<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549


                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934 For the fiscal year ended December 31, 1996

                                      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 33-26987

                        CONSOLIDATED CIGAR CORPORATION
            (Exact name of registrant as specified in its charter)


               DELAWARE                              13-3148462
  (State or other jurisdiction of       (I.R.S. Employer Identification No.)
  incorporation or organization)



                           5900 NORTH ANDREWS AVENUE
                      FORT LAUDERDALE, FLORIDA 33309-2369
         (Address of principal executive offices, including zip code)


                                (954) 772-9000
             (Registrant's telephone number, including area code)


       SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

       SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE



         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 No X


         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]

        There were no shares of common stock held by non-affiliates. The
number of shares outstanding of the registrant's common stock $1.00 par value,
is 1,000 shares as of March 15, 1997.

                           Exhibit Index on Page 27


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                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                         1996 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

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                                                                                                              PAGE
<S>               <C>                                                                                         <C>    
                                                           PART I
Item 1.           BUSINESS................................................................................       3
Item 2.           PROPERTIES..............................................................................      11
Item 3.           LEGAL PROCEEDINGS.......................................................................      11
Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................      11
                                                           PART II
Item 5.           MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................      12
                                                                                                                
Item 6.           SELECTED FINANCIAL DATA.................................................................      12
Item 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS..      14
                                                                                                              
Item 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................      19
Item 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING  AND FINANCIAL DISCLOSURE...      19
                                                                                                                
                                                          PART III
Item 10.          DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......................................      20
Item 11.          EXECUTIVE COMPENSATION..................................................................      21
Item 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................      24
                                                                                                                
Item 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................      24
                                                           PART IV
Item 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K........................      26
</TABLE>

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                                    PART I
ITEM 1. BUSINESS

BACKGROUND

         Consolidated Cigar Corporation (the "Company" or the "Registrant"), a
Delaware corporation, was founded in 1918 and since March 3, 1993 has been a
wholly owned subsidiary of Consolidated Cigar Holdings Inc. ("Consolidated
Cigar Holdings"), which was a wholly owned subsidiary of Mafco Holdings Inc.
("Mafco Holdings") through June 14, 1995. From June 15, 1995, the Company had
been an indirect wholly owned subsidiary of Mafco Consolidated Group Inc.
("Mafco Consolidated Group") until August 21, 1996, when Consolidated Cigar
Holdings completed an initial public offering (the "IPO"). In the IPO,
Consolidated Cigar Holdings issued and sold 6,075,000 shares of its Class A
Common Stock, thereby reducing Mafco Consolidated Group's ownership interest
in Consolidated Cigar Holdings to approximately 80.2%. On March 20, 1997,
Consolidated Cigar Holdings completed a secondary offering (the "Offering"),
of 5,000,000 shares of Class A Common Stock sold by Mafco Consolidated Group,
reducing its ownership in Consolidated Cigar Holdings to approximately 63.9%.


         Based upon its knowledge of the cigar industry and public filings of
its competitors, the Company believes that, in terms of dollar sales, it is
the largest manufacturer and marketer of cigars in the United States. The
Company believes that its leading market position is attributable to the
strength of its brand names, the quality of its products and customer service,
its manufacturing and marketing expertise, and the experience of its
management.


GENERAL

         The Company is the largest manufacturer and marketer of cigars sold
in the United States in terms of dollar sales, with a 1996 market share of
approximately 23% according to the Company's estimates. The Company markets
its cigar products under a number of well-known brand names at all price
levels and in all segments of the growing cigar market, including premium
large cigars, mass market large cigars and mass market little cigars. The
Company attributes its leading market position to the following competitive
strengths: (i) well-known brand names, many of which are the leading brands in
their category; (ii) broad range of product offerings within both the premium
and mass market segments of the United States cigar market; (iii) commitment
to and reputation for manufacturing quality cigars; (iv) marketing expertise
and close attention to customer service; (v) efficient manufacturing
operations; and (vi) an experienced management team. The Company is also a
leading producer of pipe tobacco and is the largest supplier of private label
and branded generic pipe tobacco to mass market retailers. In addition, the
Company distributes a variety of pipe and cigar smokers' accessories.

         The Company's cigars and pipe tobacco products are marketed under a
number of well-known brand names. The Company's premium cigars include the H.
UPMANN, MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO
DEL REY and MONTECRUZ brands. The Company's mass market large cigars include
the ANTONIO Y CLEOPATRA (also known as AyC), DUTCH MASTERS, EL PRODUCTO,
MURIEL, BACKWOODS, SUPER VALUE and SUPRE SWEETS brands. The Company's mass
market little cigars include the DUTCH TREATS, SUPER VALUE and SUPRE SWEETS
brands. The Company's pipe tobacco products include the MIXTURE NO. 79 and
CHINA BLACK brands.

         According to industry sources, the cigar industry experienced
declining consumption between 1964 and 1993 at a compound annual unit rate of
3.6% (and, with respect to large cigar consumption, at a compound annual unit
rate of 5.0%). The Company experienced similar trends in the unit volume of
its cigars during such period. While the cigar industry has experienced
significantly better trends in unit consumption since 1993 compared to this
historical trend, there can be no assurance that the recent positive trends
will continue or that the Company would be able to offset any future decline
in consumption.


BUSINESS STRATEGY

         The Company's business strategy is to (i) capitalize on growth
opportunities in the premium cigar market, (ii) expand mass market cigar and
pipe tobacco products business, (iii) broaden mass market cigar distribution
channels, (iv) improve manufacturing processes and raw material procurement
and (v) pursue selectively strategic acquisitions. The Company's ability to
implement its business strategy successfully will be dependent on business,
financial and other factors beyond the Company's control, including, among
others, prevailing changes in consumer preferences, access to sufficient
quantities of raw materials, availability of trained laborers and changes in
tobacco products regulation. There can be no assurance that the Company will
continue to be successful in implementing its business

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strategy or that the Company's net sales, operating margin and net margin will
continue to increase at rates similar to those experienced by the Company in
1996.

PRODUCTS


         The Company manufactures cigars in all subcategories and at all price
levels. The Company also manufactures its own cigar boxes and man-made
wrapper, filler and binder and little-cigar filters.


PREMIUM CIGARS

         Premium cigars are generally hand made and primarily sell at retail
price points above $1.00 per cigar. The Company's premium cigars are primarily
long-filler, large cigars that have high quality natural leaf wrappers and
binders. The Company uses tobaccos of the best grades for its premium cigars.
Such tobaccos are combined according to brand-specified formulas to create the
"filler" of each cigar. In order to make hand made cigars, "binder" tobacco is
hand-wrapped around filler to create the "bunch" which is placed into a mold.
Then, "wrapper" tobacco is hand-wrapped around the bunch, creating a premium
cigar. In the Company's premium cigars, the wrapper, binder and filler are
natural tobacco leaf.

         The Company's premium cigars include the well-known H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY
and MONTECRUZ brands as well as other recognized brand names. The Company's
premium cigars are manufactured in its Dominican Republic and Honduras
facilities, except for TE-AMO, which is manufactured in Mexico and purchased
from a third party.

