SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 28, 1998; or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________________ to
___________________ .
Commission File Number 0-24828
GRAND HAVANA ENTERPRISES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4428370
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1990 WESTWOOD BOULEVARD, LOS ANGELES, CALIFORNIA 90025
(Address of Principal Executive Offices) (Zip Code)
310/475-5600
(Registrant's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports to be filed by Section 13 or
15(d) during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for at least the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at August 10, 1998
--------------------- ------------------------------
Common Stock, par 14,174,306 shares
value $.01 per share
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
<TABLE>
<CAPTION>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
June 28, September 28,
1998 1997
------------ ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,064 $ 879,461
Accounts receivable, net 289,309 56,924
Current portion of note receivable 16,697 24,829
Subscriptions receivable - 1,288,950
Inventories 633,913 786,168
Prepaid expenses 365,905 206,685
Net assets of discontinued operations 2,706 237,143
------------ ----------
TOTAL CURRENT ASSETS 1,313,594 3,480,160
PROPERTY AND EQUIPMENT, Net 4,595,764 4,458,734
OTHER ASSETS
Restricted cash 935,000 118,596
Note receivable, net of current portion 55,171 55,171
Pre-opening costs 5,447 6,895
Due from related parties 48,000 78,032
Deferred charges 89,472 205,596
Deposits and other assets 118,827 95,650
------------ ------------
TOTAL OTHER ASSETS 1,251,917 559,940
------------ ------------
$ 7,161,275 $ 8,498,834
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
June 28, September 28,
1998 1997
------------- -------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Notes payable to related parties $ 1,027,000 $ 1,482,000
Accounts payable 1,418,076 1,054,547
Accrued liabilities 116,450 203,942
Deferred revenues 73,845 57,026
Due to related parties 628,431 420,599
Deferred rent payable 541,760 488,606
Accrued costs of discontinued operations -- 200,000
------------ ------------
TOTAL CURRENT LIABILITIES 3,805,562 3,906,720
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized - 3,000,000 shares; issued and
outstanding - none
Common stock, $.01 par value; authorized - 50,000,000
shares; issued and outstanding - 14,174,306 shares at 141,744 117,994
June 28, 1998 and 11,799,306 at September 28, 1997
Additional paid-in capital 13,279,044 12,684,723
Accumulated deficit (10,065,075) (8,210,603)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 3,355,713 4,592,114
------------ ------------
$ 7,161,275 $ 8,498,834
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
June 28, June 29, June 28, June 29,
1998 1997 1998 1997
------------- ------------- ------------ -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Food and beverage $ 650,997 $ 739,211 $ 2,275,614 $ 2,055,359
Merchandise sales 219,423 117,716 644,506 253,513
Initial territorial fees -- 600,000 -- 600,000
Membership fees
Initial 111,500 282,333 348,500 395,833
Monthly 331,344 181,842 839,664 428,809
Other 15,572 23,156 217,539 43,224
------------ ------------ ------------ ------------
TOTAL REVENUES 1,328,836 1,944,258 4,325,823 3,776,738
COSTS AND EXPENSES
Food and beverage 226,117 297,381 931,802 745,135
Merchandise 123,956 82,375 342,029 159,381
Operating expenses
Direct labor 511,985 625,907 1,769,827 1,405,845
Occupancy and other 560,000 391,328 2,129,693 777,803
Pre-opening expenses 7,224 166,550 7,224 241,550
General and administrative 285,777 334,790 569,344 792,509
Depreciation and amortization 101,761 103,323 296,434 206,161
------------ ------------ ------------ ------------
TOTAL COSTS AND EXPENSES 1,816,820 2,001,654 6,046,353 4,328,384
------------ ------------ ------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (487,984) (57,396) (1,720,530) (551,646)
OTHER INCOME (EXPENSE)
Interest income 895 5,082 2,428 11,382
Interest expense (44,152) (107,309) (136,370) (143,867)
Other income, net -- 72,909 -- 76,964
------------ ------------ ------------ ------------
TOTAL OTHER INCOME (EXPENSE) (43,257) (29,318) (133,942) (55,521)
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (531,241) (86,714) (1,854,472) (607,167)
DISCONTINUED OPERATIONS
Loss from operations -- -- -- (94,809)
Estimated gain (loss) on disposal -- 286,942 -- (587,306)
------------ ------------ ------------ ------------
LOSS FROM DISCONTINUED OPERATIONS -- 286,942 -- (682,115)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ (531,241) $ 200,228 $ (1,854,472) $ (1,289,282)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 14,174,306 8,356,461 12,501,306 7,791,131
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE
