FORM 10-Q

                              SECURITIES AND EXCHANGE COMMISSION

                                    Washington, D.C. 20549

(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 30, 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: SEC #: 0-22675


                                      800-JR Cigar, Inc.
                    (Exact name of Registrant as specified in its charter)

Delaware                                                     52-2022117
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

301 Route 10 East,  Whippany,  New  Jersey  07981,  USA  (Address  of  principal
executive offices) (Zip code)

                                        (973) 884-9555
                      (Registrant's telephone number including area code)

                                        Not applicable
(Former name, former address, and former fiscal year, if changed since last 
report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  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 ____

                                    (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common stock, as of the latest practicable date.

          Common Stock, $.01 par value - 12,750,000 shares as of August 10, 1998

<PAGE>

                                       800-J.R. Cigar, Inc. and Subsidiaries

                                                Index to Form 10-Q



Part I - Financial Information

Item 1.  Financial Statements                                               Page
   Consolidated Statements of Income for the Three-Month Periods
     ended June 30, 1997 and 1998 and the Six-Month Periods ended
     June 30, 1997 and 1998 (Unaudited)........................................3
   Consolidated Balance Sheets as of December 31, 1997 and June 30, 1998
     (Unaudited)...............................................................4
   Consolidated Statements of Cash Flows for the Six-Month Periods ended
     June 30, 1997 and 1998 (Unaudited)........................................5
   Notes to Consolidated Financial Statements (Unaudited)......................6

Item 2.  Management's Discussion and Analysis of Financial Condition
   and Results of Operations..................................................12

Part II - Other Information

Item 2.  Change in Securities and Use of Proceeds.............................14

Item 6.  Exhibits and Reports on Form 8-K.....................................15
   Signatures.................................................................16

<PAGE>

                             800-J.R. Cigar, Inc. and Subsidiaries

                               Consolidated Statements of Income
                                          (Unaudited)

                           (In thousands, except per share amounts)

<TABLE>
<CAPTION>

                                             Three-month period                Six-month period
                                               ended June 30                    ended June 30
                                      --------------------------------- --------------------------------
                                            1998            1997             1998            1997
                                      ------------------------------------------------------------------
                                                       (Predecessor)                    (Predecessor)

<S>                                        <C>             <C>              <C>              <C>     
Net sales                                  $70,042         $60,435          $132,238         $110,118
Cost of goods sold                          56,360          48,057           105,992           88,688
                                     ------------------------------------------------------------------
Gross profit                                13,682          12,378            26,246           21,430

Operating expenses:
   Selling                                   1,460           1,244             2,810            2,373
   General and administrative expenses       5,363           5,715            10,329            9,396
   Depreciation and amortization               418             198               785              385
                                      -----------------------------------------------------------------
Income from operations                       6,441           5,221            12,322            9,276

Other income (expense):
   Interest expense                           (337)           (271)             (707)            (444)
   Interest income                             512              74               911              164
   Rental income                                41              56                83              101
   Other, net                                   14              53                27               61
                                      ------------------------------------------------------------------
Income before income taxes                    6,671           5,133            12,636            9,158

Provision (credit) for income taxes           2,731          (1,480)            5,164           (1,339)
                                      ------------------------------------------------------------------
Net income                                 $  3,940        $  6,613        $    7,472      $    10,497
                                      ==================================================================

Pro forma:
   Historical income before provision
    for income taxes                                      $  5,133                        $     9,158
   Pro forma adjustments other than income taxes
                                                             1,251                                977
                                                      -----------------                -----------------
   Pro forma income before income taxes                      6,384                             10,135
   Pro forma provision for income taxes                      2,605                              4,135
                                                     -----------------                -----------------
   Pro forma net income                                   $  3,779                        $     6,000
                                                      =================                =================

   Pro forma earnings per share                           $    .38                        $      .59
                                                      =================                =================
   Pro forma common shares outstanding                       9,811                              9,811
                                                      =================                =================

Per share data
Earnings per share - basic                $    .31                         $     .59
                                      =================                =================
Earnings per share - diluted              $    .31                         $     .58
                                      =================                =================
                                                                 
Weighted average shares outstanding 
     - basic                                12,750                            12,750
                                      =================                =================
Weighted average shares outstanding 
     - diluted                              12,833                            12,854
                                      =================                =================