MASS MARKET CIGARS

         Mass market cigars are machine made and generally have a retail price
point of $1.00 or less per cigar. Mass market cigars use less expensive
tobacco than premium cigars. The Company uses a variety of techniques and
grades of tobacco to produce mass market cigars which compete at all the price
points in the mass cigar market. Mass market cigars include large cigars
(weighing three pounds per 1,000 cigars or more) and little cigars (weighing
less than three pounds per 1,000 cigars).

         Mass market large cigars generally consist of filler tobacco that is
wrapped first with a binder and then with a wrapper. The more expensive mass
market large cigars combine natural leaf wrapper and man-made binder made from
tobacco ingredients instead of natural binder, with filler threshed into
short, uniform pieces. In less expensive mass market large cigars, man-made
wrapper made primarily from tobacco ingredients replaces natural tobacco leaf.
The Company adds flavors and/or plastic tips to certain of its popularly
priced mass market large cigars. The Company's major mass market brands in the
middle price range include ANTONIO Y CLEOPATRA, DUTCH MASTERS, EL PRODUCTO,
BACKWOODS, SUPER VALUE and SUPRE SWEETS. The Company's MURIEL brand is in the
less expensive range.

         Little cigars consist of filler tobacco wrapped only by a wrapper
with a filter tip. Little cigars are made on a high-speed machine with
man-made wrapper made from tobacco ingredients and no binder. Little cigars
are flavored and produced with a filter. Generally, little cigars are the
lowest priced segment of the mass market category. The Company's little cigar
brands include DUTCH TREATS, SUPER VALUE and SUPRE SWEETS.


PIPE TOBACCO AND ACCESSORIES

         In addition to its cigars, the Company manufactures pipe tobaccos for
sale under its own brand names, such as MIXTURE NO. 79 and CHINA BLACK, and
for sale in bulk to tobacconists, as well as private label brands for chain
stores and wholesale distributors. The Company also distributes smokers'
accessories, such as lighters, tobacco pouches, pipe cleaners and cigar
cutters. Net sales attributable to the distribution of such accessories was
not material to the Company's results of operations in fiscal 1995.

         The Company uses tobaccos of various types, grades, countries of
origin and crop years for its pipe tobacco, which are moisturized with steam
and then blended according to specific formulas ("primary blends"). The
primary blends are "cased" (sprayed or dipped) in liquids containing water,
humectant, sugars, licorice, cocoa, fruit juices or other flavorings in order
to keep the tobacco in pliable condition and to enhance its aroma and taste.
The cased tobaccos are cut and dried and then held in bins to allow the casing
and moisture to be distributed uniformly 


                                      4
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throughout the tobacco. Thereafter, the tobacco blends are flavored with
natural and artificial flavors, herbs or spices, and blends are held for a
short period of time prior to packaging into pouches, bags, cans or other
selling containers.


SPECIALTY AND OTHER PRODUCTS

         The Company's other products include various tobacco and non-tobacco
related products manufactured by the Company in order to utilize excess
manufacturing capacity at certain of its facilities and improve overall
efficiency.


BACKORDERS

         The increased demand for cigars, especially premium cigars, has
caused the Company's back orders of premium cigars to increase from 3.2
million cigars at December 31, 1994 to 4.3 million cigars at December 31,
1995, and to further increase to 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars has continued to increase, the
substantial increase in backorders of premium cigars experienced by the
Company in 1996 was due, at least in part, to the practice by customers of
submitting orders well in excess of required quantities in an attempt to
ensure a larger allocation of the Company's premium cigar production. As such,
the increase in backorders does not accurately reflect the demand for the
Company's premium cigars. Beginning in 1997, the Company established new
ordering policies to reduce backorders. The Company no longer accepts orders
from its largest customers for premium cigars, but instead allocates to each
of them a portion of its production. As a result of such new ordering
policies, the amount of future backorders will not be comparable to those
previously experienced by the Company. The Company's ability to increase its
production of premium cigars and decrease its backorders is, however,
constrained by a shortage of experienced skilled laborers. Although the
Company is hiring and training new rollers and bunchers, the training process
averages up to one year and not all trainees are able to successfully complete
the Company's training program. The Company is building additional plant
capacity to meet future growth in demand for its premium cigars. Although the
Company believes that these measures will enable it to increase its production
of premium cigars, there can be no assurance that the Company will be able to
meet any future level of demand for its premium cigars. There can be no
assurance, however, that demand for the Company's premium cigars will continue
to grow in the future.

         The Company's ability to manufacture premium and mass market cigars
may also be constrained by the ability of tobacco growers and suppliers to
meet the Company's demands for its raw materials in a timely manner. Tobacco,
as a crop that is harvested annually, restricts the ability of tobacco growers
to adjust acreage grown in any given year to meet changes in market demands.
In addition, increases in acreage of tobacco grown requires significant
capital, which growers may be unable or unwilling to invest. If the rate of
escalation in consumption of cigars and other tobacco products continues, but
the supply of tobacco remains constant or increases at a lower rate than
demand, the Company's ability to increase its production of cigars, and
thereby reduce its backorders, could be inhibited.


SALES AND MARKETING

         The Company sells its cigar and pipe tobacco products throughout the
United States to over 2,500 customers, consisting of wholesale distributors,
direct buying chains, including drug store chains and mass market retailers,
and tobacconists. The Company employs a full-time in-house sales organization
to develop and service its sales to wholesalers, distributors, direct buying
chains and tobacconists. The Company's sales force is organized into two sales
units: a mass market division and a premium division. The Company believes
that the organization of its sales force into two divisions positions it to
maintain a high degree of focus on each of its principal product categories.
The mass market sales force calls on distributors and retail and chain store
accounts, including Kmart, Wal-Mart, Eckerd Drug Stores, CVS stores and
Thrifty Drug Stores, across the United States. Approximately 88% of the
Company's mass market cigar products are sold through wholesale distributors
while approximately 12% are sold to direct buying chains or independent
retailers that warehouse for themselves. The premium cigar sales force calls
directly on tobacconists and distributors. The Company's sales force operates
regionally and locally from home and car, maintaining close familiarity with
local customers. Most salespeople maintain a small stock of inventory which is
used primarily to replace local distributors' old or damaged products and to
display new product introductions or promotions.

         The Company supplies cigar merchandising fixtures to retailers at no
cost and believes that it is the primary supplier of such fixtures to the
United States retail trade. These fixtures help to maintain an attractive
product display and to increase shelf space available for the Company's
products.

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         For the year ended December 31, 1996, the Company had more than 2,500
customers, the top five of which accounted for approximately 22% of annual
sales with the largest customer accounting for approximately 6%. The Company
believes that the loss of any one customer would not be material to the
Company's business. The Company maintains no long-term contracts for the sale
of its merchandise.

         The Company advertises its mass market cigar products primarily
through coupons and other promotions distributed at point of sale and through
direct mail. The Company advertises its premium cigar products in magazines,
such as Cigar Aficionado, Playboy and The New York Times Sunday Magazine, as
well as in newspapers and on radio. In order to strengthen and broaden further
the brand recognition of its premium cigars and to maximize the business
opportunities created by the resurgence in popularity of and increased demand
for premium cigars, the Company has increased its marketing and advertising
expenditures in connection with its existing premium cigar brands. The
increased advertising and marketing expenditures are being used to support new
product introductions and increase awareness and recognition of the Company's
premium brands.

