and Exchange Commission, and $76,000 in estimated income
      tax.





LIQUIDITY
      AND CAPITAL RESOURCES





At
      June
      26, 2005, the Company had cash or cash equivalents of $172,329 .
      Operating activities for the nine months ended June 26, 2005 generated $372,443
      compared to $258,670 for the nine months ended June 27, 2005. Investing
      activities totaled $56,547 for purchasing operating equipment. Financing
      activities totaled $264,905 as a result of reducing the Company’s cash overdraft
      and payments for notes payable to related parties. Also included in this balance
      was $2,650 which the Company received from three employees exercising their
      stock options. Two employees exercised their options for 65,000 shares of common
      stock at an exercise price of $.01 per share. One employee exercised his options
      for 100,000 shares of common stock at an exercise price of $.02 per
      share.





At
      March
      1, 2004, the Company was indebted to its former chief executive officer in
      the
      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 and
      advances made by the former CEO. On March 1, 2004, the Company and the 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
      nine months ended June 26, 2005, the Company paid its former chief executive
      officer $120,000.





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. 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
      principal 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 to 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.




13


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 principal and unpaid interest owed as of September 26, 2004.
      The
      new note bears interest at a rate of 5% per annum. The Company has the right
      to
      prepay the note in whole or in part at any time. The promissory note is due
      and
      payable upon the earlier of (1) September 30, 2007, (2) the sale of all or
      substantially all of the assets of the Company, or (3) a change in control
      of
      the Company. During the nine months ended June 26, 2005, the Company paid its
      former landlord $89,000.





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.





CRITICAL
      ACCOUNTING POLICIES





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





Recent
      Accounting Pronouncements .
      In
      December 2004, the 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 of the first fiscal
      year that begins after June 15, 2005 for non-small business issuers, and after
      the first fiscal year that begins after December 15, 2005 for small business
      issuers. Accordingly, the Company will adopt SFAS 123 (R) in its quarter ending
      March 26, 2006. The Company is currently evaluating the provisions of SFAS
      123
      (R) , and  has
      not
      yet determined the impact, if any, that SFAS 123 (R)  will
      have
      on its financial statement presentation or disclosures.





In
      November 2004, the FASB issued SFAS 151. SFAS 151 amends the guidance given
      in
      ARB 43, to clarify the accounting for abnormal amounts of idle facility expense,
      freight, handling cost, and wasted material (spoilage). Paragraph 5 of ARB
      43,
      Chapter 4, previously stated that “under some circumstances, items such as idle
      facility expense, excessive spoilage, double freight, and rehandling cost may
      be
      so abnormal as to require treatment as current period charges.” SFAS 151
      requires that those items be recognized as current-period charges regardless
      of
      whether they meet the criterion of “so abnormal.” In addition, SFAS 151 requires
      that allocation of fixed production overheads to the costs of conversion be
      based on the normal capacity of the production facilities. SFAS 151 is effective
      for inventory costs incurred during fiscal years beginning after June 15, 2005.
      Management does not believe that the adoption of this statement will have any
      immediate impact on the Company.





In
      May
      2005, the FASB issued SFAS 154. SFAS 154 changes the requirements for the
      accounting for and reporting of a change in accounting principle. SFAS 154
      requires that a voluntary change in accounting principle be applied
      retrospectively with all prior period financial statements presented on the
      new
      accounting principle, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of changing to the new
      accounting principle. SFAS 154 also requires that a change in method of
      depreciating, amortizing or depleting a long-lived nonfinancial asset be
      accounted for prospectively as a change in estimate, and correction of errors
      in
      previously issued financial statements should be termed a restatement. SFAS
      154
      is effective for accounting changes and correction of errors made in fiscal
      years beginning after December 15, 2005. As such, the Company’s adoption of this
      standard in fiscal 2006 is not expected to have a material impact on the
      Company’s consolidated financial statements.





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





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 was valid until July 25, 2005. The Company
      has been in contact with DOHMH concerning the current exemption, since it has
      expired. As of August 4, 2005, DOHMH has not yet provided a renewal application
      for any “Tobacco Bar,” as they are trying to streamline the renewal process.
      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.





OFF-BALANCE
      SHEET ARRANGEMENTS





The
      Company does not have any off-balance sheet arrangements.




**ITEM
      3. CONTROLS AND PROCEDURES**





(a)Evaluation
                of Disclosure Controls and Procedures.




Stanley
      Shuster, the Company’s chief executive and 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.





15





**PART
      II - OTHER INFORMATION**




**ITEM
                6.**
            **EXHIBITS
                AND REPORTS ON FORM 8-K**31.1
                Certification of Chief Executive and Financial Officer pursuant to
                Section
                302 of the Sarbanes-Oxley Act of 200232.1
                Certification of Chief Executive and 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: August
                10, 2005
              By:
              /s/ Stanley
                ShusterStanley
                ShusterChief
                  Executive Officer and Chief Financial
                  Officer


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