See accompanying notes.
</TABLE>

<PAGE>

                             800-J.R. Cigar, Inc. and Subsidiaries

                                  Consolidated Balance Sheets

                                        (In thousands)
<TABLE>
<CAPTION>

                                                             June           December
                                                           30, 1998         31, 1997
                                                      ------------------------------------
Assets                                                   (Unaudited)        (Audited)
Current assets:
<S>                                                          <C>               <C>    
   Cash and cash equivalents                                 $13,615           $16,572
   Investments in marketable securities                       18,306            14,981
   Accounts receivable, net of allowance for doubtful  
     accounts of $78 at December 31, 1997 and June 30, 1998    2,957             2,313
   Merchandise inventory                                      37,740            34,779
   Prepaid expenses and other current assets                   1,728             2,155
   Loans receivable - affiliates and other associated entities   437               603
   Deferred tax asset - current                                  986               996
                                                      ------------------------------------
Total current assets                                          75,769            72,399

Property, equipment and improvements, at cost, net of 
   accumulated depreciation and amortization                  21,226            18,518
Other assets                                                     392               243
Deferred tax asset, net                                           91               102
                                                      ------------------------------------
                                                             $97,478           $91,262
                                                      ====================================

Liabilities and stockholders' equity Current liabilities:
   Current portion of long-term debt                        $  7,933         $   7,933
   Accounts payable                                           10,127             7,157
   Accrued expenses                                            1,836             2,096
                                                      ------------------------------------
Total current liabilities                                     19,896            17,186

Long-term debt, less current portion                           8,933            12,900
                                                      ------------------------------------
Total liabilities                                             28,829            30,086

Commitments and contingencies

Stockholders' equity:
   Common stock                                                  128               128
   Additional paid-in capital                                 52,716            52,716
   Retained earnings                                          15,805             8,332
                                                      ------------------------------------
Total stockholders' equity                                    68,649            61,176
                                                      ------------------------------------
                                                             $97,478           $91,262
                                                      ====================================

See accompanying notes.
</TABLE>

<PAGE>


                             800-J.R. Cigar, Inc. and Subsidiaries

                             Consolidated Statements of Cash Flows
                                          (Unaudited)

                                        (In thousands)
<TABLE>
<CAPTION>

                                                                     Six-month period
                                                                      ended June 30
                                                             ---------------------------------
                                                                  1998            1997
                                                             ---------------------------------
                                                                             (Predecessor)
Cash flows from operating activities
<S>                                                              <C>             <C>    
Net income                                                       $  7,472        $10,497
Adjustments to reconcile net income to net cash provided 
     by operating activities:
     Depreciation and amortization                                    785            385
     Provision for uncollectible accounts                                             55
     Deferred income taxes                                             21         (1,233)
     Changes in operating assets and liabilities:
       Accounts receivable                                           (644)          (274)
       Merchandise inventory                                       (2,961)        (2,347)
       Prepaid expenses and other current assets                      427           (955)
       Other assets                                                  (149)          (106)
       Accounts payable and accrued expenses                        2,710          2,775
                                                             ---------------------------------
Net cash provided by operating activities                           7,661          8,797

Cash flows from investing activities
Purchase of marketable securities                                  (3,325)
Purchase of property and equipment                                 (3,492)        (1,511)
Loans repaid by affiliates and other associated entities              166             74
Loans extended to stockholders                                                      (445)
                                                             ---------------------------------
Net cash used in investing activities                              (6,651)        (1,882)

Cash flows from financing activities
Expenses paid in connection with common stock offering                              (500)
Payments of long-term debt                                                        (1,050)
Payments on distribution notes                                     (3,967)
Distribution to stockholders                                                      (7,189)
Payments of capital lease obligations                                                (44)
                                                             --------------------------------
Net cash used in financing activities                              (3,967)        (8,783)
                                                             --------------------------------

Net decrease in cash and cash equivalents                          (2,957)        (1,868)
Cash and cash equivalents at beginning of period                   16,572          6,056
                                                             --------------------------------
Cash and cash equivalents at end of period                        $13,615       $  4,188
                                                             ================================

Supplemental disclosures of cash flow information
Interest paid                                                   $     659      $     122
                                                             ================================
Income taxes paid                                                $  5,067
                                                             ================================
Noncash distribution to stockholders                                            $  2,959
                                                             ================================
Distribution notes issued to stockholders                                        $23,800
                                                             ================================
See accompanying notes.
</TABLE>

<PAGE>


                             800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                          (Unaudited)
                           (In thousands, except per share amounts)

                                         June 30, 1998

1.  Unaudited Financial Statements

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and with  the  instructions  to Form  10-Q and  Rule  10-01 of  Regulation  S-X.
Accordingly, they do not include all of the information and footnote disclosures
normally included in complete financial  statements  prepared in accordance with
generally  accepted  accounting  principles.  For further  information,  such as
significant  accounting policies followed by the Company,  refer to the notes to
the Company's audited consolidated financial statements.