         Sales of the Company's cigar products outside of the United States
are currently not material, although the Company has begun to strengthen its
presence in the international market for premium and mass market cigars,
particularly in Europe, the Middle East, Latin America and Asia, by increasing
management's focus on the Company's direct export business. The Company has
hired an experienced international marketing manager to concentrate on foreign
sales and promotions and currently has a total of 47 agents and distributors
in Europe, the Middle East, Latin America and Asia.


TRADEMARKS

         Trademarks and brand name recognition are important to the Company's
business. The Company generally owns the trademarks under which its products
are sold. The Company has registered its trademarks in the United States and
many other countries and will continue to do so as new trademarks are
developed or acquired. The Company does not hold or own the right to use
certain of its well-known trademarks and brand names in certain foreign
markets. The Company's ability to expand into such markets by capitalizing on
the strength of its brand names in the United States may be limited by its
right to use or acquire such brand names in those foreign markets.

         Unless otherwise indicated, the Company owns the trademarks listed
below:


                              PREMIUM CIGAR TRADEMARKS
           Cabanas                    Henry Clay                Primo Del Rey
          Don Diego                  Las Cabrillas              Santa Damiana
          Don Marcos                 Montecristo(a)               Santa Ynez
          Don Miguel                   Malaguena                 Super Value
       Flor de Canarias                Montecruz                    Te-Amo
         H. Upmann(a)               Por Larranaga(a)             Wonder Blend

                              MASS MARKET CIGAR TRADEMARKS
     Antonio y Cleopatra               El Producto                  Roi-Tan
          Backwoods                    Harvester                  Super Value
         Ben Franklin                  Headline                   Supre Sweets
        Dutch Masters                  La Corona                  Wonder Blend
         Dutch Treats                    Muriel

                              PIPE TOBACCO TRADEMARKS
         China Black                  Kriswill                 Three Star Royal
        Dutch Masters              Mixture No. 79                Wonder Blend
                                    Super Value

(a)      Trademark is owned by Cuban Cigar Brands, N.V., a 51% owned
         subsidiary of the Company.

         While the Company does not believe that any single trademark is
material to the vitality of its business, it believes that its trademarks
taken as a whole are material to its business. Accordingly, the Company has
taken, and will continue to take, action to protect its interests in all such
trademarks.

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RAW MATERIALS

         The Company has developed and is developing long-term relationships
with tobacco suppliers and is expanding its commercial and technical ties with
local growers to secure a variety of sources for raw materials, ensure the
quality of its raw materials and maximize cost savings.

         The Company buys tobacco directly from a large number of suppliers in
Brazil, Cameroon, the Central African Republic, Costa Rica, Germany, Italy,
the Dominican Republic, Paraguay, the Philippines, Indonesia, the United
States, Ecuador, Honduras, Mexico and other countries and does not believe
that it is dependent on any single source for tobacco. The Company has
recently experienced shortages in certain types of its natural wrapper and
premium cigar tobaccos due to the increase in demand for high quality natural
wrapped cigars. These shortages have caused the price of natural wrapper and
premium cigar tobaccos to increase. To date, these shortages of tobacco have
not materially adversely affected cigar manufacturing or the Company's
profitability, but could if the Company is unable to purchase additional
quantities of certain tobaccos in the future or is unable to pass increases
for such raw materials onto its customers.

         In addition, the Company purchases packaging materials from multiple
suppliers predominantly in the United States. No single supplier accounts for
10% or more of the Company's raw materials.


COMPETITION

         The Company is the largest manufacturer and marketer of cigars in the
United States in terms of dollar sales and believes that it is the only
participant in the cigar industry that is a major competitor in all
subcategories of cigars at all price levels. The other three significant
competitors in the cigar market in terms of market share, in order of size,
are Swisher International Group Inc., General Cigar Co. Inc., currently a
division of Culbro Corporation and Havatampa/Phillies Cigar Corporation, a
privately held corporation. In addition, Tobacco Exporters International
Limited (a subsidiary of Rothmans International) is a significant competitor
in the little cigar market. The Company believes that its leading market
position in the cigar industry is due to its strong, well-known brand names,
broad range of product offerings within both the mass market and premium
segments of the United States cigar market, commitment to and reputation for
manufacturing quality cigars, marketing expertise, close attention to customer
service, efficient manufacturing operations and an experienced management
team. If and when normalization of relations between the United States and
Cuba occurs, the entry of Cuban premium cigars into the United States market
could increase competition in the Company's core premium cigar market.

         Through its Allied Tobacco Division in Richmond, Virginia, the
Company competes in all areas of the U.S. pipe tobacco business including
branded, private label and bulk tobacco. The Company believes it is the fourth
largest manufacturer in the U.S. of pipe tobacco, in terms of dollar sales,
and its largest competitors in order of size are Lane Limited, John Middleton
Inc. and UST Inc.

THE TOBACCO INDUSTRY

REGULATION

         Cigar manufacturers, like other producers of tobacco products, are
subject to regulation in the United States at federal, state and local levels.
Together with changing public attitudes towards smoking, a constant expansion
of smoking regulations since the early 1970's has been a major cause of the
overall decline in consumption of tobacco products. Moreover, the trend is 
toward increasing regulation of the tobacco industry.

         Federal law has required health warnings on cigarettes since 1965 and
has recently required states, in order to receive full funding for federal
substance abuse block grants, to establish a minimum age of 18 years for the
sale of tobacco products together with an appropriate enforcement program. In
recent years, a variety of bills relating to tobacco issues have been
introduced in the Congress of the United States, including bills that would
have (i) prohibited the advertising and promotion of all tobacco products
and/or restricted or eliminated the deductibility of such advertising
expenses; (ii) increased labeling requirements on tobacco products to include,
among other things, addiction warnings and lists of additives and toxins;
(iii) modified federal preemption of state laws to allow state courts to hold
tobacco manufacturers liable under common law or state statutes; (iv) shifted
regulatory control of tobacco products and advertisements from the Federal
Trade Commission to the Food and Drug Administration (the "FDA"); (v)
increased tobacco excise taxes; and required tobacco companies to pay for
health care costs incurred by the federal government in connection with
tobacco related diseases. Hearings have been held on certain of these
proposals;

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however, to date, none of such proposals have been passed by Congress. Future
enactment of such proposals or similar bills may have an adverse effect on the
sales or operations of the Company. In addition, various federal agencies,
including the FDA, have recently proposed to regulate the tobacco industry.

         In addition, the majority of states restrict or prohibit smoking in
certain public places and restrict the sale of tobacco products to minors.
Local legislative and regulatory bodies have also increasingly moved to
curtail smoking by prohibiting smoking in certain buildings or areas or by
requiring designated "smoking" areas. In a few states, legislation has been
introduced, but has not yet passed, which would require all little cigars sold
in those states to be "fire-safe" (i.e., cigars which extinguish themselves if
not continuously smoked). Passage of this type of legislation could have a
material adverse effect on the Company's little cigar sales because of the
technological difficulties in complying with such legislation. The Company
does not expect the passage of any such legislation to have a material adverse
effect on the Company's business or results of operations taken as a whole.
There is currently an effort by the U.S. Consumer Product Safety Commission to
establish such standards for cigarettes. The enabling legislation, as
originally proposed, included little cigars; however, little cigars were
deleted due to the lack of information on fires caused by these products.

