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 September 30, 1998

                                    OR

o  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
                              (973) 884-9555

                              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 - 12,670,500 shares as of September 30, 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 September 30, 1997 and 1998 (Unaudited) and the Nine-Month Periods
     ended September 30, 1997 and 1998 (Unaudited)............................ 3
  Consolidated Balance Sheets as of December 31, 1997 and September 30, 1998
     (Unaudited).............................................................. 4
  Consolidated Statements of Cash Flows for the Nine-Month Periods ended
     September 30, 1997 and 1998 (Unaudited).................................. 5
  Notes to Consolidated Financial Statements.................................. 6

Item 2.  Management's Discussion and Analysis of Financial Condition
  and Results of Operations...................................................11


Part II - Other Information

Item 1.  Legal Proceedings....................................................15

Item 2.  Change in Securities and Use of Proceeds.............................15

Item 6.  Exhibits and Reports on Form 8-K.....................................16
  Signatures..................................................................17


<PAGE>



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

                        Consolidated Statements of Income
                                   (Unaudited)

                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>


                              Three-month period              Nine-month period
                              ended September 30             ended September 30
                          ------------------------------------------------------
                             1998          1997            1998             1997
                          ------------------------------------------------------

<S>                           <C>         <C>            <C>            <C>     
Net sales                     $73,177     $62,002        $205,414       $172,120
Cost of goods sold             58,274      49,131         164,266        137,819
                          ------------------------------------------------------
Gross profit                   14,903      12,871          41,148         34,301

Operating expenses:
   Selling                      1,522       1,285           4,332          3,660
   General and administrative 
    expenses                    5,896       4,540          16,225         13,936
   Depreciation and amortization  350         219           1,135            601
                          ------------------------------------------------------
Income from operations          7,135       6,827          19,456         16,104

Other income (expense):
   Interest expense              (311)       (471)         (1,019)         (915)
   Interest income                443         477           1,355            641
   Rental income                   42          51             125            152
   Other, net                      13          15              40             76
                          ------------------------------------------------------
Income before income taxes      7,322       6,899          19,957         16,058

Provision for income taxes      2,987       2,815           8,152          1,476
                          ------------------------------------------------------
Net income                   $  4,335    $  4,084      $   11,805     $   14,582
                          ======================================================

Pro forma:
   Historical income before 
    provision for income taxes                                        $   16,058
   Pro forma adjustments other 
    than income taxes                                                        977
                                                                     -----------
   Pro forma income before income taxes                                   17,035
   Pro forma provision for income taxes                                    6,951
                                                                     -----------
   Pro forma net income                                               $   10,084
                                                                     ===========

   Pro forma earnings per share                                       $      .91
                                                                     ===========
   Pro forma common shares outstanding                                    10,855
                                                                     ===========

Per share data
  Earnings per share - basic   $  .34     $   .32         $   .93
                               ===================================

  Earnings per share - diluted $  .34     $   .32         $   .92
                               ===================================
  Weighted average shares 
    outstanding - basic        12,733      12,750          12,744
                               ===================================
  Weighted average shares 
    outstanding - diluted       12,733     12,942          12,813
                               ===================================
See accompanying notes.
</TABLE>


<PAGE>


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

                           Consolidated Balance Sheets

                                 (In thousands)
<TABLE>
<CAPTION>

                                                     September        December
                                                      30, 1998        31, 1997
                                                  ------------------------------
Assets                                              (Unaudited)      (Audited)
Current assets:
<S>                                                   <C>                <C>    
   Cash and cash equivalents                          $   16,422         $16,572
   Investments in marketable securities                   12,482          14,981
   Accounts receivable, net                                3,453           2,313
   Merchandise inventory                                  41,369          34,779
   Prepaid expenses and other current assets               2,618           2,155
   Loans receivable - affiliates and other associated 
     entities                                                414             603
   Deferred tax asset                                        977             996
                                                  ------------------------------
Total current assets                                      77,735          72,399

Property, equipment and improvements, at cost, net of 
  accumulated depreciation and amortization               23,365          18,518
Other assets                                                 376             243
Deferred tax asset, net                                       90             102
                                                  ------------------------------
                                                        $101,566         $91,262
                                                  ==============================
                                                                                      