In the opinion of management,  the unaudited  financial  statements  include all
necessary  adjustments  (consisting  of normal,  recurring  accruals) for a fair
presentation of the financial position, results of operations and cash flows for
the interim  periods  presented.  The results of operations for the  three-month
periods ended June 30, 1997 and 1998, and six-month  periods ended June 30, 1997
and 1998, are not necessarily indicative of the operating results to be expected
for a full year.

2.  Basis of Presentation, Pro Forma Adjustments and Summary of Accounting
      Policies

Basis of Presentation

800-JR Cigar,  Inc. ("800-JR Cigar") was incorporated in Delaware in March 1997.
In  connection  with  800-JR  Cigar's  initial  public  offering  of stock  (the
"Offering") on June 26, 1997, the former  principals of the predecessor group of
companies  contributed  to  800-JR  Cigar  all of the  outstanding  stock in the
entities  that  comprise the  predecessor  group of  companies,  in exchange for
9,300,000  shares of common  stock of 800-JR Cigar (the  "Reorganization").  The
accompanying  financial  statements  include the results of  operations  for the
period  January  1, 1997 to June 26,  1997 of J. R.  Tobacco of  America,  Inc.,
J.N.R.  Grocery Corp.,  J&R Tobacco (New Jersey) Corp., J. R. Tobacco Company of
Michigan, Inc., Cigars by Santa Clara N.A., Inc., J. R. Tobacco Outlet, Inc., J.
R.-46th  Street,  Inc., J. R. Tobacco NC, Inc., J. R.  Statesville,  Inc. and JR
Cigar (DC), Inc. (together, the "Company" or the "Predecessor Entities").

For the period from  January 1, 1998 through  June 30,  1998,  the  accompanying
consolidated  financial  statements  include the results of operations of 800-JR
Cigar, as well as all companies that were included in the Predecessor Entities.

<PAGE>

                              800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                    (Unaudited) (continued)
                           (In thousands, except per share amounts)


2.  Basis of Presentation, Pro Forma Adjustments and Summary of Accounting
      Policies (continued)

All significant intercompany balances and transactions have been eliminated.

The financial  statements of the  Predecessor  Entities are being presented on a
consolidated basis because of their common ownership.  The financial  statements
have been  prepared  as if the  Predecessor  Entities  had  operated as a single
consolidated group since their respective dates of organization. All significant
intercompany   balances  and  transactions  have  been  eliminated.   After  the
Reorganization,  the Predecessor  Entities became  subsidiaries of 800-JR Cigar,
Inc.

Pro Forma Adjustments

The unaudited  pro forma net income for the three- and  six-month  periods ended
June 30, 1997  reflects  the  Reorganization,  the  Offering  and the  following
adjustments  as if they had occurred on January 1 of each period:  a) a decrease
in aggregate  compensation from $253 to $200 for the six-month period ended June
30, 1997 and from $127 to $100 for the  three-month  period  ended June 30, 1997
for the  two of the  Company's  executives  pursuant  to  their  new  employment
agreements;  b) an increase in interest expense of $798 for the six-month period
ended June 30,  1997 and $381 for the  three-month  period  ended June 30,  1997
assuming  the  issuance of the  Distribution  Notes;  c) a reduction in interest
expense of $328 for the  six-month  period  ended June 30, 1997 and $155 for the
three-month period ended June 30, 1997 assuming the application of proceeds from
the Offering to repay all of the Company's indebtedness other than capital lease
obligations;  d) a reduction in interest income of $106 for the six-month period
ended June 30,  1997 and $50 for the  three-month  period  ended  June 30,  1997
assuming the repayment to the Company of loans receivable from stockholders;  e)
an increase of $1,500 for the three and  six-month  periods ended June 30, 1997,
related to signing  bonuses paid in  connection  with the execution of long-term
service agreements;  and f) an increase of $5,474 for the six-month period ended
June 30,  1997 and $4,085 for the  three-month  period  ended June 30,  1997 for
income  taxes  based upon pro forma  pre-tax  income as if the  Company had been
subject to federal and additional state income taxes.

