<PAGE>
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 December 26, 1999
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, 3rd Floor
Los Angeles, California 90210
(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 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 February 9, 2000
- -------------------- -------------------------------
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. FINANCIAL STATEMENTS
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 26, September 26,
1999 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 201,463 $ 94,523
Accounts receivable, net 137,346 86,030
Current portion of note receivable 115,000 115,000
Inventories 433,694 435,999
Prepaid expenses 204,436 218,008
------------ ------------
TOTAL CURRENT ASSETS 1,091,939 949,560
------------ ------------
PROPERTY AND EQUIPMENT, Net of accumulated depreciation 3,590,175 3,679,983
OTHER ASSETS
Restricted cash 935,391 875,000
Due from related parties 129,904 130,001
Deposits and other assets 63,730 63,730
------------ ------------
TOTAL OTHER ASSETS 1,129,025 1,068,731
------------ ------------
TOTAL $ 5,811,139 $ 5,698,274
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to related parties $ 1,549,154 $ 1,549,154
Bank overdraft 100,506 84,671
Accounts payable 986,200 1,029,301
Accrued liabilities 414,541 422,479
Deferred revenues 150,410 189,194
Due to related parties 1,449,577 1,397,648
Deferred rent payable 527,924 462,054
------------ ------------
TOTAL CURRENT LIABILITIES 5,178,312 5,134,501
------------ ------------
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 in 1998 and 1999 141,744 141,744
Additional paid-in capital 13,279,044 13,279,044
Accumulated deficit (12,787,961) (12,857,015)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 632,827 563,773
------------ ------------
TOTAL $ 5,811,139 $ 5,698,274
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
2
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
December 26, December 27,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUES
Food and beverage $ 843,676 $ 855,227
Merchandise sales 185,040 223,873
Membership fees 462,607 444,657
Catering Rental 360,662 228,664
----------- -----------
TOTAL REVENUES 1,851,985 1,752,421
----------- -----------
COSTS AND EXPENSES
Food and beverage 272,480 287,008
Merchandise 93,039 109,991
Operating expenses
Direct labor and benefits 505,816 555,177
Occupancy and other 640,072 694,429
General and administrative 114,460 262,815
Depreciation and amortization 112,116 121,419
----------- -----------
TOTAL COSTS AND EXPENSES 1,737,983 2,030,839
----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE) 114,002 (278,418)
OTHER INCOME (EXPENSE)
Interest income 10,797 12,234
Interest expense (55,745) (46,046)
----------- -----------
TOTAL OTHER INCOME (EXPENSE) (44,948) (33,812)
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 69,054 (312,230)
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 69,054 (312,230)
----------- -----------
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE - (23,844)
----------- -----------
NET INCOME (LOSS) $ 69,054 $ (336,074)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 14,174,306 14,174,306
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Income (Loss) before cumulative change in accounting principle $ 0.00 $ (0.02)
Cumulative effect of change in accounting principle - -
----------- -----------
$ 0.00 (0.02)
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
3
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
December 26, December 27,
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 69,054 $(336,074)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 112,117 121,419
Amortization of deferred charges - 33,549
Changes in operating assets and liabilities:
Accounts receivable (51,316) (214,991)
Inventories 2,305 43,289
Prepaid expenses 13,572 18,620
Pre-opening costs - 23,844
Accounts payable and other accrued liabilities (51,039) 575,617
Deferred revenues (38,784) (51,652)
Deferred rent payable 65,870 (224,238)
-------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 121,779 (10,617)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (22,309) (101,590)
Due from related parties 97 97,737
Collection of note receivable - 6,951
Deferred charges, deposits and other assets - 760
Restricted cash (60,391) -
-------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (82,603) 3,858
CASH FLOWS FROM FINANCING ACTIVITIES
Due to related parties 51,929 -
Bank overdraft 15,835 (19,436)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 67,764 (19,436)
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 106,940 (26,195)
CASH AND CASH EQUIVALENTS, beginning of period 94,523 95,344
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $201,463 $ 69,149
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE>
GRAND HAVANA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated condensed financial statements presented have been
prepared by Grand Havana Enterprises, Inc. (the Company) without audit and,
in the opinion of the management, reflect all adjustments of a normal
recurring nature necessary for a fair statements of (a) the consolidated
condensed results of operations for the three months ended December 26,
1999 and December 27, 1998 (b) the consolidated condensed financial
position at December 26, 1999 and September 26, 1999 and (c) the
consolidated condensed cash flows for the three months ended December 26,
1999 and December 27, 1998. Interim results are not necessarily indicative
of the results for a full year.