Liabilities and stockholders' equity Current liabilities:
   Current portion of distribution notes payable to 
    stockholders                                      $    7,933         $ 7,933
   Accounts payable                                       12,117           7,157
   Accrued expenses                                        2,485           2,096
                                                  ------------------------------
Total current liabilities                                 22,535          17,186

Distribution notes payable to stockholders, less current 
  portion                                                  6,950          12,900
                                                  ------------------------------
Total liabilities                                         29,485          30,086

Commitments and contingencies

Stockholders' equity:
   Common stock                                              128             128
   Additional paid-in capital                             52,716          52,716
   Retained earnings                                      20,137           8,332
                                                  ------------------------------
                                                          72,981          61,176
   Less treasury stock, at cost                             (900)              -
                                                  ------------------------------
Total stockholders' equity                                72,081          61,176
                                                  ------------------------------
                                                        $101,566         $91,262
                                                  ==============================

See accompanying notes.
</TABLE>


<PAGE>




             November 12, 1998800-J.R. Cigar, Inc. and Subsidiaries

                      Consolidated Statements of Cash Flows
                                   (Unaudited)

                                 (In thousands)
<TABLE>
<CAPTION>
                                                            Nine-month period
                                                           ended September 30
                                                           1998           1997
                                                      --------------------------
Cash flows from operating activities
<S>                                                       <C>            <C>    
Net income                                                $11,805        $14,582
Adjustments to reconcile net income to net cash provided 
     by operating activities:
     Depreciation and amortization                          1,135            604
     Provision for uncollectible accounts                      72             54
     Deferred income taxes                                     31        (1,225)
     Changes in operating assets and liabilities:
       Accounts receivable                                 (1,212)       (1,287)
       Merchandise inventory                               (6,590)       (6,355)
       Prepaid expenses and other current assets             (463)       (1,722)
       Other assets                                          (133)          (85)
       Accounts payable and accrued expenses                5,349          1,246
                                                      --------------------------
Net cash provided by operating activities                   9,994          5,812

Cash flows from investing activities
Purchase of marketable securities                               -        (4,922)
Proceeds from sales of marketable securities                2,499              -
Purchase of property and equipment                         (5,982)       (3,227)
Loans repaid by affiliates and other associated entities      189             95
Loans extended to stockholders                                  -          (445)
                                                      --------------------------
Net cash used in investing activities                      (3,294)       (8,499)

Cash flows from financing activities
Purchase of treasury stock                                   (900)             -
Proceeds from common stock offering                             -         54,545
Expenses paid in connection with common stock offering          -        (1,275)
Payments of long-term debt                                      -        (6,280)
Payments on distribution notes                             (5,950)       (1,983)
Payments of capital lease obligations                           -           (66)
Distributions to stockholders                                   -        (7,189)
                                                      --------------------------
Net cash (used in) provided by financing activities        (6,850)        37,752
                                                      --------------------------

Net (decrease) increase in cash and cash equivalents         (150)        35,065
Cash and cash equivalents at beginning of period           16,572          6,056
                                                      --------------------------
Cash and cash equivalents at end of period                $16,422        $41,121
                                                      ==========================

Supplemental disclosures of cash flow information
Interest paid                                           $     937      $     520
                                                      ==========================

Income taxes paid                                        $  7,552       $  2,653
                                                      ==========================

Noncash distribution to stockholders                  $         -       $  2,959
                                                      ==========================

Distribution notes issued to stockholders             $         -        $23,800
                                                      ==========================
See accompanying notes.
</TABLE>


<PAGE>


                                November 12, 1998

                       800-JR Cigar, Inc. and Subsidiaries

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

                               September 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 September 30, 1997 and 1998 and nine-month periods ended September
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 from 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").



<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)

For the period from June 27, 1997 through  September 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.