<PAGE>

                              800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                    (Unaudited) (continued)
                           (In thousands, except per share amounts)


2.  Basis of Presentation, Pro Forma Adjustments and Summary of Accounting
      Policies (continued)

On June 6, 1997, the Company issued  Distribution  Notes to the former principal
stockholders of the Predecessor Entities in the amount of $23,800,  representing
estimated  undistributed  cumulative S Corporation  earnings through the date of
the Offering which were taxable to those stockholders. These notes bear interest
at the rate of 7.0% per annum,  and are  payable on a  quarterly  basis over the
three-year period following the Offering.

On June 6, 1997, the Predecessor  Entities also issued  additional  distribution
notes (the "Additional Notes") to the principal  stockholders of the Predecessor
Entities,  for a nominal  amount.  At December 31, 1997,  the initial  principal
amount  of the  additional  notes  was  increased  to $1  million,  the  maximum
allowable.  Such increase represents the amount by which the final S Corporation
earnings  of the  Predecessor  Entities  exceeded  the  principal  amount of the
Distribution  Notes.  The  Additional  Notes  mature  on June 1,  2000  and bear
interest at the rate of 7% per annum.

Earnings Per Share

In 1997, the Financial  Accounting Standards Board ("FASB") issued Statement No.
128,  Earnings per Share.  Statement 128 replaced the calculation of primary and
fully  diluted  earnings  per share with basic and diluted  earnings  per share.
Unlike  primary  earnings  per share,  basic  earnings  per share  excludes  any
dilutive  effects of  options,  warrants  and  convertible  securities.  Diluted
earnings per share is calculated  similar to fully  diluted  earnings per share.
Pro forma earnings per share amounts conform to Statement 128 requirements.

Pro Forma Earnings Per Share

Pro forma  earnings  per  share is based on  9,300,000  shares  of common  stock
outstanding  prior to the Offering,  increased by the sale of 511,658  shares of
common  stock  assuming  an initial  public  offering  price of $17.00 per share
($15.44,  net of underwriting  discounts and commissions and estimated  offering
expenses), the proceeds of which would be necessary to pay approximately $7,900,
the  current  portion of the  Distribution  Notes.  The net  income  used in the
calculation  of pro forma  earnings  per share  represents  pro forma net income
decreased  by the interest  expense on debt of $155 ($92 on an after-tax  basis)
for the  three-month  period  ended June 30, 1997 and $328 ($194 on an after-tax
basis) for the six-month period ended June 30, 1997.

<PAGE>

                              800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                    (Unaudited) (continued)
                           (In thousands, except per share amounts)


2.  Basis of Presentation, Pro Forma Adjustments and Summary of Accounting
      Policies (continued)

Supplementary pro forma earnings per share for the three-month period ended June
30,  1997  and  six-month   period  ended  June  30,  1997,  are  .37  and  .58,
respectively, based on 9,300,000 shares of common stock outstanding prior to the
Offering,  increased  by (a) the sale of 511,658  shares of common  stock at the
initial public  offering price of $17.00 per share ($15.44,  net of underwriting
discounts,  commissions and offering  expenses),  the proceeds of which would be
necessary to pay approximately  $7,900,  the current portion of the Distribution
Notes,  and (b) the sale of 467,896 shares of common stock at the initial public
offering  price of $17.00  per share  ($15.45,  net of  underwriting  discounts,
commissions and offering expenses),  the proceeds of which would be necessary to
repay approximately $7,229, the amount of outstanding debt at June 30, 1997. The
net income used in the calculation of supplementary pro forma earnings per share
is the pro forma net  income of $3,779 and  $6,000  for the  three-month  period
ended June 30, 1997 and the six-month period ended June 30, 1997.

3.  Initial Public Offering

Effective June 26, 1997,  the Company sold 3,450,000  shares of its common stock
at a price of $17 per share in an initial public offering (the "Offering").  Net
proceeds  of  the  Offering,   after   deducting   underwriting   discounts  and
commissions,  and  professional  fees  aggregated  $53,270.  As of June 30, 1998
proceeds of the  Offering  were used for the  following  purposes:  (i) to repay
outstanding indebtedness of $7,300, (ii) $5,900 for the relocation and design of
specialty  stores,  (iii) $4,600 for the purchase of land and building for a new
discount  outlet store and  warehouse  distribution  center,  (iv) the quarterly
principal  payments  of  distribution  notes of $7,900,  (v)  payment of signing
bonuses in connection  with long-term  service  agreements,  (vi) $2,000 for the
upgrade of the Company's information systems,  (vii) interest payments of $1,400
on the  Distribution  Notes,  and (viii) $14,900 for working capital and general
corporate purposes. The remaining proceeds of $7,770 are expected to be used for
the following purposes: (i) $2,770 for a new discount outlet store and warehouse
distribution  center,  and (ii) $5,000 for the expansion of retail selling space
at existing discount outlet stores.

