<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
March 29, 1998; or
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
________________ to ________________.
Commission File Number 0-24828
GRAND HAVANA ENTERPRISES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4428370
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1990 WESTWOOD BOULEVARD, LOS ANGELES, CALIFORNIA 90025
(Address of Principal Executive Offices) (Zip Code)
(310) 475-5600
(Registrant's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports to be filed by Section 13 or
15(d) during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at May 11, 1998
----------------------- ---------------------------
<S> <C>
Common Stock, par value 14,174,306 shares
$.01 per share
</TABLE>
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
---------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 210,698 $ 879,461
Accounts receivable, net 182,935 56,924
Current portion of note receivable 16,697 24,829
Subscriptions receivable -- 1,288,950
Inventories 659,378 786,168
Prepaid expenses 296,126 206,685
Net assets of discontinued operations 217,018 237,143
---------- ----------
TOTAL CURRENT ASSETS 1,582,852 3,480,160
PROPERTY AND EQUIPMENT, Net 4,618,665 4,458,734
OTHER ASSETS
Restricted cash 975,045 118,596
Note receivable, net of current portion 55,171 55,171
Pre-opening costs 10,547 6,895
Due from related parties 48,000 78,032
Deferred charges 118,586 205,596
Deposits and other assets 89,927 95,650
---------- ----------
TOTAL OTHER ASSETS 1,297,276 559,940
---------- ----------
$7,498,793 $8,498,834
========== ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 3
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
March 29, September 28,
1998 1997
------------ -------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to related parties $ 1,027,000 $ 1,482,000
Accounts payable 1,133,964 1,054,547
Accrued liabilities 130,390 203,942
Deferred revenues 83,307 57,026
Due to related parties 573,431 420,599
Deferred rent payable 533,771 488,606
Accrued costs of discontinued operations 129,976 200,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,611,839 3,906,720
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized - 3,000,000
shares; issued and outstanding - none
Common stock, $.01 par value; authorized - 50,000,000
shares; issued and outstanding - 14,174,306 shares at 141,744 117,994
March 29, 1998 and 11,799,306 at September 28, 1997
Additional paid-in capital 13,279,044 12,684,723
Accumulated deficit (9,533,834) (8,210,603)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,886,954 4,592,114
------------ ------------
$ 7,498,793 $ 8,498,834
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 4
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------ ----------- ------------ -----------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
------------ ----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Food and beverage $ 762,305 $ 677,962 $ 1,624,617 $ 1,316,148
Merchandise sales 240,658 62,928 425,083 135,797
Membership fees 471,577 202,100 745,320 360,467
Other 26,162 568 201,967 20,067
------------ ----------- ------------ -----------
TOTAL REVENUES 1,500,702 943,558 2,996,987 1,832,479
COSTS AND EXPENSES
Food and beverage 288,782 231,829 705,685 447,754
Merchandise 90,684 28,701 218,073 77,006
Operating expenses
Direct labor 604,053 376,847 1,257,842 779,938
Occupancy and other 798,495 88,691 1,569,693 386,475
Pre-opening expenses 75,000 -- 75,000
General and administrative 182,969 356,062 283,567 457,718
Depreciation and amortization 87,172 51,452 194,673 102,838
------------ ----------- ------------ -----------
TOTAL COSTS AND EXPENSES 2,052,155 1,208,582 4,229,533 2,326,729
------------ ----------- ------------ -----------
LOSS BEFORE OTHER INCOME (EXPENSE) (551,453) (265,024) (1,232,546) (494,250)
OTHER INCOME (EXPENSE)
Interest income 168 650 1,533 6,300
Interest expense (51,920) (92,218) (36,558)
Other income, net 4,844 4,088
------------ ----------- ------------ -----------
TOTAL OTHER INCOME (EXPENSE) (51,752) 5,494 (90,685) (26,170)
------------ ----------- ------------ -----------
LOSS FROM CONTINUING OPERATIONS (603,205) (259,530) (1,323,231) (520,420)
DISCONTINUED OPERATIONS
Loss from operations (94,809)
Estimated loss on disposal (874,248)
------------ ----------- ------------ -----------
LOSS FROM DISCONTINUED OPERATIONS -- -- -- (969,057)
------------ ----------- ------------ -----------
NET LOSS $ (603,205) $ (259,530) $ (1,323,231) $(1,489,477)
============ =========== ============ ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 13,774,000 7,548,000 12,824,000 7,430,000
============ =========== ============ ===========
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (0.04) $ (0.03) $ (0.10) $ (0.07)
Loss from discontinued operations (0.01)
Estimated loss on disposal (0.12)
------------ ----------- ------------ -----------
$ (0.04) $ (0.03) $ (0.10) $ (0.20)