         Increased cigar consumption and the publicity such increase has
received may increase the risk of additional regulation of tobacco products or
of cigars. Consideration at both the federal and state level also has been
given to the consequences of tobacco smoke on others who are not currently
smoking (so called "second-hand" smoke). There can be no assurance that
regulation relating to second-hand smoke will not be adopted or that such
regulation or related litigation would not have a material adverse effect on
the Company's results of operations or financial condition.

         Although federal law has required health warnings on cigarettes since
1965, there is no federal law requiring that cigars or pipe tobacco carry such
warnings. However, California requires "clear and reasonable" warnings to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. Although
similar legislation has been introduced in other states, no action has been
taken.

         During 1988, the Company and 25 manufacturers of tobacco products
entered into a settlement of legal proceedings filed against them pursuant to
Proposition 65. Under the terms of the settlement, the Company and such other
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with a specified warning label. To guarantee
compliance with the California requirements, to eliminate errors in
distribution and to maintain the efficiencies of the manufacturing process,
the Company and most of its competitors have begun using the label on all of
their tobacco products shipped to customers in all states, except for a few
premium cigar customers.

         Massachusetts recently enacted legislation requiring manufacturers of
cigarettes, chewing tobacco and snuff to provide the state annually with a
list of the additives (in descending order of weight) and the nicotine yield
ratings of each brand they produce, which information will, subject to certain
conditions, be made publicly available. In addition, various legislative
proposals have been introduced in Massachusetts that would extend such
reporting requirement to cigar manufacturers and that would require health
warnings on cigars. Similar legislation has been introduced in other states.

         The U.S. Environmental Protection Agency (the "EPA") published a
report in January 1993 with respect to the respiratory health effects of
passive smoking, which concluded that widespread exposure to environmental
tobacco smoke presents a serious and substantial public health concern. In
June 1993, Philip Morris Companies Inc. and five other representatives of the
tobacco manufacturing and distribution industries filed suit against the EPA
seeking a declaration that the EPA does not have the statutory authority to
regulate environmental tobacco smoke, and that, in view of the available
scientific evidence and the EPA's failure to follow its own guidelines in
making the determination, the EPA's final risk assessment was arbitrary and
capricious. The court ruled in May 1995 that plaintiffs have standing to
pursue this action. Whatever the outcome of this litigation, issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers.

         In February 1994, the FDA, in a letter to an anti-smoking group,
claimed that it may be possible for the FDA to regulate cigarettes under the
drug provisions of the Food, Drug, and Cosmetic Act (the "FDC Act"). The FDA's
claim is based upon allegations that manufacturers may intend that their
products contain nicotine to satisfy an alleged addiction on the part of some
of their customers. The letter indicated that regulation of cigarettes under
the FDC Act 

                                      8
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could ultimately result in the removal from the market of products containing
nicotine at levels that cause or satisfy addiction. In March 1994, the FDA
began investigating whether cigarettes should be regulated as a drug. In July
1995, the FDA announced that it has concluded for the first time that nicotine
is a drug that should be regulated and proposed to regulate smokeless tobacco
and cigarettes. The FDA recently adopted final regulations relating to the
marketing, promotion and advertisement of smokeless tobacco and cigarettes.
Although the FDA's definition of cigarettes originally included little cigars,
little cigars were excluded from the final regulations. These regulations are
currently being challenged in the United States District Court for the Eastern
District of North Carolina and the United States District Court for the
Southern District of New York. While the Company is unable to predict the
effect of these regulations on its business, these and other regulations
promulgated by the FDA in the future could have a material adverse effect on
the operations of the Company.

LITIGATION

         Historically, the cigar industry has not experienced material
health-related litigation and, to date, the Company has not been the subject
of any material health-related litigation. However, the cigarette and
smokeless tobacco industries have experienced and are experiencing significant
health-related litigation involving tobacco and health issues.

         Litigation against the cigarette industry has historically been
brought by individual cigarette smokers. In 1992, the United States Supreme
Court in Cippollone v. Liggett Group, Inc. ruled that federal legislation
relating to cigarette labeling requirements preempts claims based on failure
to warn consumers about the health hazards of cigarette smoking, but does not
preempt claims based on express warranty, misrepresentation, fraud or
conspiracy. To date, individual cigarette smokers' claims against the
cigarette industry have been generally unsuccessful; however, on August 9,
1996, a Florida jury in Carter v. Brown & Williamson Tobacco Corporation
determined that a cigarette manufacturer was negligent in the production and
sale of its cigarettes and sold a product that was unreasonably dangerous and
defective, awarding the plaintiffs a total of $750,000 in compensatory
damages. The verdict is on appeal.

         Current tobacco litigation generally falls within one of three
categories: class actions, individual actions (which have been filed mainly in
the State of Florida), or actions brought by individual states or localities
to recover Medicaid costs allegedly attributable to tobacco-related illnesses.
The pending actions allege a broad range of injuries resulting from the use of
tobacco products or exposure to tobacco smoke and seek various remedies,
including compensatory and, in some cases, punitive damages together with
certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies are vigorously
defending these actions, including by challenging the authority of state
attorneys general to bring Medicaid actions attributable to tobacco-related
illnesses and, in some states, bringing preemptive lawsuits to enjoin the
state attorneys general from instituting litigation.

         The recent increase in the sales of cigars and the publicity such
increase has received may have the effect of increasing the probability of
legal claims. Also, a recent study published in the journal Science reported
that a chemical found in tobacco smoke has been found to cause genetic damage
in lung cells that is identical to damage observed in many malignant tumors of
the lung and, thereby, directly links lung cancer to smoking. This study could
affect pending and future tobacco regulation or litigation.

         In May 1996, the Fifth Circuit Court of Appeals in Castano v.
American Tobacco, et al. reversed a Louisiana district court's certification
of a nationwide class consisting essentially of nicotine dependent cigarette
smokers. Notwithstanding the dismissal, new class actions asserting claims
similar to those in Castano have recently been filed in certain states. To
date, two pending class actions against major cigarette manufacturers have
been certified. The first case is limited to Florida citizens allegedly
injured by their addiction to cigarettes; the other is limited to flight
attendants allegedly injured through exposure to secondhand smoke.

         There can be no assurance that there will not be an increase in
health-related litigation involving tobacco and health issues against the
cigarette industry or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's business.

                                      9
<PAGE>

EXCISE TAXES

         Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed
to be increased, in some cases significantly, to fund various legislative
initiatives.