<PAGE>

                              800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                    (Unaudited) (continued)
                           (In thousands, except per share amounts)


4.  Revolving Credit Facility

The Company entered into a new $20 million revolving Credit Facility through May
31, 1999.  Borrowings under this facility are unsecured and bear interest at the
bank's  prime rate minus  1/2% or, at the option of the  Company,  1.5% over the
London Interbank  Offered Rate (LIBOR).  No amounts were outstanding  under this
facility at June 30, 1998.

5.  Historical and Pro Forma Income Taxes

The historical income tax provision for the six-month period ended June 30, 1997
principally  reflects the S Corporation tax provision of approximately $361, for
the period  from  January 1, 1997  through  June 26,  1997;  a federal and state
income tax benefit of $491,  for the period from June 27, 1997 to June 30, 1997,
which period  includes  $1,500 of expenses  related to signing bonuses and a tax
benefit of $1,209 for the deferred  tax asset  recorded in  accordance  with the
provisions  of SFAS No.  109.  The  income  tax  benefit of $1,480 for the three
months  ended  June  30,  1997  represents  taxes  provided  by the  predecessor
companies  for  state  and  local   governments  at  "S"  corporation  rates  of
approximately  $229, a deferred tax benefit of $1,209  recorded  concurrent with
becoming  subject to federal and additional state income taxes and a tax benefit
of $500 for the loss for the  period  from  June 27 to June 30,  1997,  when the
Company was subject to federal and additional state income taxes.

The entities in the Predecessor Company were corporations that had elected to be
taxed as S  Corporations  pursuant to the Internal  Revenue  Code. In connection
with the  Offering,  the  Company has become  subject to federal and  additional
state income tax. The pro forma provision for income taxes represents the income
tax  provisions  that would have been  reported  had the Company been subject to
federal and additional state income taxes.

Concurrent with becoming  subject to federal and additional  state income taxes,
the Company recorded a deferred tax asset and a corresponding tax benefit in the
statement  of income in  accordance  with the  provisions  of SFAS No. 109.  The
deferred tax asset recorded on the date of the Offering was $1,209.

The pro forma  provision for income taxes for the three- and  six-month  periods
ended June 30, 1997 includes a provision  for federal,  state and local taxes of
$2,605 and $4,135, respectively, at an effective rate of approximately 41%. This
amount is comprised of current expense of $2,875 and $4,479, respectively, and a
deferred  benefit  of $270  and  $344  for the  three-  and  six-month  periods,
respectively.

<PAGE>

                              800-JR Cigar, Inc. and Subsidiaries

                          Notes to Consolidated Financial Statements
                                    (Unaudited) (continued)
                           (In thousands, except per share amounts)


6.  Acquisitions

On January 27, 1998,  the Board of Directors  approved the purchase of the stock
of Nicaraguan  America  Tobacco Inc.  ("NATCO"),  the exclusive  importer of all
cigars produced by Nicaragua American Tobacco S.A. ("NATSA"),  a manufacturer of
hand made cigars in Nicaragua. NATCO is owned 50% by an officer/director and 50%
by another  director of the Company,  and 49% and 36% of NATSA is owned by these
same  individuals.  The purchase price is based on a  predetermined  multiple of
earnings of NATCO for the year ended December 31, 1997.

On January 27, 1998, the Company purchased for a nominal amount Casa Blanca, 
Inc. ("Casa Blanca"), the owner/operator of the El Rey del Mundo Smokers Bar and
Lounge within one of the Company's retail outlets.  Casa Blanca was owned by an 
officer/director of the Company.

<PAGE>

Item 2.  Management's Discussion and Analysis of Financial Condition and Results
          of Operation


                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                              CONDITION AND RESULTS OF OPERATIONS


         This  report  contains  certain  "forward-looking   statements."  Those
statements  appear in a number of places in this report and  include  statements
regarding  the  intent,  belief or  current  expectations  of the  company,  its
directors  and its  officers  with respect to,  among other  things:  (i) trends
affecting the Company's financial  condition or results of operations;  (ii) the
Company's  financing plans;  (iii) the Company's business and growth strategies;
(iv)  the  use of the  proceeds  of the  Offering  by the  Company;  and (v) the
declaration and payment of dividends.  Prospective  investors are cautioned that
any such forward-looking statements are not guarantees of future performance and
involve risks and  uncertainties  and that actual results may differ  materially
from those  projected in the  forward-looking  statements as a result of various
factors.