Loss from continuing operations $ (0.04) $ (0.01) $ (0.15) $ (0.08)
Loss from discontinued operations -- -- -- (0.01)
Estimated gain (loss) on disposal -- 0.03 -- (0.08)
------------ ------------ ------------ ------------
$ (0.04) $ 0.02 $ (0.15) $ (0.17)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------
June 28, June 29,
1998 1997
-------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,854,472) $(1,289,282)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 296,434 206,161
Common stock issued for services and fees 99,681 --
Changes in operating assets and liabilities:
Accounts receivable (232,385) (74,284)
Inventories 152,255 (525,682)
Prepaid expenses (159,220) 137,919
Pre-opening costs 1,448 --
Net assets of discontinued operations 234,437 (359,924)
Deposits and other 92,947 (131,173)
Accounts payable and accrued liabilities 276,037 652,630
Accrued costs of discontinued operations (200,000) --
Deferred revenues 16,819 71,085
Deferred rent payable 53,154 584,967
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,222,865) (727,583)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (433,464) (3,435,471)
Due from related parties 30,032 --
Collection of note receivable 8,132 --
Restricted cash (816,404) --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,211,704) (3,435,471)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal reductions of notes payable (455,000) (172,571)
Due to related parties 207,832 1,112,542
Collections of subscriptions receivable 1,288,950 --
Sale of common stock 518,390 2,440,550
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,560,172 3,380,521
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (874,397) (782,533)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 879,461 1,010,062
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,064 $ 227,529
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements presented have been prepared
by Grand Havana Enterprises, Inc. (the "Company") without audit and, in the
opinion of the management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of (a) the consolidated results of
operations for the three and nine months ended June 28, 1998 and June 29,
1997, (b) the consolidated financial position at June 28, 1998 and (c) the
consolidated cash flows for the nine months ended June 28, 1998 and June
29, 1997. Interim results are not necessarily indicative of results for a
full year.
The consolidated balance sheet presented as of September 28, 1997 has been
derived from the consolidated financial statements that have been audited
by the Company's independent public accountants. The consolidated financial
statements and notes are condensed as permitted by Form 10-QSB and do not
contain certain information included in the annual financial statements and
notes of the Company. The consolidated financial statements and notes
included herein should be read in conjunction with the financial statements
and notes included in the Company's Annual Report on Form 10-KSB.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Quarterly Report on Form 10-QSB. Certain statements contained herein that
are not related to historical results, including, without limitations,
statements regarding the Company's business strategy and objectives, future
financial position and estimated cost savings, are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act, as amended
(the "Exchange Act"), and involve risks and uncertainties. Although the Company
believes that the assumptions on which these forward-looking statements are
based are reasonable, there can be no assurance that such assumptions will prove
to be accurate and actual results could differ materially form those discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, risks and uncertainties
associated with the ability to obtain adequate working capital on terms
favorable to the Company, the costs of the development of new Grand Havana Rooms
and Grand Havana House of Cigars locations, compliance with regulatory
requirements, the Company's ability to sell significantly more memberships at
its Washington, D.C. location, a decline in public consumption of cigars and
other tobacco products, significant increases in excise taxes which could
substantially increase the price of cigars and general economic factors. All
forward-looking statements contained in this Quarterly Report on Form 10-QSB are
qualified in their entirety by this statement.
OVERVIEW
The Company is engaged in the business of the ownership, operation and
development of private membership cigar clubs and restaurants known as "Grand
Havana Rooms" and the ownership, operation and development of retail cigar
stores known as "Grand Havana House of Cigars." Unless the context otherwise
indicates, the "Company" means Grand Havana Enterprises, Inc. and its
consolidated subsidiaries.