The consolidated balance sheet presented as of September 26, 1999 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.
2. CHANGE IN ACCOUNTING PRINCIPLE
The Company changed its method of accounting for pre-operating cost to
conform with new requirements of Statement of Position ("SOP") No. 98-5
"Reporting on the Costs of Start-Up Activities". This Statement requires
that costs of start-up activities, including organization costs, be
expensed as incurred. Initial application of this SOP should be reported as
the cumulative effect of a change in accounting principle as described in
APB Opinion No. 20 "Accounting Changes".
3. RECLASSIFICATIONS
Portion of revenues from food and beverage for three months ended December
27, 1998 has been reclassified to catering rental to conform to 1999
presentation.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the Company's
consolidated financial statements and the notes thereto appearing elsewhere in
this Quarterly Report on Form 10-QSB. Certain statements contained herein that
are not related to historical results, including, without limitation, statements
regarding the Company's business strategy and objectives, future financial
position and estimated cost savings, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act, as amended
(the "Exchange Act"), and involve risks and uncertainties. Although the Company
believes that the assumptions on which these forward-looking statements are
based are reasonable, there can be no assurance that such assumptions will prove
to be accurate and actual results could differ materially from those discussed
in the forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, risks and uncertainties
associated with the ability to obtain adequate working capital on terms
favorable to the Company, compliance with regulatory requirements, the Company's
ability to sell more memberships, a decline in public consumption of cigars and
other tobacco products, significant increases in excise taxes which could
substantially increase the price of cigars and general economic factors. All
forward-looking statements contained in this Quarterly Report on Form 10-QSB are
qualified in their entirety by this statement.
Grand Havana Enterprises, Inc. (the "Company" or "Registrant") is engaged
in the business of the ownership and operation of private membership restaurants
and 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 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. The Company formerly operated a third Grand
Havana Room and House of Cigars in Washington, D.C. That location was closed in
February 1999 and substantially all of the assets were sold. In addition, the
Company currently owns and operates two Grand Havana House of Cigars locations,
one in Beverly Hills, California, which opened in December 1997 and one in
6
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Las Vegas, Nevada, which opened in November 1997. The Company's primary business
focus is on operating its existing cigar clubs and retail stores.
For the quarter ended December 26, 1999, the Company experienced its first
quarterly consolidated net gain from operations since the Company's inception.
The Company had a net gain of $69,054 for the fiscal quarter ended December 26,
1999 compared to net losses of ($336,074) for the fiscal quarter ended December
27, 1998. This improvement is attributable primarily to two factors: (1)
reductions in costs from the closure of the Washington, D.C., Grand Havana Room
and House of Cigars and (2) the increase in revenue at the New York Grand Havana
Room due to increases in private parties and the new "social" membership plan. A
social member is permitted to use the club's dining facilities but does not have
a locker or humidor. Although the social members pay less in initial and monthly
membership fees, the Company receives additional revenue from the increased use
of its facilities.
The two House of Cigars locations are still experiencing operating losses.
The Las Vegas House of Cigars location had an operating loss of ($22,906) for
the quarter ending December 26, 1999 and the Beverly Hills House of Cigars had
an operating loss of ($663) for the same period.