General.

         The Company is one of the largest distributors and retailers of tobacco
and tobacco related  products in North America.  The Company operates in a large
and  highly  fragmented  industry   characterized  by  multiple  and  relatively
undeveloped  channels of  distribution.  Over its  28-year  history in the cigar
industry,  the Company has established itself as an important participant in the
movement of products from manufacturers to the customers.  Manufacturers benefit
from  the  Company's  ability  to  perform  a  number  of  functions,   such  as
distribution,  credit, customer support and marketing,  which would otherwise be
the  responsibility  of the  manufacturer.  Customers benefit from the Company's
extensive variety of tobacco products,  rapid order fulfillment and advantageous
pricing  derived  through the Company's  volume buying as a direct  importer and
distributor.

Three-month Period Ended June 30, 1998 Compared to Three-Month Period Ended 
June 30, 1997

         Net sales were $70.0 million and $60.4 million for the second  quarters
of 1998 and 1997,  respectively,  an increase of $9.6  million or 15.9%.  Retail
sales  increased 9.1% to $37.1 million for the second quarter of 1998 from $34.0
million for the second  quarter of 1997.  The  increase in retail  sales was due
primarily  to a $2.3  million,  or 17.2%  increase in direct  mail cigar  sales.
Wholesale  sales increased 24.6% to $32.9 million for the second quarter of 1998
from $26.4  million  over the same  period in the prior  year.  The  increase in
wholesale  sales was due to a $2.3  million,  or 19.7%  increase  in direct mail
cigar sales and to a $4.4 million, or 30.4% increase in cash-and-carry cigarette
sales.  The total increase in net sales was primarily  attributable to increases
in unit volume for cigars and  cigar-related  products and to a lesser extent to
cigarette price increases.

         Gross  profit  was $13.7  million  and  $12.4  million  for the  second
quarters of 1998 and 1997,  respectively,  an increase of $1.3 million or 10.5%.
The increase in gross profit was due to an increase in sales. As a percentage of
net sales,  gross profit  decreased to 19.5% for the second quarter of 1998 from
20.5% for the second  quarter of 1997,  because  cigarette  sales were a greater
percentage of total sales in 1998.

         Selling,  general and  administrative  ("S, G & A") expenses  were $6.8
million and $7.0 million for the second quarters of 1998 and 1997, respectively,
a decrease  of $0.2  million or 2.0%.  As a  percentage  of net sales,  S, G & A
expenses  decreased  to 9.7% for the  second  quarter of 1998 from 11.5% for the
second quarter of 1997 primarily  because of increased  sales.  S,G & A expenses
for the second quarter of 1997 include a one time $1.5 million  expense  related
to signing  bonuses paid in connection  with the execution of long-term  service
agreements.

         Income from operations was $6.4 million and $5.2 million for the second
quarters of 1998 and 1997,  respectively,  an increase of $1.2 million or 23.3%.
As a percentage of net sales,  income from operations  increased to 9.2% for the
second  quarter  of 1998 from 8.6% for the  second  quarter  of 1997,  primarily
because of an increase in sales.

         Interest  expense was unchanged at $0.3 million for the second quarters
of 1998 and 1997,  respectively.  Other  income,  primarily  interest,  was $0.6
million and $0.2 million for the second quarters of 1998 and 1997, respectively.

<PAGE>

         Income  before  income taxes was $6.7  million and $5.1 million for
the second quarters of 1998 and 1997, respectively, an increase of $1.6 million
or 30.0%.

         The  provision  for income  taxes of $2.7  million for the  three-month
period ended June 30, 1998,  represents  federal and state income taxes provided
at corporate rates since the Company became a "C" corporation effective with the
initial  public  offering of the  Company's  common stock on June 26, 1997.  The
income tax  benefit of $1.5  million  for the  three-months  ended June 30, 1997
represents  taxes  provided  by the  predecessor  companies  for state and local
governments  at "S"  corporation  rates,  a deferred tax benefit of $1.2 million
recorded concurrent with becoming subject to federal and additional state income
taxes,  and a tax  benefit  for the loss for the period from June 27 to June 30,
1997 when the Company was subject to federal and additional state income taxes.

         As a result  of the  foregoing,  the  Company  had net  income  of $3.9
million in the second quarter of 1998,  compared to pro forma net income of $3.8
million for the second quarter of 1997, an increase of $0.1 million or 4.3%.