The Company currently owns and operates three Grand Havana Rooms, one in
Beverly Hills, California, which opened in June 1995; one in Washington, D.C.,
which opened in March 1997; and one in New York, New York, which opened in May
1997. In addition, the Company currently owns and operates three Grand Havana
House of
<PAGE>
Cigar locations, one in Beverly Hills, California, which opened in December
1997; one in Washington, D.C., which opened in March 1997; and one in Las Vegas,
Nevada, which opened in November 1997. As its principal business focus, the
Company intends to continue the operation of its existing Grand Havana Rooms and
Grand Havana House of Cigar locations, and develop additional Grand Havana Rooms
and Grand Havana House of Cigar locations in other selected major cities in the
United States.
Management of the Company expects that for the foreseeable future the
Washington, D.C. Grand Havana Room will continue to operate at a substantial
loss and that during the period the Company is working on the development of
additional Grand Havana Rooms and Grand Havana House of Cigar locations, the
Company will continue to experience consolidated losses until such time as there
are enough profitable Grand Havana Rooms and Grand Havana House of Cigar
locations developed to absorb the increased expenses and overhead. However,
there can be no assurance that additional Grand Havana Rooms and Grand Havana
House of Cigar locations will be opened or, if opened, that they will be
profitable. The Company has experienced operating losses since its inception.
During the fiscal quarter ended March 29, 1998, the Company ceased
operations of its On Canon restaurant in Beverly Hills, California, and is in
the process of converting the restaurant space, which is located on the ground
floor below the Company's Beverly Hills Grand Havana Room, into an expansion of
that Grand Havana Room. As a result of this additional capacity, the Company has
reopened the membership list at the Beverly Hills Grand Havana Room, which was
fully subscribed, and has begun to accept names off the waiting list.
The Company was incorporated under the laws of the State of Delaware on
April 13, 1993. The Company was originally formed in order to acquire all of the
capital stock of Love's Enterprises, Inc. ("Love's"), which company was the
franchisor, owner and operator of the Love's restaurant chain. Love's was
acquired by the Company in May 1993. In December 1996, due to less than
anticipated operating results from the Love's restaurant chain, the Company
adopted a plan of discontinuance with respect thereto.
In furtherance and complete implementation of such plan, the following
transactions took place. The Company's wholly-owned subsidiary, Love's, and
Custom Food Concepts, Inc. ("Concepts") entered into an agreement dated February
24, 1998, pursuant to which Love's agreed to sell the assets of the Love's Wood
Pit Barbecue Restaurant in Lakewood, California and assign its leasehold
interest in the premises, for a total purchase price of $18,000 (the "Lakewood
Agreement"). The sale of the property closed on July 30, 1998.
Love's and Custom Food Franchise Group, Inc. ("Franchise Group") entered
into an agreement dated February 24, 1998, pursuant
<PAGE>
to which Love's (i) sold its rights as franchisor of the remaining Love's Wood
Pit Barbecue restaurants operating in the United States, and its related
leasehold interests; (ii) granted an option to Franchise Group to franchise
Love's Wood Pit Barbecue restaurants in Canada and Mexico, said option to be
exercisable until February 23, 2001 (the "Franchise Option"); and (iii) assigned
to Franchise Group intellectual property rights in the United States associated
with Love's Wood Pit Barbecue restaurants, including trademarks, service marks,
logos, slogans and designs, for a total purchase price of $117,000 (the
"Franchise Agreement"). This transaction has also closed. If the Franchise
Option is exercised, Franchise Group will pay Love's the additional sum of
$10,000.
The Company guaranteed certain of Love's undisclosed obligations as of
February 24, 1998 with respect to the foregoing transactions, for which the
Company was paid $50,000. The Company's maximum liability under said guarantee
is $185,000.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 28, 1998 COMPARED TO THREE
MONTHS ENDED JUNE 29, 1997
The Company derives revenues from continuing operations from three
principal sources: food and beverage sales, merchandise sales and membership
fees. During the fiscal quarter ended June 28, 1998, the Company had revenues of
$1,328,836 compared to revenues of $1,944,258 for the fiscal quarter ended June
29, 1997, a decrease of $615,422 or approximately 31.7%. This decrease in
revenues is primarily due to the fact that a one-time licensing fee in the
amount of $600,000 relating to territorial rights for nine Asian countries was
earned in the fiscal quarter ended June 29, 1997. Of this amount, the Company
established a reserve of $300,000 on its balance sheet at September 28, 1997, as
a result of the then-developing Asian financial crisis. Because of continued
deteriorating financial conditions in Asia, the Company does not now believe
that it will receive the second $300,000 payment with respect to this one-time
licensing fee.