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 nine-month period ended September 30,
1997 reflects the Reorganization,  the Offering and the following adjustments as
if they had occurred on January 1, 1997: a) a decrease in aggregate compensation
from $253 to $200 for the nine-month  period ended September 30, 1997 for two of
the Company's  executives  pursuant to their new  employment  agreements;  b) an
increase in interest  expense of $798 for the nine-month  period ended September
30, 1997  assuming the  issuance of the  Distribution  Notes;  c) a reduction in
interest  expense of $328 for the  nine-month  period ended  September  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 nine-month  period ended September 30, 1997 and
assuming the repayment to the Company of loans receivable from stockholders;  e)
an  increase of $1,500 for the  nine-month  period  ended  September  30,  1997,
related  to  signing  bonuses  paid  to an  officer  of  the  Company  and to MC
Management in connection with the execution of long-term service agreements; and
f) an increase of $5,475 for the nine-month  period ended September 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

The 10,854,752  pro forma common shares  outstanding  for the nine-month  period
ended September 30, 1998, is based on a weighted average  calculation derived by
using  12,942,257,  the  weighted  average  common  shares  outstanding  for the
three-month period ended September 30, 1997, and 9,811,327, the pro forma common
shares  outstanding for the six-month period ended June 30, 1997. The net income
used in the  calculation of pro forma per share  information  for the nine-month
period ended  September  30, 1997 consists of the pro forma net income of $6,000
for the six-month period ended June 30,


<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)

1997 reduced by interest  expense on debt of $328 ($194 on an  after-tax  basis)
for the six-month  period ended June 30, 1997, plus net income of $4,084 for the
three-month period ended September 30, 1997.

Supplementary  pro forma  earnings  per share for the  nine-month  period  ended
September  30,  1997 is .90 based on a weighted  average of the  10,279,233  pro
forma shares of common stock outstanding for the six-month period ended June 30,
1997,  and  12,942,257,   the  weighted  average  shares   outstanding  for  the
three-month  period  ended  September  30,  1997.  The  net  income  used in the
calculation of  supplementary  pro forma earnings per share is the pro forma net
income of $6,000 for the six-month period ended June 30, 1997,  increased by the
net income of $4,084 for the three-month period ended September 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.  Net proceeds of the
Offering,   after  deducting   underwriting   discounts  and  commissions,   and
professional fees aggregated  $53,270. As of September 30, 1998, proceeds of the
Offering  were  used  for  the  following  purposes:  (i) to  repay  outstanding
indebtedness  of $7,300,  (ii) $6,000 for the relocation and design of specialty
stores,  (iii)  $6,700 for the  purchase of land and building for a new discount
outlet store and warehouse  distribution  center,  (iv) the quarterly  principal
payment of  distribution  notes of $7,900  through June 30, 1998, (v) payment of
signing bonuses in connection with long-term service agreement,  (vi) $2,200 for
the upgrade of the Company's  information  systems,  (vii) interest  payments of
$1,400 through June 30, 1998 on the  Distribution  Notes, and (viii) $14,900 for
working capital and general corporate purposes. The remaining proceeds of $5,400
are expected to be used for the completion of the new discount  outlet store and
warehouse distribution center, and for the expansion of retail selling space.

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 September 30, 1998.


<PAGE>


                       800-JR Cigar, Inc. and Subsidiaries

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


5.  Historical and Pro Forma Income Taxes

The historical  income tax provision for the nine-month  period ended  September
30, 1997  principally  reflects the S Corporation tax provision of approximately
$361,  for the period from January 1, 1997  through  June 26, 1997;  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,  and a federal and state  income tax  provision  at
$2,815 for the three-month period ended September 30, 1997.

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  nine-month  period  ended
September 30, 1997  includes a provision  for federal,  state and local taxes of
$6,951 at an effective  rate of  approximately  41%. This amount is comprised of
current  expense  of $7,295 and a  deferred  benefit of $344 for the  nine-month
period.

6.  Acquisitions

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.

7.  Stock Repurchase Plan

On August 25, 1998, the Board of Directors  approved the repurchase of up to $10
million  of the  Company's  common  stock  from time to time  subject  to market
conditions.  Purchases can be made in the open market or in privately negotiated
transactions.  At September 30, 1998, the Company had purchased 79,500 shares at
a cost of $900.

<PAGE>

                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;  (v) the  Company's
ability to identify and address Year 2000 issues;  and (vi) 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 September 30, 1998 Compared to Three-Month Period Ended
September 30, 1997

         Net sales were $73.2 million and $62.0  million for the third  quarters
of 1998 and 1997,  respectively,  an increase of $11.2 million or 18.0%.  Retail
sales  increased 18.2% to $41.7 million for the third quarter of 1998 from $35.2
million for the third  quarter of 1997.  The  increase  in retail  sales was due
primarily  to a $4.2  million,  or 30.8%  increase in direct  mail cigar  sales.
Wholesale  sales  increased 17.8% to $31.5 million for the third quarter of 1998
from $26.8  million  over the same  period in the prior  year.  The  increase in
wholesale  sales was due to a $3.2  million,  or 26.8%  increase  in direct mail
cigar sales and to a $1.5 million, or 10.4% increase in cash-and-carry cigarette
sales.  The total increase in net sales was primarily  attributable to increases
in unit volume for cigars and to a lesser extent to wholesale cigarette sales.