============ =========== ============ ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 5
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
March 29, March 30,
1998 1997
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,323,231) $(1,489,477)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 194,673 102,838
Common stock issued for services and fees 99,681
Changes in operating assets and liabilities:
Accounts receivable (126,011) (89,084)
Inventories 126,790 (362,033)
Prepaid expenses (89,441) (191,380)
Pre-opening costs (3,652) 108,172
Net assets of discontinued operations 20,125 (515,901)
Deposits and other 5,723 116,205
Accounts payable and accrued liabilities 5,865 401,803
Accrued costs of discontinued operations (70,024) 261,803
Deferred revenues 26,281 753,291
Deferred rent payable 45,165
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,088,056) (903,763)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (267,594) (2,578,588)
Due from related parties 30,032 21,419
Capital assets (120,110)
Collection of note receivable 8,132
Collection of equipment contract receivable 330,000
Restricted cash (856,449)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,085,879) (2,347,279)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 603,480
Principal reductions of notes payable (455,000)
Due to related parties 152,832
Collections of subscriptions receivable 1,288,950
Sale of common stock 518,390 1,791,050
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,505,172 2,394,530
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (668,763) (856,512)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 879,461 1,010,062
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 210,698 $ 153,550
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE> 6
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been
prepared by Grand Havana Enterprises, Inc. (the "Company") without audit
and, in the opinion of the management, reflect all adjustments of a
normal recurring nature necessary for a fair statement of (a) the
consolidated results of operations for the three and six months ended
March 29, 1998 and March 30, 1997, (b) the consolidated financial
position at March 29, 1998 and (c) the consolidated cash flows for the
six months ended March 29, 1998 and March 30, 1997. Interim results are
not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of September 28, 1997 has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The
consolidated financial statements and notes are condensed as permitted
by Form 10-QSB and do not contain certain information included in the
annual financial statements and notes of the Company. The consolidated
financial statements and notes included herein should be read in
conjunction with the financial statements and notes included in the
Company's Annual Report on Form 10-KSB.
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Company's consolidated financial statements and the notes thereto appearing
elsewhere in this Quarterly Report on Form 10-QSB. Certain statements contained
herein that are not related to historical results, including, without
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, 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 costs of the development of new Grand Havana
Room and Grand Havana House of Cigars locations, compliance with regulatory
requirements, the Company's ability to sell memberships in its Washington, D.C.
location, a decline in public consumption of cigars and other tobacco
products, significant increases in excise taxes which could substantially
increase the price of cigars and general economic factors. All forward-looking
statements contained in this Quarterly Report on Form 10-QSB are qualified in
their entirety by this statement.
OVERVIEW
The Company is engaged in the business of the ownership,
operation and development of private membership cigar clubs and restaurants
known as "Grand Havana Rooms," and the ownership, operation and development of
retail cigar stores known as "Grand Havana House of Cigars." Unless the context
otherwise indicates, the "Company" means Grand Havana Enterprises, Inc. and its
consolidated subsidiaries.
The Company currently owns and operates three Grand Havana Rooms,
one in Beverly Hills, California which opened in June 1995, one in Washington,
D.C. which opened in March 1997 and a third in New York, New York which opened
in May 1997. In addition, the Company currently owns and operates three Grand
Havana House of Cigars locations, one in Beverly Hills, California which opened
in December, 1997, one in Washington D.C. which opened in March, 1997, and one
in Las Vegas, Nevada which opened in November, 1997. As its principal business
focus, the Company intends to actively pursue the operation of its existing
<PAGE> 8
Grand Havana Room locations and Grand Havana House of Cigars locations, and to
develop additional locations of these two establishments in major cities in the
United States.