         From 1977 until December 31, 1990, cigars were subject to a federal
excise tax of 8.5% of wholesale list price, capped at $20.00 per thousand
cigars. Effective January 1, 1991, the federal excise tax rate on large cigars
(weighing more than three pounds per thousand cigars) increased to 10.625%,
capped at $25.00 per thousand cigars, and increased to 12.75%, capped at
$30.00 per thousand cigars, effective January 1, 1993. However, the base on
which the federal excise tax is calculated was lowered effective January 1,
1991 to the manufacturer's selling price, net of the federal excise tax and
certain other exclusions. In addition, the federal excise tax on pipe tobacco
increased from $0.45 per pound to $0.5625 per pound effective January 1, 1991.
The excise tax on pipe tobacco increased effective January 1, 1993, to $0.675
per pound. The federal excise tax on little cigars (weighing less than three
pounds per thousand cigars) increased from $0.75 per thousand cigars to
$0.9375 per thousand cigars effective January 1, 1991. The excise tax on
little cigars increased to $1.125 per thousand cigars effective January 1,
1993. The increase in the federal excise tax rate in 1991 and again in 1993
did not have a material adverse effect on the Company's product sales.

         In the past, there have been various proposals by the federal
government to fund legislative initiatives through increases in federal excise
taxes on tobacco products. In 1993, the Clinton Administration proposed a
significant increase in excise taxes on cigars, pipe tobacco, cigarettes and
other tobacco products to fund the Clinton Administration's health care reform
program. The Company believes that the volume of cigars and pipe tobacco sold
would have been dramatically reduced if excise taxes were enacted as
originally proposed as part of the Clinton Administration's health care reform
program. Future enactment of significant increases in excise taxes, such as
those initially proposed by the Clinton Administration or other proposals not
linked specifically to health care reform, would have a material adverse
effect on the business of the Company. The Company is unable to predict the
likelihood of the passage or the enactment of future increases in tobacco
excise taxes.

         Tobacco products are also subject to certain state and local taxes.
Deficit concerns at the state level continue to exert pressure to increase
tobacco taxes. Since 1964, the number of states that tax cigars has risen from
six to forty-one. Since 1988, the following eleven states have enacted excise
taxes on cigars, where no prior tax had been in effect: California,
Connecticut, New Jersey, New York, North Carolina, Ohio, South Dakota, Rhode
Island, Illinois, Missouri and Michigan. State excise taxes generally range
from 2% to 75% of the wholesale purchase price. In addition, the following
nine states have increased existing taxes on large cigars since 1988: Arizona,
Arkansas, Idaho, Iowa, Maine, New York, North Dakota, Vermont and Washington.
The following five states tax little cigars at the same rates as cigarettes:
California, Connecticut, Iowa, Oregon and Tennessee. Except for Tennessee, all
of these states have increased their cigarette taxes since 1988.

         State cigar excise taxes are not subject to caps similar to the
federal cigar excise tax. From time to time, the imposition of state and local
taxes has had some impact on sales regionally. The enactment of new state
excise taxes and the increase in existing state excise taxes are likely to
have an adverse effect on regional sales as cigar consumption generally
declines, which in turn is likely to have an adverse effect on the Company's
results of operations. The Company is unable to predict the materiality or
likelihood of the enactment of new state excise taxes or the increase in
existing state excise taxes and, therefore, is unable to predict the extent of
any adverse effect on the Company's business or results of operations that may
result from the imposition of such taxes.

EMPLOYEES

         The Company employs approximately 4,800 persons. The Company believes
that its relations with its employees are satisfactory. Union contracts,
expiring at various dates, cover salesmen in New York and hourly employees in
McAdoo, Pennsylvania and Richmond, Virginia. The McAdoo agreement with the
Teamsters Local 401 expires in December 1998 and the Richmond agreement with
the Warehouse Employees Local 322 expires in January 1999. The Company has
experienced no work stoppages due to labor problems in the last ten years.

SEASONALITY

         The Company's business is generally non-seasonal. However, slight
increases in cigar unit volume are experienced prior to Father's Day and the
Christmas season.

                                      10

<PAGE>



ITEM 2. PROPERTIES

         As of December 31, 1996, the principal properties owned or leased by
the Company for use in its business included:
<TABLE>
<CAPTION>

                                                                                                        APPROXIMATE
                                                                                         OWNED OR       FLOOR SPACE
LOCATION                                PRINCIPAL USE                                     LEASED         (SQ. FT.)
--------                                -------------                                    --------       -----------

<S>                                     <C>                                               <C>             <C>    
McAdoo, Pennsylvania                    Mass market cigar manufacturing and               Owned           369,000
                                        distribution
Cayey, Puerto Rico                      Mass market cigar manufacturing                   Owned           280,000
La Romana, Dominican Republic           Premium cigar manufacturing                       Leased          170,000
Comerio, Puerto Rico                    Tobacco processing                                Owned           151,000
Richmond, Virginia                      Pipe tobacco manufacturing and                    Leased          90,000
                                         premium cigar distribution
Danli, Honduras                         Premium cigar manufacturing                       Owned           45,000
Maypen, Jamaica                         Premium cigar manufacturing                       Owned           25,000
Fort Lauderdale, Florida                Administrative office                             Leased          19,000
</TABLE>

         The Company believes that its existing and planned manufacturing
facilities and distribution centers are adequate for the current level of the
Company's operations. The Company believes that additional facilities, if
necessary, would be readily available on a timely basis on commercially
reasonable terms. For 1997, the Company is expanding its existing
manufacturing facilities in the Dominican Republic and Honduras and acquiring
additional manufacturing equipment for a total expected cost of approximately
$4.0 million.

         Further, the Company believes that the leased space that houses its
existing manufacturing and distribution facilities is not unique and could be
readily replaced, if necessary, at the end of the terms of its existing leases
on commercially reasonable terms. The Company's leases have expiration dates
ranging from 1999 to 2000, many of which are renewable at the option of the
Company.

         All of the principal properties owned by the Company are subject to
first priority liens granted in favor of the lenders under the credit
agreement, as amended to February 3, 1997 (the "Credit Agreement") of
the Company.

         The Company has excess capacity in all of its cigar and pipe tobacco
plants. The Company's ability to take advantage of such excess capacity by
increasing shift operations and the production of premium and mass market
cigars may be limited by the availability of trained laborers and shortages in
the supply of tobacco.

         The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.

ITEM 3. LEGAL PROCEEDINGS

         The Company is a party to lawsuits incidental to its business. The
Company believes that the outcome of such pending legal proceedings in the
aggregate will not have a material adverse effect on the Company's
consolidated financial position. The Company carries general liability
insurance but has no health hazard policy, which, to the best of the Company's
knowledge, is consistent with industry practice. There can be no assurance,
however, that the Company will not experience material health-related
litigation in the future.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders during the
fourth quarter of 1996.

                                      11

<PAGE>


                                    PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         There is no active market for the Registrant's common stock; all
issued and outstanding shares of common stock are owned by Consolidated Cigar
Holdings Inc.

ITEM 6. SELECTED FINANCIAL DATA

         The selected historical financial data of the Company for, and as of
the end of, each of the periods indicated in the five-year period ended
December 31, 1996 have been derived from the audited Consolidated Financial
Statements of the Company.