The operations of Love's was discontinued in December 1996 and,
accordingly, its results of operations for the fiscal quarter ended June 29,
1997 are shown under "Discontinued Operations" in the accompanying statement of
operations.
Revenue from food and beverage decreased from $739,211 in the fiscal
quarter ended June 29, 1997 to $650,997 in the fiscal quarter ended June 28,
1998, a decrease of $88,214 or approximately 11.9%. This decrease is primarily
attributable to the fact that the Company's On Canon Restaurant was not
operating during the fiscal quarter ended June 28, 1998, whereas it was
operational during the fiscal quarter ended June 29, 1997. The decrease in food
and beverage revenue would have been greater but for the fact that the Company
had three Grand Havana Rooms operational in the fiscal quarter ended June 28,
1998 compared to two Grand Havana Rooms
<PAGE>
operational during the full fiscal quarter ended June 29, 1997.
Revenue from merchandise sales increased from $117,716 in the fiscal
quarter ended June 29, 1997 to $219,423 in the fiscal quarter ended June 28,
1998, an increase of $101,707 or approximately 86.4%. This increase is due to
the fact that the Company had one Grand Havana House of Cigars location
operational during the full fiscal quarter ended June 29, 1997, compared to
three Grand Havana House of Cigar locations being operational during the fiscal
quarter ended June 28, 1998.
Monthly membership fees increased from $181,842 in the fiscal quarter ended
June 29, 1997 to $331,344 in the fiscal quarter ended June 28, 1998, an increase
of $149,502 or approximately 82.2%. Conversely, initial membership fees
decreased from $282,333 in the fiscal quarter ended June 29, 1997 to $111,500 in
the fiscal quarter ended June 28, 1998, a decrease of $170,833 or approximately
60.5%. This primarily reflects the fact that with all three of the Company's
Grand Havana Rooms now having been open for more than one year, the allocation
of membership fees has shifted from initial membership fees earned during the
clubs' opening periods to monthly membership fees earned during a period of
regular operations at these clubs.
During the fiscal quarter ended June 28, 1998, the Company incurred total
costs and expenses of $1,816,820 compared to $2,001,654 for the fiscal quarter
ended June 29, 1997, a decrease of $184,834 or approximately 10.1%. This
decrease is primarily due to decreases in pre-opening expenses, direct labor
costs, food and beverage costs, and general and administrative expenses, offset
in part by increases in occupancy and merchandise costs. These factors arose
chiefly as a result of there being one Grand Havana House of Cigars location
operational during the full fiscal quarter ended June 29, 1997, compared to
there being three Grand Havana House of Cigar locations operational during the
fiscal quarter ended June 28, 1998.
The Company experienced a net loss of ($531,241) for the fiscal quarter
ended June 28, 1998 compared to net income of $200,228 for the fiscal quarter
ended June 29, 1997, an increase in loss of ($731,469) or approximately 365%.
Net income for the fiscal quarter ended June 29, 1997 included estimated gain on
disposal of certain Love's assets of $286,942. The Company's loss from
continuing operations increased from ($86,714) in the fiscal quarter ended June
29, 1997 to ($531,241) in the fiscal quarter ended June 28, 1998, an increase in
loss from continuing operations of $444,527 or approximately 512%. This increase
in loss was due primarily to the fact that during the fiscal quarter ended June
29, 1997 there was revenue from licensing of $600,000, and there was no revenue
from licensing in the fiscal quarter ended June 28, 1998.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 28, 1998 COMPARED TO NINE MONTHS
ENDED JUNE 29, 1997
<PAGE>
During the nine-month period ended June 28, 1998, the Company had revenues
of $4,325,823 compared to revenues of $3,776,738 for the nine-month period ended
June 29, 1997, an increase of $549,085 or approximately 14.5%. This increase in
revenues is primarily due to increases in merchandise sales, membership fees,
and food and beverage revenue, partially offset by the fact that a one-time
licensing fees in the amount of $600,000 relating to territorial rights in nine
Asian countries was earned in the nine-month period ended June 29, 1997. Of this
amount, the Company established a reserve of $300,000 on its balance sheet at
September 28, 1997, as a result of the then-developing Asian financial crisis.