Management of the Company expects that during the membership
drive for its Washington, D.C. Grand Havana Room, and during the period it is
working on the development of additional Grand Havana Rooms and Grand Havana
House of Cigars locations, the Company will continue to experience consolidated
losses, until such time as there are enough profitable Grand Havana Rooms and
Grand Havana House of Cigars locations developed to absorb the increased
expenses and overhead; however, there can be no assurance that such cigar clubs
and retail cigar stores will be profitable in the future. The Company has
experienced operating losses since its inception.
During the fiscal quarter ended March 29, 1998, the Company
ceased operations of its On Canon restaurant in Beverly Hills, California, and
intends to convert the restaurant space, which is located on the ground floor
below the Company's Beverly Hills Grand Havana Room, into an expansion of the
Company's Beverly Hills Grand Havana Room.
The Company was incorporated under the laws of the State of
Delaware on April 13, 1993. The Company was originally formed in order to
acquire all of the capital stock of Love's Enterprises, Inc. ("Love's"), which
company was the franchisor, owner and operator of the Love's restaurant chain.
Love's was acquired by the Company in May 1993. In December 1996, due to less
than anticipated operating results from the Love's restaurant chain, the Company
adopted a plan of discontinuance with respect to the Love's restaurant chain.
In furtherance and complete implementation of such plan, the
following transactions took place. The Company's wholly-owned subsidiary,
Love's, and Custom Food Concepts, Inc. ("Concepts") entered into an agreement
dated February 24, 1998, pursuant to which Love's agreed to sell the assets of
the Love's Wood Pit Barbecue Restaurant in Lakewood, California and assign its
leasehold interest in the premises, for a total purchase price of $18,000 (the
"Lakewood Agreement). The sale of the property is currently in escrow.
Love's and Custom Food Franchise Group, Inc. ("Franchise Group")
entered into an agreement dated February 24, 1998, pursuant to which Love's (i)
sold its rights as franchisor of the remaining Love's Wood Pit Barbecue
restaurants operating in the United States, and its related leasehold interests;
(ii) granted an option to Franchise Group to franchise Love's Wood Pit Barbecue
restaurants in Canada and Mexico, said option to be exercisable until February
23, 2001 (the "Franchise Option"); and (iii) assigned to Franchise Group
intellectual property rights in
<PAGE> 9
the United States associated with Love's Wood Pit Barbecue Restaurants,
including trademarks, service marks, logos, slogans and designs, for a total
purchase price of $117,000 (the "Franchise Agreement"). This transaction has
closed. If the Franchise Option is exercised, Franchise Group will pay Love's
the additional sum of $10,000.
The Company guaranteed certain of Love's undisclosed obligations
as of February 24, 1998 with respect to the foregoing transactions, for which
the Company was paid $50,000. The Company's maximum liability under said
guarantee is $185,000. If the sale contemplated by the Lakewood Agreement is not
consummated, the Company is required to repay the $50,000 received by it.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 29, 1998
COMPARED TO THREE MONTHS ENDED MARCH 30, 1997
The Company derives revenues from continuing operations from
three principal sources: food and beverage sales, merchandise sales and
membership fees. During the fiscal quarter ended March 29, 1998 the Company had
revenues of $1,500,702 compared to revenues of $943,558 for the fiscal quarter
ended March 30, 1997, an increase of $557,144 or approximately 59.0%. The
increase in revenues is primarily due to the fact that the Company had three
Grand Havana Rooms operating during the fiscal quarter ended March 29, 1998,
compared to having one Grand Havana Room operating during the fiscal quarter
ended March 30, 1997. The operations of Love's was discontinued in December
1996, and, accordingly, its results of operations for the quarter ended March
30, 1997 are shown under "Discontinued operations" in the accompanying statement
of operations.