         The selected historical financial data reflects the consolidated
results of the Company and its predecessors. Prior to March 3, 1993, the
Company was a wholly owned subsidiary of Triple C Acquisition Corp. ("Triple
C"). On March 3, 1993, Mafco Holdings acquired (the "1993 Acquisition") all of
the outstanding shares of Triple C and merged Triple C into the Company, with
the Company being the surviving corporation. Accordingly, the selected
historical financial data reflect for the periods (i) prior to March 3, 1993,
the results of Triple C and (ii) subsequent to March 2, 1993, the consolidated
results of the Company, as adjusted to account for the 1993 Acquisition under
the purchase accounting method. The results of operations and financial
condition of the Company subsequent to the 1993 Acquisition
("Post-Acquisition") have been significantly affected by adjustments resulting
from the 1993 Acquisition, including adjustments for the substantial increase
in debt associated with the 1993 Acquisition, the allocation of the purchase
price and related amortization. As a result, the Post-Acquisition results of
operations and financial position of the Company are not comparable with the
results of operations and financial position of the Company prior to the 1993
Acquisition ("Pre-Acquisition").

         The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this Report.


                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>

                                            PRE-ACQUISITION                                 POST ACQUISITION
                                     -------------------------------- ------------------------------------------------------------
                                                                   ||
                                                                   || TEN MONTHS
                                     YEAR ENDED       TWO MONTHS   ||    ENDED        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                    DECEMBER 31,    ENDED MARCH 2, || DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                        1992             1993      ||     1993            1994            1995            1996
                                        ----             ----      ||     ----            ----            ----            ----
<S>                                 <C>                <C>         ||  <C>             <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:                                      ||
Net sales......................        $127,107        $15,563     ||  $110,384         $131,510        $158,166         $216,868
Cost of sales..................          77,852          9,088     ||    69,871           78,836          94,347          126,013
                                     ---------      ---------      ||  --------        --------          --------         -------
Gross profit...................          49,255          6,475     ||    40,513           52,674          63,819           90,855
Selling, general and                                               ||
   administrative expenses.....          27,836          4,580     ||    24,956           29,413          32,393           36,776
                                     ---------      ---------      ||  --------        --------          --------         -------
Operating income...............          21,419          1,895     ||    15,557           23,261          31,426           54,079
                                     ---------      ---------      ||  --------        --------          --------         -------
Interest expense, net..........        (10,527)        (1,660)     ||   (10,930)        (12,838)         (12,635)         (10,619)
Gain on sale of trademarks.....           6,830            ---     ||       ---             ---              ---              ---
Minority interest..............         (3,345)              5     ||       209              78             (262)            (310)
Miscellaneous, net.............         (1,364)          (226)     ||      (690)           (828)          (1,000)            (889)
                                     ---------      ---------      ||  --------        --------          --------         -------
Income before provision for                                        ||
income taxes and extraordinary                                     ||
items..........................          13,013             14     ||      4,146           9,673           17,529          42,261
Provision for income taxes.....           2,370             91     ||      1,267           1,989            3,599          12,449
                                      ---------      ---------     ||   --------        --------          --------         -------
                                                                   ||
Extraordinary items............            (514)            --     ||         --              --               --               --
                                      ---------      ---------     ||   --------        --------          --------         -------
                                                                   ||
Net income (loss)..............        $ 11,157     $     (77)     || $   2,879         $  7,684       $  13,930         $ 29,812
                                       ========     ==========     || =========         ========       =========         ========
                                                                   ||
</TABLE>

                                      12
<PAGE>


<TABLE>
<CAPTION>

                                 PRE-ACQUISITION                                            POST ACQUISITION
                                 ------------------------ ---------- -------------------------------------------------------------
                                   DECEMBER 31,                    || DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                       1992                        ||     1993            1994            1995            1996
                                       ----                        ||     ----            ----            ----            ----
<S>                                <C>                             ||  <C>             <C>              <C>            <C>    
BALANCE SHEET DATA (AT PERIOD                                      ||
  END):                                                            ||
Total assets...................        $110,725                    ||  $205,906         $196,909        $191,730       $205,511
Long-term debt.................          79,416                    ||   145,300          126,200         110,600         97,500
Total stockholder's equity.....          14,314                    ||    32,879           40,563          54,328         71,355
</TABLE>                                                           ||


<TABLE>
<CAPTION>

                                           PRE- ACQUISITION                                 POST-ACQUISITION
                                    -------------------------------- -------------------------------------------------------------
                                                                   ||  TEN MONTHS
                                    YEAR ENDED    TWO MONTHS ENDED ||     ENDED        YEAR ENDED      YEAR ENDED      YEAR ENDED
                                   DECEMBER 31,       MARCH 2,     || DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                       1992             1993       ||     1993            1994            1995            1996
                                       ----             ----       ||     ----            ----            ----            ----
<S>                                  <C>              <C>          ||  <C>            <C>                 <C>           <C>
OTHER DATA:                                                        ||
Gross margin (a)...............           38.8%          41.6%     ||      36.7%          40.1%           40.3%           41.9%
Operating margin (a)...........           16.9           12.2      ||      14.1           17.7            19.9            24.9
EBITDA(b)......................        $29,330         $2,792      ||   $25,156        $30,046          $38,125         $60,547
EBITDA margin (b)..............           23.1%          17.9%     ||      22.8%          22.8%           24.1%           27.9%
Capital expenditures...........      $     926           $115      || $     881      $     788        $     983        $  5,278
Amortization of goodwill.......            110             18      ||     1,399          1,771            1,771           1,651
Cash flows provided by                                             ||
  operating activities.........         20,638          3,462      ||     8,842         14,259           19,801          32,600
Cash flows provided by                                             ||
  (used for) investing.........          (701)          (247)      ||      (611)         5,036             (989)         (5,875)
Cash flows used for financing                                      ||
  activities...................       (19,574)        (2,078)      ||   (12,143)      (18,810)          (19,367)        (25,947)

</TABLE>

See notes to selected financial data.

(a) Gross margin is defined as gross profit as a percentage of net sales and
operating margin is defined as operating income as a percentage of net sales.


(b) EBITDA is defined as earnings before interest expense, net, taxes,
extraordinary items, depreciation and amortization and minority interest. The
Company believes that EBITDA is a measure commonly used by analysts, investors
and others interested in the cigar industry. Accordingly, this information has
been disclosed herein to permit a more complete analysis of the Company's
operating performance. EBITDA should not be considered in isolation or as a
substitute for net income or other consolidated statement of operations or
cash flows data prepared in accordance with generally accepted accounting
principles as a measure of the profitability or liquidity of the Company.
EBITDA does not take into account the Company's debt service requirements and
other commitments and, accordingly, is not necessarily indicative of amounts
that may be available for discretionary uses. EBITDA margin is defined as
EBITDA as a percentage of net sales.

                                      13
<PAGE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

         The following should be read in conjunction with the Consolidated
Financial Statements of the Company included elsewhere in this report.

OVERVIEW

         The Company is the largest manufacturer and marketer of cigars sold
in the United States in terms of dollar sales, with a 1996 market share of
approximately 23% according to the Company's estimates. The Company markets
its cigar products under a number of well-known brand names at all price
levels and in all segments of the growing cigar market. The Company is also a
leading producer of pipe tobacco and is the largest supplier of private label
and branded generic pipe tobacco to mass market retailers. In addition, the
Company distributes a variety of pipe and cigar smokers' accessories. For the
year ended December 31, 1996, cigars accounted for approximately 92% of the
Company's net sales.