Six-month Period Ended June 30, 1998 Compared to Six-Month Period Ended June 30,
1997

         Net  sales  were  $132.2  million  and  $110.1  million  for the  first
six-months  of 1998 and 1997,  respectively,  an  increase  of $22.1  million or
20.1%. Retail sales increased 10.8% to $69.6 million for the first six-months of
1998 from $62.8 million for the first six-months of 1997. The increase in retail
sales was due  primarily  to a $5.6  million,  or 24.1%  increase in direct mail
cigar sales.  Wholesale  sales  increased  32.3% to $62.6  million for the first
six-months  of 1998 from $47.3  million  over the same period in the prior year.
The increase in wholesale sales was due to a $6.1 million,  or 28.9% increase in
direct  mail  cigar  sales  and  to  a  $9.5  million,   or  37.1%  increase  in
cash-and-carry cigarette sales. The total increase in net sales was attributable
to increases in unit volumes and wholesale cigarette sales.

         Gross  profit  was  $26.2  million  and  $21.4  million  for the  first
six-months of 1998 and 1997, respectively, an increase of $4.8 million or 22.5%.
The increase in gross profit was  primarily  because of an increase in cigar and
tobacco sales. As a percentage of net sales, gross profit increased to 19.8% for
the first  six-months  of 1998 from  19.5%  for the  first  six-months  of 1997,
primarily because of an increase in unit volume sales.

         Selling,  general and  administrative  ("S, G & A") expenses were $13.1
million  and  $11.8  million  for  the  first   six-months  of  1998  and  1997,
respectively,  an  increase  of $1.3  million or 11.6%.  The  increase  in S,G&A
expenses was related to increased  staffing and other costs.  As a percentage of
net sales,  S,G&A  expenses  decreased to 9.9% for the first  six-months of 1998
from 10.7% for the first six-months of 1997. S,G & A expenses for the six-months
ended June 30, 1997 include a one time $1.5 million  expense  related to signing
bonuses paid in connection with the execution of long-term service agreements.

         Income from operations was $12.3 million and $9.3 million for the first
six-months of 1998 and 1997, respectively, an increase of $3.0 million or 32.8%.
As a percentage of net sales,  income from operations  increased to 9.3% for the
first six-months of 1998 from 8.4% for the first  six-months of 1997,  primarily
because of an increase in unit volume sales.

         Interest  expense was $0.7 million and $0.4 for the first six-months of
1998 and 1997, respectively.  Other income, primarily interest, was $1.0 million
and $0.3 million for the first six-months of 1998 and 1997, respectively.

         Income before  income taxes was $12.6 million and $9.2 million for the 
first six-months of 1998 and 1997, respectively, an increase of $3.4 million or 
38.0%

         The provision for income taxes of $5.2 million for the six-month period
ended June 30,  1998,  represents  federal and state  income  taxes  provided at
corporate  rates since the Company became a "C"  corporation  effective with the
initial  public  offering of the  Company's  common stock on June 26, 1997.  The
income tax  benefit of $1.3  million  for the  six-months  ended June 30,  1997,
represents  taxes  provided  by the  predecessor  companies  to state  and local
governments  at "S"  corporation  rates,  a deferred tax benefit of $1.2 million
recorded concurrent with becoming subject to federal and additional state income
taxes,  and a tax  benefit  for the loss for the period from June 27 to June 30,
1997 when the Company was subject to federal and additional state income taxes.

<PAGE>

         As a result  of the  foregoing,  the  Company  had net  income  of $7.5
million in the first  six-months  of 1998,  compared  to pro forma net income of
$6.0 million for the first  six-months  of 1997,  an increase of $1.5 million or
24.5%.

Liquidity and Capital Resources

         The Company  prior to its Initial  Public  Offering  has  financed  its
business through  internally  generated funds,  bank debt and loans from certain
shareholders.  The Company's net cash provided by operating  activities was $7.7
million for the six-month period ended June 30, 1998. Net cash used in investing
activities  during such period was $6.7  million and net cash used in  financing
activities was $4.0 million.

         As of June 30, 1998,  the Company had working  capital of $55.9 million
compared to $55.2 million at December 31, 1997.  Working  capital as of June 30,
1998 is  comprised  primarily  of cash and cash  equivalents  of $13.6  million,
short-term investments of $18.3 million, accounts receivable of $3.0 million and
$37.7  million of  inventory  offset by $12.0  million of  accounts  payable and
accrued  expenses  and $7.9 million of the current  portion of the  distribution
notes.

         At June 30, 1998, the Company had no funded indebtedness.