Revenue from food and beverage sales increased from $677,962 in
the fiscal quarter ended March 30, 1997 to $762,305 in the fiscal quarter ended
March 29, 1998, an increase of $84,343 or approximately 12.4%. This increase is
due primarily to having three Grand Havana Rooms operating during the fiscal
quarter ended March 29, 1998, compared to having one Grand Havana Room operating
during the fiscal quarter ended March 30, 1997, offset in part by the closure of
the On Canon restaurant during the fiscal quarter ended March 29, 1998, compared
to having the operations of such establishment during the entire fiscal quarter
ended March 30, 1997. Revenues from membership fees increased from $202,100 in
the fiscal quarter ended March 30, 1997 to $471,577 in the fiscal quarter ended
March 29, 1998, an increase of $269,477 or approximately 133%. This increase is
due to new memberships being sold at the Company's two new Grand Havana Rooms.
Revenues from merchandise sales increased from $62,928 for the fiscal quarter
ended March 30, 1997 to $240,658 for the fiscal quarter ended March 29, 1998, an
increase of $177,730 or
<PAGE> 10
approximately 282%. This increase was due to the Company's operating three new
Grand Havana House of Cigar locations during the fiscal quarter ended March 29,
1998 and merchandise sales at the two new Grand Havana Rooms which were
operating during the fiscal quarter ended March 29, 1998.
Total costs and expenses of the Company increased from $1,208,582
for the fiscal quarter ended March 30, 1997 to $2,052,155 for the fiscal quarter
ended March 29, 1998, an increase of $843,573 or approximately 69.8%. This
increase is primarily due to increased occupancy, labor, food and beverage,
merchandise and other costs associated with the two additional Grand Havana
Rooms and three additional Grand Havana House of Cigar locations which were
operating during the fiscal quarter ended March 29, 1998 compared to the fiscal
quarter ended March 30, 1997.
The Company's loss from continuing operations increased from
($259,530) in the fiscal quarter ended March 30, 1997 to ($603,205) in the
fiscal quarter ended March 29, 1998, an increase in loss from continuing
operations of $343,675 or approximately 132%. This increase in loss was due
primarily to operating costs associated with the Company's two new Grand Havana
Rooms. The Company's net loss increased from ($259,530) or $(0.03) per share in
the fiscal quarter ended March 30, 1997 to ($1,089,467) or ($0.08) per share for
the fiscal quarter ended March 29, 1998. This increase in loss was due primarily
to operating costs associated with the Company's two new Grand Havana Rooms.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 29, 1998, COMPARED
TO SIX MONTHS ENDED MARCH 30, 1997
The Company had revenues of $2,996,987 for the six-month period
ended March 29, 1998, compared to $1,832,479 for the six-month period ended
March 30, 1997, an increase of $1,164,508 or approximately 63.5%. This increase
in revenues was due primarily to the fact that the Company had three Grand
Havana Rooms operating during the six-month period ended March 29, 1998,
compared to having one Grand Havana Room operating during the six-month period
ended March 30, 1997.
Total costs and expenses of the Company increased from $2,326,729
for the six-month period ended March 30, 1997 to $4,229,533 for the six-month
period ended March 29, 1998, an increase of $1,902,804 or approximately 81.8%.
This increase is primarily due to increased occupancy, labor, food and beverage,
merchandise and other associated with the two additional Grand Havana Rooms and
three additional Grand Havana House of Cigar locations which were operating
during the six-month period ended
<PAGE> 11
March 29, 1998 compared to the six-month period ended March 30, 1997.
The Company experienced a net loss of $(1,809,493) for the
six-month period ended March 29, 1998 compared to a net loss of $(1,489,477) for
the six-month period ended March 30, 1997, an increase of $320,016 or
approximately 21.5%. The net loss during the six-month period ended March 30,
1997 included results of the discontinued operations of Love's restaurants of
($969,057). The loss from continuing operations increased from $520,420 during
the six-month period ended March 30, 1997 to $1,323,231 during the six-month
period ended March 29, 1998, an increase of $802,811 or approximately 154%. This
increase in loss is primarily due to costs associated with the Company's two new
Grand Havana Rooms.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to continue the expansion of its business,
primarily through the development and operation of additional Grand Havana Rooms
and Grand Havana House of Cigar locations. In order to decrease its cash
expenditures in connection with its future planned expansion activities, the
Company is currently investigating the possibility of continuing its expansion
plans with one or more joint venture partners; however, no agreements have as
yet been reached with any prospective joint venture partners, and there can be
no assurance that the Company will be able to reach any such agreements in the
future.