         The United States cigar industry experienced declining consumption
between 1964 and 1993 at a compound annual unit rate of 3.6% (and, with
respect to large cigar consumption, at a compound annual unit rate of 5.0%).
Recently, cigar smoking has gained popularity in the United States, resulting
in a significant increase in consumption and retail sales of cigars,
particularly for premium cigars. Management believes that this increase in
cigar consumption and retail sales is the result of a number of factors,
including: (i) the increase in the number of adults over the age of 50 (a
demographic group believed to smoke more cigars than any other demographic
segment) and (ii) the emergence of an expanding base of younger affluent
adults who have recently started smoking cigars and who tend to smoke premium
cigars. The growth in industry retail sales of cigars has outpaced unit growth
since 1991 primarily as a result of a combination of increased prices and a
shift in the sales mix to more expensive cigars. There can be no assurance
that unit consumption and retail sales of cigars will continue to increase in
the future.

         The increased demand for cigars, especially premium cigars, and the
shortage of experienced skilled laborers caused as a result thereof have
resulted in the Company's backorders of premium cigars to increase from 3.2
million cigars at December 31, 1994 to 4.3 million cigars at December 31,
1995, and to further increase to 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars has continued to increase in 1996, the
substantial increase in backorders of premium cigars experienced by the
Company in 1996 was due, at least in part, to the practice by retailers of
submitting orders well in excess of required quantities in an attempt to
ensure a larger allocation of the Company's premium cigar production. As such,
the increase in backorders does not accurately reflect the demand for the
Company's premium cigars. Beginning in 1997, the Company established new
ordering policies to reduce backorders. As a result of such new ordering
policies, the amount of future backorders will not be comparable to those
previously experienced by the Company.

         The Company is hiring and training new rollers and bunchers and is
building additional plant capacity to meet future growth in demand for its
premium cigars. Although the Company believes that these measures will enable
it to increase its production of premium cigars, there can be no assurance
that the Company will be able to meet any future level of demand for its
premium cigars. The Company's ability to manufacture premium and mass market
cigars may also be constrained by the ability of tobacco growers and suppliers
to meet the Company's demands for its raw materials in a timely manner.

RESULTS OF OPERATIONS

         The discussion set forth below relates to the consolidated results of
operations and financial condition of the Company for the years ended December
31, 1994, 1995 and 1996.

                                      14
<PAGE>
          The following table sets forth certain statement of operations data
and the related percentage of net sales (dollars in millions):
<TABLE>
<CAPTION>

                                                                        YEAR ENDED DECEMBER 31,
                                                     
                                                         1994                   1995                    1996
                                                 --------------------   --------------------    -------------------
<S>                                               <C>          <C>         <C>         <C>         <C>        <C>   
Net sales...................................      $131.5       100.0%      $158.2      100.0%      $216.9     100.0%
Cost of sales...............................        78.8        59.9         94.4      59.7         126.0      58.1
Gross profit................................        52.7        40.1         63.8      40.3          90.9      41.9
Selling, general and administrative
 expenses...................................        29.4        22.4         32.4      20.4          36.8      17.0
                                                    ----        ----         ----      ----          ----      ----
Operating income............................        23.3        17.7         31.4      19.9          54.1      24.9
Interest expense, net.......................        12.8         9.7         12.6       8.0          10.6       4.9
Minority interest and miscellaneous
 expense, net...............................         0.8         0.6          1.3       0.8           1.3       0.6
Provision for income taxes..................         2.0         1.5          3.6       2.3          12.4       5.7
                                                    ----        ----         ----      ----          ----      ----
Net income..................................        $7.7         5.9%       $13.9       8.8%        $29.8      13.7%
                                                    ====        =====        ====      =====        =====       ====

</TABLE>

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

         Net sales were $216.9 million and $158.2 million in 1996 and 1995,
respectively, an increase of $58.7 million or 37.1%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales, particularly in the
premium market, increased primarily as a result of both a shift in sales mix to
higher priced cigars and price increases on certain cigar brands, and, to a
lesser extent, an increase in cigar unit volume.

         Gross profit was $90.9 million and $63.8 million in 1996 and 1995,
respectively, an increase of $27.1 million or 42.4%. The increase in gross
profit for 1996 was due to the increase in sales, partially offset by increases
in the costs of raw materials. As a percentage of net sales, gross profit
increased to 41.9% in 1996 from 40.3% in 1995, primarily due to fixed
manufacturing costs spread over increased production volume.

         Selling, general and administrative ("SG&A") expenses were $36.8
million and $32.4 million in 1996 and 1995, respectively, an increase of $4.4
million or 13.5%, primarily due to increased compensation expense in addition
to increased marketing and selling expenses. As a percentage of net sales,
SG&A expenses decreased to 17.0% in 1996 from 20.4% in 1995. The decrease was
primarily due to SG&A expenses increasing at a lower rate relative to the
increase in net sales.

         Operating income was $54.1 million and $31.4 million in 1996 and
1995, respectively, an increase of $22.7 million or 72.1%. As a percentage of
net sales, operating income increased to 24.9% in 1996 from 19.9% in 1995,
primarily due to higher gross profit margins and a decrease in SG&A expenses
as a percentage of net sales.

         Interest expense, net, was $10.6 million and $12.6 million in 1996
and 1995, respectively. The decrease of $2.0 million was primarily a result of
a lower amount of outstanding debt due to third parties during 1996.

         The provision for income taxes as a percentage of income before
income taxes was 29.5% and 20.5% in 1996 and 1995, respectively. The increase
in the effective rate is primarily due to an increase in income subject to
United States taxation during 1996 partially offset by tax benefits associated
with the Company's operations in Puerto Rico. Income tax expense for 1996
reflects provisions for federal income taxes, Puerto Rico tollgate taxes and
taxes on Puerto Rico source income, together with state and franchise taxes.
Income tax expense for 1995 reflects provisions for federal income taxes, net
of tax benefit resulting from the utilization of net operating loss
carryforwards, Puerto Rico tollgate taxes and taxes on Puerto Rico source
income, along with state and franchise taxes.

         As a result of the foregoing, the Company had net income of $29.8
million in 1996, compared to $13.9 million in 1995, an increase of $15.9
million or 114.0%.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

         Net sales were $158.2 million and $131.5 million in 1995 and 1994,
respectively, an increase of $26.7 million or 20.3%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales increased primarily
as a result 

                                      15
<PAGE>


of an increase in cigar unit volume, particularly in the premium market, and,
to a slightly lesser extent, a shift in sales mix to higher priced cigars and
price increases on certain cigar brands.

         Gross profit was $63.8 million and $52.7 million in 1995 and 1994,
respectively, an increase of $11.1 million or 21.2%. The increase in gross
profit for 1995 was due to the increase in sales, partially offset by
increases in the costs of raw materials. As a percentage of net sales, gross
profit increased to 40.3% in 1995 from 40.1% in 1994, primarily due to fixed
manufacturing costs spread over increased production volume.