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 company was the franchisor, owner and operator
of the Love's restaurant chain. The Company acquired the stock of LEI 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, which plan was completed in July 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 26, 1999 COMPARED TO THREE MONTHS ENDED DECEMBER
27, 1998
The Company derives revenues from continuing operations from four principal
sources: (1) food and beverage sales, (2) sales of cigars and related
merchandise, (3) membership fees, and (4) catering rentals. During the fiscal
quarter ended December 26, 1999, the Company had revenues of $1,851,985 compared
to revenues of $1,752,421 for the fiscal quarter ended December 27, 1998, an
increase of $99,564 or approximately 5.68%. This increase in revenues is
primarily due to the increase in revenues from private parties at the New York
Grand Havana Room in November and December 1999 and the increased revenue from
social membership fees. Revenue at the New York Grand Havana Room for the
quarter ending December 26, 1999 was $1,150,000 compared to revenue of $939,814
at the New York Grand Havana Room for the quarter ended December 27, 1998 an
increase of approximately 22.36%. The relatively small increase in total Company
revenue from the quarter ended December 27, 1998 is principally due to the loss
of revenues from the closure of the Washington, D.C., Grand Havana Room and
House of Cigars
7
<PAGE>
which closed in February 1999 but which were operating throughout the fiscal
quarter ended December 27, 1998.
Revenue from food and beverage decreased from $855,227 in the fiscal
quarter ended December 27, 1998 to $843,676 in the fiscal quarter ended
December 26, 1999, a decrease of $11,551 or approximately 1.35%. This decrease
is primarily attributable to the loss of revenue from the closure of the
Washington, D.C., Grand Havana Room.
Revenue from merchandise sales decreased from $223,873 in the fiscal
quarter ended December 27, 1998 to $185,040 in the fiscal quarter ended December
26, 1999, a decrease of $38,833 or approximately 17.35%. This decrease is
principally due to the loss of revenue from the closure of the Washington, D.C.,
Grand Havana Room and House of Cigars and a decrease of approximately $10,000 in
sales of tobacco products at the Beverly Hills Grand Havana Room from the
quarter ended December 27, 1998. The Company believes that this decrease was
principally due to the fact that, in the first part of the quarter ended
December 26, 1999, the Company did not have for sale all of the tobacco products
which its members wished to buy.
Revenue from membership fees increased from $444,657 in the fiscal quarter
ended December 27, 1998 to $462,607 in the fiscal quarter ended December 26,
1999, an increase of $17,950 or approximately 4.04%. This is primarily a result
of membership fees from the social members at the New York Grand Havana Room.
This increase would have been greater but for the loss of membership revenue
from the closure of the Washington, D.C., Grand Havana Room. The New York Grand
Havana Room has approximately 40% of its regular memberships available for sale.
Revenue from catering rental increased from $228,664 in the fiscal quarter
ended December 27, 1998 to $360,662 in the fiscal quarter ended December 26,
1999 an increase of $131,998 or approximately 57.72%. This increase was a result
of an increase in private parties, mostly at the New York Grand Havana Room.
During the fiscal quarter ended December 26, 1999, the Company incurred
total costs and expenses of $1,737,983 compared to $2,030,839 for the fiscal
quarter ended December 27, 1998, a decrease of $292,856 or approximately 14.42%.
This decrease is primarily due to decreases in direct labor costs, food and
beverage costs, and merchandise costs resulting from the closure of the
Washington, D.C. Grand Havana Room and House of Cigars. This figure also
reflects decreases due to the imposition of more efficient operations and better
controls at the locations and the Company's effort to reduce corporate overhead.
General and administrative expenses decreased by approximately 56.45% from
$262,815 in the fiscal quarter ended December 27, 1998 to $114,460 in the fiscal
quarter ended December 26, 1999. Increased excise taxes on cigars have not yet
had a material effect on the Company's profits.