Because of continued deteriorating financial conditions in Asia, the Company
does not now believe that it will receive the second $300,000 payment with
respect to this one-time licensing fee.
During the nine-month period ended June 28, 1998, the Company incurred
total costs and expenses of $6,046,353 compared to $4,328,384 for the nine-month
period ended June 29, 1997, an increase of $1,717,969 or approximately 39.7%.
This increase is primarily due to increases in occupancy, direct labor, food and
beverage and merchandise costs, partially offset by a decrease in general and
administrative costs. These factors arose chiefly as a result of there being one
Grand Havana House of Cigars location operational during the full nine-month
period ended June 29, 1997, compared to there being three Grand Havana House of
Cigar locations operational during the nine-month period ended June 28, 1998,
together with reduced administrative costs.
The Company experienced a net loss of ($1,854,472) for the nine-month
period ended June 28, 1998 compared to a net loss of ($1,289,282) for the
nine-month period ended June 29, 1997, an increase of $565,190 or approximately
43.8%. The net loss for the nine-month period ended June 29, 1997 included
results of the discontinued operations of Love's restaurants of ($682,115). The
Company's loss from continuing operations increased from ($607,167) in the
nine-month period ended June 29, 199 to ($1,854,472) in the nine-month period
ended June 28, 1998, an increase in loss from continuing operations of
$1,247,305 or approximately 205%. This increase in loss was due primarily to the
fact that the Company had one Grand Havana House of Cigars location operational
during the full fiscal quarter ended June 29, 1997, compared to three Grand
Havana House of Cigar locations being operational during the fiscal quarter
ended June 28, 1998, and the new operations were not profitable during the
entire period of their operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company intends to continue the expansion of its business, primarily
through the development and operation of additional Grand Havana Rooms and Grand
Havana House of Cigar locations. In order to decrease its cash expenditures in
connection with its future planned expansion activities, the
<PAGE>
Company is currently investigating the possibility of pursuing its expansion
plans with one or more joint venturers. However, since no agreements have yet
been reached with respect to such possibility, there can be no assurance that
the Company will be able to reach any such agreements in the future or, if any
such agreements are reached, whether they will be on terms favorable to the
Company.
As a result of its previous expansion activities and operating losses, the
Company's working capital has been continually reduced. At June 28, 1998 the
Company had cash and cash equivalents of $5,064. In addition, the Company had
net accounts receivable of $289,309 at such date. The Company anticipates that
it will need significant additional working capital during the next twelve
months. The Company's New York and Washington, D.C. Grand Havana Rooms have
experienced continuing losses since their respective openings. Although the New
York Grand Havana Room is now approximately at a break-even point, the Company
anticipates that it will continue to incur substantial losses from the
Washington, D.C. Grand Havana Room until such time, if ever, as significantly
more memberships are sold at that club. The Company is currently marketing each
of these clubs for use for event parties with the goal of attracting additional
members to these clubs.
In order to raise additional capital to fund its existing operations and
develop future Grand Havana Rooms and Grand Havana House of Cigar locations, the
Company anticipates that it will seek to raise additional funds through the sale
of its securities (and/or the exercise of outstanding warrants to purchase the
Company's common stock) over the next 12-month period. The Company has reduced,
and may continue to reduce, the exercise price of stock purchase warrants that
the Company has previously issued.
Due to the fact that the trading price of the Company's common stock has
fallen during recent months, there can be no assurance that the Company will be
able to sell its securities on terms that are acceptable to the Company. In
addition, the Company does not currently meet the new minimum bid listing
requirements (the "New Listing Requirements") for maintenance of the Company's
common stock on the SmallCap Market of The Nasdaq Stock Market ("Nasdaq"). The
New Listing Requirements became effective in February 1998. In June 1998, the
Company was notified that Nasdaq intended to delist the Company's common stock
for failure to meet the New Listing Requirements. The Company has appealed the
proposed Nasdaq delisting, which appeal is pending. During the pendency of this
appeal, the Company's common stock will not be delisted by Nasdaq. If the
Company's common stock is ultimately delisted from Nasdaq, it may be
automatically eligible to trade on the OTC Bulletin Board. Nonetheless, such a
development could result in the Company's having difficulty in offering and
selling its securities to prospective investors.