         Gross profit was $14.9 million and $12.9 million for the third quarters
of 1998 and 1997,  respectively,  an  increase  of $2.0  million  or 15.8%.  The
increase in gross profit was due to an increase in sales. As a percentage of net
sales,  gross profit  decreased  slightly to 20.4% for the third quarter of 1998
from 20.8% for the third quarter of 1997,  because lower margin  cigarette sales
represent a greater percentage of total sales in 1998.
<PAGE>
         Selling,  general and  administrative  ("S, G & A") expenses  were $7.4
million and $5.8 million for the third quarters of 1998 and 1997,  respectively,
an increase of $1.6  million or 27.3%.  As a percentage  of net sales,  S, G & A
expenses  increased  to 10.1%  for the third  quarter  of 1998 from 9.4% for the
third  quarter of 1997  primarily  due to  increased  staffing  and other  costs
associated with the opening of new retail stores.

         Income from  operations was $7.1 million and $6.8 million for the third
quarters of 1998 and 1997, respectively, an increase of $0.3 million or 4.5%. As
a  percentage  of net sales,  income from  operations  decreased to 9.8% for the
third quarter of 1998 from 11.0% for the third quarter of 1997, primarily due to
the increased S, G & A expenses discussed above.

         Interest  expense was $0.3 and $0.5  million for the third  quarters of
1998  and  1997,  respectively.   Other  income,  primarily  interest,  remained
unchanged at $0.5 million for the third quarters of 1998 and 1997, respectively.

         Income  before income taxes was $7.3  million and $6.9  million for the
third quarters of 1998 and 1997, respectively, an increase of $0.4 million or 
6.1%.

         The  provision  for income  taxes was $3.0 million and $2.8 million for
the third quarter of 1998 and 1997, respectively, an increase of $0.2 million or
6.1%.

         As a result  of the  foregoing,  the  Company  had net  income  of $4.3
million in the third quarter of 1998, compared to net income of $4.1 million for
the third quarter of 1997, an increase of $0.2 million or 6.1%.

Nine-month Period Ended September 30, 1998 Compared to Nine-Month Period Ended 
September 30, 1997

         Net  sales  were  $205.4  million  and  $172.1  million  for the  first
nine-months  of 1998 and 1997,  respectively,  an increase  of $33.3  million or
19.3%.  Retail sales increased 13.4% to $111.2 million for the first nine-months
of 1998 from $98.1 million for the first  nine-months  of 1997.  The increase in
retail sales was due primarily to a $10.1  million,  or 27.5% increase in direct
mail cigar sales. Wholesale sales increased 27.3% to $94.2 million for the first
nine-months  of 1998 from $74.0  million over the same period in the prior year.
The increase in wholesale sales was due to a $9.2 million,  or 27.5% increase in
direct  mail  cigar  sales  and  to  a  $11.0  million,  or  27.3%  increase  in
cash-and-carry cigarette sales. The total increase in net sales was attributable
to increases in unit volumes for cigars and wholesale cigarette sales.

         Gross  profit  was  $41.1  million  and  $34.3  million  for the  first
nine-months  of 1998 and 1997,  respectively,  an  increase  of $6.8  million or
20.0%.  The increase in gross profit was  primarily  due to an increase in cigar
and tobacco sales. As a percentage of net sales, gross profit increased to 20.0%
for the first  nine-months of 1998 from 19.9% for the first nine-months of 1997,
primarily due to an increase in higher margin cigar sales.
<PAGE>
         Selling,  general and  administrative  ("S, G & A") expenses were $20.6
million  and  $17.6  million  for  the  first  nine-months  of  1998  and  1997,
respectively,  an  increase  of $3.0  million or 16.8%.  The  increase  in S,G&A
expenses was related to increased  staffing and other costs  associated with the
opening of new retail  stores.  As a  percentage  of net sales,  S,G&A  expenses
decreased  to 10.0% for the first  nine-months  of 1998 from 10.2% for the first
nine-months of 1997. S,G & A expenses for the  nine-months  ended  September 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 $19.5  million  and $16.1  million for the
first nine-months of 1998 and 1997, respectively, an increase of $3.4 million or
20.8%.  As a percentage of net sales,  income from  operations  was 9.5% for the
first  nine-months  of  1998  and  9.4%  for  the  first  nine-months  of  1997,
respectively.