As a result of its expansion activities, the Company's working
capital has been continually reduced and at March 29, 1998 the Company had cash
or cash equivalents of $210,698. The Company anticipates that in connection with
continuing the operation of its existing Grand Havana Rooms and Grand Havana
House of Cigars locations, as well as its future development plans with respect
to its Grand Havana Rooms and Grand Havana House of Cigars, it will need
additional working capital during the next 12 months. The Company's New York
Grand Havana Room and Washington, D.C. Grand Havana Room have experienced
continuing losses since their respective openings. Although the New York Grand
Havana Room has recently achieved a break-even point, the Company anticipates
that it will continue to incur substantial future losses from the Washington,
D.C. Grand Havana Room until substantially more memberships are sold at that
club. The Company is currently marketing each of these clubs for use for event
parties with the goal of attracting additional members to these clubs.
In order to raise additional capital to fund its existing
operations and to develop future Grand Havana Rooms and
<PAGE> 12
Grand Havana House of Cigars locations, the Company anticipates that it will
seek to raise additional funds as may be required through the sale of its
securities (and/or through the exercise of outstanding warrants to purchase its
securities) in the next twelve month period. In addition, the Company has
reduced, and may continue to reduce, the exercise prices of warrants that have
been previously issued. During the fiscal quarter ended March 29, 1998, the
Company agreed to reduce the warrant exercise price of warrants to purchase an
aggregate of 1,100,000 shares of common stock of the Company issued in an
offering pursuant to Regulation S promulgated under the Securities Act (a
"Regulation S Offering") conducted during the quarter ended December 28, 1997,
which warrants had an original exercise price of $.82 per share. The warrant
exercise price of such warrants was reduced to an exercise price of $.27 per
share and all of such warrants were exercised in January 1998, resulting in
aggregate gross proceeds to the Company of $297,000, and net proceeds, after
deducting a 10% placement fee and a 3% non-accountable expense allowance, of
$258,390.
During the quarter ended March 29, 1998, the Company conducted
a Regulation S Offering of 1,200 units, consisting of shares of its common
stock and warrants to purchase its common stock, resulting in aggregate gross
proceeds to the Company of approximately $300,000, and net proceeds, after
deducting an 8% placement fee, a 2% non-accountable expenses allowance and other
related expenses, of $260,000.
Due to the fact that the trading price of the Company's common
stock has fallen during recent months, there can be no assurance that the
Company will be able to sell its securities in private placements on terms that
are acceptable to the Company. In addition, the Company does not currently meet
the new listing requirements for maintenance of the Company's securities on
Nasdaq's SmallCap Market (the "New Listing Requirements"). The New Listing
Requirements became effective in February 1998. If the Company is unable to
comply with the New Listing Requirements, the Company's securities may be
de-listed from the Nasdaq SmallCap Market, which might result in the Company
having difficulty in placing its securities with prospective investors. In this
regard, the Company has prepared and filed with the Securities and Exchange
Commission, and mailed to stockholders of record as of the close of business on
April 24, 1998, an Information Statement proposing an amendment to the Company's
Certificate of Incorporation to effect a 10:1 reverse stock split of the
Company's common stock (the "Reverse Stock Split"). If the amendment to the
Company's Certificate of Incorporation is approved by the consent of a majority
of shares entitled to vote thereon, which can occur on or after May 18, 1998, it
is expected that the bid price of the Company's common stock as quoted on the
Nasdaq SmallCap Market after the Reverse Stock Split would be
<PAGE> 13
greater than $1.00 per share, and the Company would be in compliance with the
New Listing Requirements.
If the Company is unable to raise additional funds through the
private placement of its securities it may seek financing from affiliated or
unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
available, that it will be available on terms acceptable to the Company. If the
Company is unable to place securities or obtain financing to meet its working
capital needs and to repay indebtedness as it becomes due, the Company may have
to consider such options as selling or pledging portions of its assets in order
to meet such obligations.