The Company has prepared and filed with the Securities
<PAGE>
and Exchange Commission, and mailed to stockholders of record as of the close of
business on April 24, 1998, an Information Statement (the "Information
Statement") proposing an amendment to the Company's Certificate of Incorporation
to effect a 1-for-10 reverse stock split of the Company's common stock (the
"Reverse Stock Split"). If a majority of the Company's stockholders approve of
the amendment to the Company's Certificate of Incorporation and the Reverse
Stock Split is effected, it is expected that the minimum bid price of the
Company's common stock on Nasdaq would be greater than $1.00 per share and,
among other things, the Company would be in compliance with the New Listing
Requirements.
However, since the mailing of the Information Statement, the Company has
not sought to obtain the approval of the Company's stockholders to amend the
Company's Certificate of Incorporation and effect the Reverse Stock Split, while
the Company first pursues other financing alternatives. The Company has recently
held meaningful discussions with several potential investors to provide
substantial additional capital. However, no definitive agreement has been signed
and there can be no assurance that the Company will be able to reach any such
agreement in the future or, if any such agreement is reached, whether it will be
on terms favorable to the Company.
If the Company is unable to raise additional funds through the private
placement of its securities, it may seek financing from affiliated or
unaffiliated third parties. There can be no assurance, however, that such
financing would be available to the Company when and if it is needed, or that if
it is available, that it will be available on terms acceptable to the Company.
If the Company is unable to sell its securities or obtain financing to meet its
working capital needs and to repay indebtedness as it becomes due, the Company
may have to consider such alternatives as selling or pledging portions of its
assets, among other possibilities, in order to meet such obligations.
At June 28, 1998, the Company owed an aggregate of $1,027,000 in principal
amount to two affiliates of the Company. At such date, the Company owed $520,000
in principal amount to United Leisure Corporation, pursuant to a financing
agreement dated as of February 12, 1997, as amended. All principal plus
unaccrued interest thereon is due on or before September 30, 1998. In addition,
at June 28, 1998, the Company owed $507,000 in principal amount to United Film
Distributors, Inc. ("UFD"). The full principal amount, together with all accrued
but unpaid interest thereon, is due and payable by the Company upon demand by
UFD, which may not be made prior to November 1, 1998.
Substantially all of the funds raised in previous private offerings, as
well as funds loaned by entities affiliated with the Company, have been spent by
the Company in connection with the development of the Company's Grand Havana
House of Cigar locations, as well as for general working capital purposes and
repayment of indebtedness.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
28, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
GRAND HAVANA ENTERPRISES, INC.
Dated: August 12, 1998 By /s/ Harry Shuster
--------------------------------
Harry Shuster,
Chairman of the Board,
Chief Executive Officer and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SUMMARY CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S
UNAUDITED CONSOLIDATED BALANCE SHEETS AND STATEMENT OF OPERATIONS FOR THE 9
MONTHS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-28-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> JUN-28-1998
<EXCHANGE-RATE> 1
<CASH> 5,064
<SECURITIES> 0
<RECEIVABLES> 289,309
<ALLOWANCES> 0
<INVENTORY> 633,913
<CURRENT-ASSETS> 1,313,594
<PP&E> 4,595,764
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,161,275
<CURRENT-LIABILITIES> 3,805,562
<BONDS> 0
0
0
<COMMON> 141,744
<OTHER-SE> 3,213,969
<TOTAL-LIABILITY-AND-EQUITY> 7,161,275
<SALES> 2,920,120
<TOTAL-REVENUES> 4,325,823
<CGS> 1,273,831
<TOTAL-COSTS> 6,046,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,370
<INCOME-PRETAX> (1,854,472)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,854,472)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,854,472)
<EPS-PRIMARY> (.15)
<EPS-DILUTED> (.15)
</TABLE>