         Interest expense was $1.0 million and $0.9 for the first nine-months of
1998 and 1997, respectively.  Other income, primarily interest, was $1.5 million
and $0.9 million for the first nine-months of 1998 and 1997, respectively.

         Income  before  income taxes was $20.0  million and $16.1  million for 
the first nine-months of 1998 and 1997, respectively, an increase of $3.9 
million or 24.3%

         The  provision  for income  taxes of $8.2  million  for the  nine-month
period  ended  September  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  provision of $1.5 million for the  nine-months  ended
September 30, 1997, represents taxes of $0.4 million provided by the predecessor
companies  at "S"  corporation  rates,  a deferred  tax benefit of $1.2  million
recorded concurrent with becoming subject to federal and additional state income
taxes, a tax benefit of $0.5 million for the loss for the period from June 27 to
June 30, 1997 and a federal and state  income tax  provision of $2.8 million for
the three-month period ended September 30, 1997.

         As a result  of the  foregoing,  the  Company  had net  income of $11.8
million in the first  nine-months  of 1998,  compared to pro forma net income of
$10.1 million for the first  nine-months of 1997, an increase of $1.7 million or
17.1%.

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 $10.0
million for the  nine-month  period ended  September 30, 1998.  Net cash used in
investing  activities  during such period was $3.3  million and net cash used in
financing activities was $6.9 million.
<PAGE>
         As of  September  30,  1998,  the Company had working  capital of $55.2
million,  the same amount it had at December  31,  1997.  Working  capital as of
September 30, 1998 is comprised  primarily of cash and cash equivalents of $16.4
million,  short-term  investments of $12.5 million,  accounts receivable of $3.5
million  and $41.4  million of  inventory  offset by $14.6  million of  accounts
payable and  accrued  expenses  and $7.9  million,  the  current  portion of the
distribution notes.

         At September 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 September 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.

         The repurchase of up to $10.0 million of the Company's common stock was
approved by the Board of Directors subject to market conditions.  In the quarter
ended  September  30,  1998  the  Company   repurchased  79,500  shares  of  its
outstanding common shares at an average price of $11.32.

         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.

         The  Company  has also mailed  letters to its  significant  vendors and
service providers to determine the extent to which interfaces with such entities
are vulnerable to Year 2000 issues.  Most of those contacted have indicated that
they have  begun  implementing  Year 2000  readiness  programs.  The  Company is
continuing to follow-up with significant  vendors and service providers that did
not initially respond, or whose responses were deemed unsatisfactory.
<PAGE>
         Based upon its current  state of readiness,  the Company  believes that
the Year 2000  issue  will not pose  significant  operational  problems  for the
Company. However, if all Year 2000 issues are not properly identified, there can
be no assurance  that the Year 2000 issue will not materially  adversely  impact
the  Company's   results  of  operations  or  adversely   affect  the  Company's
relationships with customers, vendors, or others. Additionally,  there can be no
assurance  that the Year 2000 issues of other  entities will not have a material
adverse impact on the Company's systems or results of operations.


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.  Changes 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.
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  September  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                          $6,700
         Relocation and design of specialty stores                         6,000
         Upgrade of information systems and graphics                       2,200
         Reduction of bank debt and mortgages                              7,300
         Payment of Distribution Notes and interest                        9,300
         Payment of employment 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.
<PAGE>
         As September 30, 1998, the status of proceeds pending final application
are as follows:

         Temporary investment of proceeds in marketable securities        $5,400


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 September 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: November 12, 1998    By:  /s/ Lewis I Rothman
                                Lewis I. Rothman, Chairman and President



Date: November 12, 1998    By:  /s/ Michael E. Colleton
                                Michael E. Colleton, Chief Financial Officer