The Company experienced a net gain of $69,054 or $.00 per share for the
fiscal quarter ended December 26, 1999, compared to a net loss of ($336,074) or
($.02) per share for the fiscal quarter ended December 27, 1998, an increase of
$405,128 or approximately 122.12%.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 26, 1999, the Company had cash or cash equivalents of $201,463.
On August 15, 1998, Harry Shuster, former Chairman of the Board, President,
Chief Executive Officer and director of the Company and the father of Stanley
Shuster, the current Chairman of the Board, President, Chief Executive Officer,
Chief Financial Officer, Executive Vice President, director and principal
stockholder of the Company, agreed to lend the Company $300,000. The Company
delivered to Harry Shuster its secured promissory note dated August 15, 1998
(the "Shuster Note"). The Shuster Note bears interest at 10% per annum. Its due
date has been extended by agreement with Harry Shuster to April 30, 2000. The
Shuster Note is secured by a second lien security interest in certain
collateral. As of December 26, 1999, the entire principal amount of the Shuster
Note, $300,000, remained outstanding. As of December 26, 1999, the Company is
indebted to Harry Shuster in the amount of $1,044,869 for amounts due under the
Shuster Note and for advances made from time to time by Harry Shuster to the
Company.
On September 30, 1998, United Leisure Corporation, a publicly-held company
located in Irvine, California ("United Leisure") agreed to make a new
installment loan to the Company in the amount of up to $1,250,000 in replacement
of the previous loan between United Leisure and the Company. The Company
executed a Secured Promissory Note dated September 30, 1998 (the "Promissory
Note"). The Promissory Note provides that United Leisure may from time to time,
but shall not be obligated to, make future advances up to a total amount of
$1,250,000. The Promissory Note is secured by a first lien security interest in
certain collateral. The Promissory Note's due date has been extended to April
30, 2000. At December 26, 1999 the Company owed an aggregate of $682,155 to
United Leisure under the Promissory Note. Stanley Shuster, the current Chairman
of the Board, President, Chief Executive Officer, Chief Financial Officer,
Executive Vice President, director and principal stockholder of the Company, is
the brother of Brian Shuster, the President of United Leisure.
In addition, as of December 26, 1999, 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 demand could not be made prior to November 1, 1998.
Stanley Shuster, the current Chairman of the Board, President, Chief Executive
Officer, Chief Financial Officer, Executive Vice President, director and
principal stockholder of the Company, is the brother of Brian Shuster, the
President of United Film Distributors, Inc.
9
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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
is currently trading on the OTC Bulletin Board, 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 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 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.
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 December 26,
1999.
SIGNATURE
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.
Date: February 12, 2000 /s/ Stanley Shuster
--------------------------------------------
Stanley Shuster
Chief Executive Officer, and Chief Financial
Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
DECEMBER 26, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-24-2000
<PERIOD-START> SEP-27-1999
<PERIOD-END> DEC-26-1999
<CASH> 201,463
<SECURITIES> 0
<RECEIVABLES> 148,046
<ALLOWANCES> 10,700
<INVENTORY> 433,694
<CURRENT-ASSETS> 1,091,939
<PP&E> 5,081,033
<DEPRECIATION> 1,490,858
<TOTAL-ASSETS> 5,811,139
<CURRENT-LIABILITIES> 5,178,312
<BONDS> 0
0
0
<COMMON> 141,744
<OTHER-SE> 491,083
<TOTAL-LIABILITY-AND-EQUITY> 5,811,139
<SALES> 1,491,323
<TOTAL-REVENUES> 1,851,985
<CGS> 1,511,407
<TOTAL-COSTS> 1,737,983
<OTHER-EXPENSES> 44,948
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,745
<INCOME-PRETAX> 69,054
<INCOME-TAX> 0
<INCOME-CONTINUING> 69,054
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,054
<EPS-BASIC> 0.005
<EPS-DILUTED> 0.005
</TABLE>