Substantially all of the funds raised in the Regulation S
Offerings, as well as funds loaned by entities affiliated with the Company, as
discussed below, have been spent by the Company in connection with the
development of the Company's Grand Havana House of Cigars locations, as well as
for general working capital purposes and repayment of indebtedness.
At March 29, 1998 the Company owed an aggregate of $520,000 in
principal amount to United Leisure Corporation ("United Leisure"), an affiliate
of the Company, pursuant to a financing agreement dated as of February 12, 1997,
as amended. All principal plus unaccrued interest thereon is due on or before
September 30, 1998. In addition, as of March 29, 1998, an aggregate of $507,000
in principal amount remained outstanding under a financing agreement with United
Film Distributors, Inc., an affiliate of the Company, the full amount of which,
together with all accrued but unpaid interest thereon, is due and payable by the
Company upon demand, which may not be made prior to November 1, 1998.
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
In January 1998, the Company issued 50,000 shares of its common
stock to IPO Consultants in connection with investor relations, public relations
and corporate consulting services. The Company received no proceeds from this
issuance.
In January 1998, the Company issued 1,100,000 shares of its
common stock to Strata Equities Limited upon exercise of a warrant at a reduced
exercise price of $.27 per share, resulting in aggregate gross proceeds to the
Company of $297,000, and net proceeds, after deducting a 10% placement fee and a
3% non-accountable expense allowance, of $258,390. Baytree Associates,
<PAGE> 14
Incorporated ("Baytree") had served as placement agent for the Regulation S
Offering in October 1997.
In February 1998, the Company issued 1,200 units (each unit
consisting of 1,000 shares and warrants to purchase 1,000 shares at $.30 per
share) to Cowrie Holdings, Ltd., at $250.00 per unit, in a Regulation S
Offering, resulting in aggregate gross proceeds to the Company of $300,000, and
net proceeds, after deducting an 8% placement fee, a 2% non-accountable expenses
allowance and other related expenses, of $260,000. The warrants may be
exercised for a period of five years from issuance. The Regulation S Offering
was placed through Baytree, which received an 8% commission and a 2%
non-accountable expense allowance in connection with the Regulation S Offering.
In March 1998, the Company issued 25,000 shares of its common
stock to United Leisure, an affiliate of the Company, in connection with the
extension of the maturity date of the loan previously made by United Leisure to
the Company from March 29, 1998 to September 30, 1998. The Company received no
proceeds from this issuance.
Except for the Regulation S Offering described above, (i) each of
the foregoing offerings was made directly by the officers and directors of the
Company and no underwriting discounts or commissions were paid; and (ii) each of
the foregoing transactions was exempt from the registration provisions of the
Securities Act pursuant to Section 4(2) thereof, for transactions by an issuer
not involving any public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On February 5, 1998, the Company filed an Amendment to a Current
Report on Form 8-K (originally filed on October 15, 1997) with respect to an
offering of securities pursuant to Regulation S, which was concluded in October
1997.
On February 27, 1998 the Company filed a Current Report on Form
8-K with respect to an offering of securities pursuant to Regulation S, which
was concluded in February 1998.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
GRAND HAVANA ENTERPRISES, INC.
Dated: May 13, 1998 By /s/ Harry Shuster
--------------------------------
Harry Shuster,
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS FOR
ITS FISCAL QUARTER ENDED MARCH 29, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 210,698
<SECURITIES> 0
<RECEIVABLES> 182,935
<ALLOWANCES> 0
<INVENTORY> 659,378
<CURRENT-ASSETS> 1,582,852
<PP&E> 4,618,665
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,498,793
<CURRENT-LIABILITIES> 3,611,839
<BONDS> 0
0
0
<COMMON> 141,744
<OTHER-SE> 3,745,210
<TOTAL-LIABILITY-AND-EQUITY> 7,498,793
<SALES> 2,049,700
<TOTAL-REVENUES> 2,996,987
<CGS> 923,758
<TOTAL-COSTS> 4,229,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,218
<INCOME-PRETAX> (1,323,231)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,323,231)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,323,231)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