         The Company has available a short term, unsecured line of credit in the
amount of $20.0 million  through May 31, 1999 with interest at either the bank's
base rate minus 50 basis points or an  increment  over LIBOR,  at the  Company's
option. The Company intends to renew such line of credit upon its expiration. No
amounts were outstanding under this facility at June 30, 1998.

         On June 6, 1997,  the Company  issued notes in the aggregate  amount of
$23.8 million to  shareholders of the predecessor  companies,  representing  the
estimated cumulative  undistributed  earnings of the predecessor companies which
operated under  Subchapter "S" of the Internal  Revenue  Service code. The notes
have a fixed interest rate of 7.0% and require  quarterly  payments in aggregate
of $2.0  million  plus  interest  through  June 1,  2000.  The first  payment of
principal and interest was made  effective  September 1, 1997.  In addition,  on
June 6, 1997,  the  Predecessor  Companies also issued  additional  Distribution
Notes to  shareholders of the  Predecessor  Companies for a nominal  amount.  On
December 31, 1997, the initial  principal  amount was increased to $1.0 million,
the maximum allowable.  The additional Distribution Notes mature on June 1, 2000
and bear  interest at the rate of 7.0% per annum.  The holders of the notes have
agreed to  subordinate  payment of principal  and interest to senior  lenders if
required by credit  agreements.  The existing credit  agreement does not require
subordination  in the event of a default  under the terms and  conditions of the
agreement.

         During  1995,   the  Company   purchased   versions  of  its  principal
information technology software packages, which have been certified as Year 2000
compliant by the respective  software vendors.  The Company has developed a plan
to modify  non-critical  data  processing  systems to prepare for Year 2000. The
Company  expects  that  by  early  1999  it  will  complete   modifications   of
non-critical  data  processing  systems  and does not  expect  the  total  costs
associated with these products will be significant.


Part II.  Other Information

Item 1.  Legal Proceedings

         The Company is not presently involved in any legal proceedings,  which,
if  determined  adversely  to the Company,  would have a material  effect on the
Company.


Item 2.  Change in Securities and Use of Proceeds

         Securities Act Rule 229.463 ("Rule 463") required  issuers to report on
Form SR their use of proceeds,  following an initial public offering, within ten
days of the first three months  following the effective date of the registration
statement,  and every six months  thereafter,  until the application of all such
proceeds was  complete.  Effective  September  2, 1997,  pursuant to Release No.

<PAGE>

34-38850,  the Securities and Exchange  Commission  ("SEC")  amended Rule 463 to
eliminate  Form SR and now  requires  a  first-time  registrant  to  report  the
application  of proceeds in each of its periodic  Exchange Act reports until the
application of such proceeds is complete.

         The information  provided below represents a reasonable estimate of the
cumulative  application,  through June 30, 1998,  of the net proceeds of $53,270
which were received  following the Company's initial public offering on June 26,
1997:

New warehouse and discount outlet store                                 $4,600
Relocation and design of specialty stores                                5,900
Upgrade of information systems and graphics                              2,000
Reduction of bank debt and mortgages                                     7,300
Payment of Distribution Notes and interest                               9,300
Payment of signing bonuses                                               1,500
Working capital and general corporate use                               14,900

         Except for payments described in the following sentence, the cumulative
application of the net offering  proceeds listed above represent direct payments
to others.  Except for the payment of the Distribution  Notes to shareholders of
Predecessor  Companies  referred to in the table above, no payments were made to
directors or officers or to their  associates  except for  payments  made in the
ordinary  course of  business  which  include,  but may not be  limited  to, the
payment  of  officer  salaries  and  bonuses,   fringe  benefits,  and  expenses
reimbursements  or compensation  paid to directors for their attendance at board
meetings  or  for  their  service  provided  to  the  Company  under  consulting
arrangements, if any.

         As June 30, 1998, the status of proceeds pending final  application are
as follows:

Temporary investment of proceeds in marketable securities               $7,770


Item 6.  Exhibits and Reports on Form 8-K

           The  Company  did not  file  any  reports  on  Form  8-K  during  the
three-months ended June 30, 1998.

<PAGE>


                                SIGNATURES

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                                800-JR Cigar, Inc.



Date:  August 11, 1998           By:  /s/ Lewis I. Rothman
                                     -------------------------------------------
                                     Lewis I. Rothman, Chairman and President





Date:  August 11, 1998           By:  /s/ Michael E. Colleton
                                     -------------------------------------------
                                    Michael E. Colleton, Chief Financial Officer