         SG&A expenses were $32.4 million and $29.4 million in 1995 and 1994,
respectively, an increase of $3.0 million or 10.1%, primarily due to increased
marketing and selling expenses. As a percentage of net sales, SG&A expenses
decreased to 20.4% in 1995 from 22.4% in 1994. The decrease was primarily due
to SG&A expenses increasing at a lower rate relative to the increase in net
sales.

         Operating income was $31.4 million and $23.3 million in 1995 and
1994, respectively, an increase of $8.1 million or 35.1%. As a percentage of
net sales, operating income increased to 19.9% in 1995 from 17.7% in 1994,
primarily due to higher gross profit margins and a decrease in SG&A expenses
as a percentage of net sales.

         Interest expense, net, was $12.6 million and $12.8 million in 1995
and 1994, respectively. The decrease of $0.2 million was primarily due to a
lower amount of debt outstanding in 1995, partially offset by higher interest
rates.

         The provision for income taxes as a percentage of income before
income taxes was 20.5% and 20.6% in 1995 and 1994, respectively. Income tax
expense in 1995 and 1994 reflects provisions for federal income taxes, net of
the tax benefit resulting from the utilization of net operating loss
carryforwards, along with state income and franchise taxes. In addition,
income tax expense includes a provision for Puerto Rico tollgate taxes and
taxes on Puerto Rico source income.

         As a result of the foregoing, the Company had net income of $13.9
million in 1995, compared to $7.7 million in 1994, an increase of $6.2 million
or 81.3%.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash flows from operating activities were $32.6 million, $19.8
million and $14.3 million for 1996, 1995, and 1994, respectively. The increase
of $12.8 million from 1995 to 1996 was primarily due to an increase in net
income partially offset by increased working capital requirements. The
increase of $5.5 million from 1994 to 1995 was due primarily to the increase
in net income for 1995.

         Cash flows used in investing in 1996 and 1995 were primarily related
to capital expenditures. In 1994, however, cash was provided by investing
activities as a result of the sale of a building in Puerto Rico for $5.8
million. Capital expenditures were $5.3 million, $1.0 million, and $0.8
million for the years ended December 31, 1996, 1995, and 1994, respectively.
The capital expenditures in 1994 and 1995 relate primarily to investments in
cigar manufacturing equipment and are part of the continual maintenance and
upgrading of the Company's manufacturing facilities. The capital expenditures
in 1996 relate primarily to investments in the Company's manufacturing
facilities to meet increased demand for the Company's premium cigars,
including expansion of its existing manufacturing facilities in the Dominican
Republic and Honduras and construction, as part of a joint venture, of a new
facility in Jamaica. For 1997, the Company plans to continue expanding its
facilities in the Dominican Republic and Honduras as well as add equipment to
other facilities for a total cost of approximately $4.0 million. In 1996, $0.5
million of cash flows was also invested, as part of an equity investment, in
the Jamaican joint venture.

         Cash flows used for financing activities in 1996, 1995, and 1994 were
$25.9 million, $19.4 million, and $18.8 million, respectively. In each period,
such cash flows were used to make net repayments of borrowings, primarily
under the Credit Agreement. In addition, cash flows used for financing
activities in 1996 and 1995 were used to pay $12.8 million of dividends to
Mafco Consolidated Group during 1996 and a $5.0 million dividend to Mafco
Holdings during 1995.

         In 1993 and 1994, the Company entered into two five-year interest
rate swap agreements in an aggregate notional amount of $85.0 million. Under
the terms of the agreements, the Company receives a fixed interest rate
averaging approximately 5.8% and pays a variable interest rate equal to the
six-month London interbank offered rate (LIBOR). The Company entered into such
agreements to take advantage of the differential between long-term and

                                      16
<PAGE>

short-term interest rates and effectively converted the interest rate on
$85.0 million of fixed-rate indebtedness under the Senior Subordinated Notes
to a variable rate. Had the Company terminated these agreements, which the
Company considers to be held for other than trading purposes, on January 31,
1997, the Company would have realized a combined loss of approximately $1.1
million. Future positive or negative cash flows associated with these
agreements will depend upon the trend of short-term interest rates during the
remaining life of the agreements. In the event of non-performance of the
counterparties at anytime during the remaining lives of these agreements,
which expire at December 1998 and January 1999, the Company could lose some or
all of any future positive cash flows. However, the Company does not
anticipate non-performance by such counterparties. The Company does not
currently anticipate terminating these agreements; however, the Company will
from time to time continue to review its financing alternatives with respect
to its fixed and floating rate debt.

         The Company intends to fund working capital requirements, capital
expenditures and debt service requirements for the foreseeable future through
cash flows from operations and borrowings under the Credit Agreement. The
Credit Agreement consists of a revolving credit facility (the "Revolving
Credit Facility") and a working capital facility (the "Working Capital
Facility"). The Revolving Credit Facility and the Working Capital Facility
have final maturities on April 3, 1999 and have no scheduled amortization
requirements. The Credit Agreement is secured by first priority liens on all
of the material assets of the Company and its domestic subsidiaries and
pledges of the capital stock of all of the Company's subsidiaries (with
certain exceptions for the capital stock of foreign subsidiaries). The
Company's obligations under the Credit Agreement are guaranteed by
Consolidated Cigar Holdings and by all of the domestic subsidiaries of the
Company. The guarantee by Consolidated Cigar Holdings will continue to be
secured by a pledge of all of the shares of common stock of the Company owned
by Consolidated Cigar Holdings. The Credit Agreement also contains various
restrictive covenants including, among other things, limitations on the
ability of the Company and its subsidiaries to incur debt, create liens, pay
dividends, sell assets, and make investments, acquisitions and capital
expenditures. In addition, the Credit Agreement requires the Company to
maintain specified financial ratios and satisfy certain tests, including
maximum leverage ratios and minimum interest coverage ratios. The Credit
Agreement also contains customary events of default and permits the Company to
pay dividends and make distributions on terms substantially similar to those
contained in the Senior Subordinated Notes Indenture. The Credit Agreement was
amended on February 3, 1997 to reduce the amount of various interest rate
margins charged against outstanding borrowings. As of December 31, 1996, there
was approximately $25.7 million unused and available under the Credit
Agreement, after taking into account approximately $1.7 million utilized to
support letters of credit. See Note F of the Notes to Consolidated Financial
Statements of the Company included elsewhere in this Report.

INFLATION

         The Company has historically been able to pass inflationary increases
for raw materials and other costs onto its customers through price increases
and anticipates that it will be able to do so in the future.

TAXATION AND REGULATION

EXCISE TAXES

         Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed
to be increased, in some cases significantly, to fund various legislative
initiatives. In particular, there have been proposals by the federal
government in the past to reform health care through a national program to be
funded principally through increases in federal excise taxes on tobacco
products. Enactment of significant increases in or new federal, state or local
excise taxes would result in decreased unit sales of cigars and pipe tobacco,
which would have a material adverse effect on the Company's business.

POSSESSIONS TAX CREDIT

         Prior to December 31, 1993, income earned by the Company from its
Puerto Rico operations was subject to the provisions of Section 936 of the
Internal Revenue Code of 1986, as amended (the "Code"). Section 936 of the
Code allowed for a "possessions tax credit" against United States federal
income tax for the amount of United States federal income tax attributable to
the Puerto Rico taxable earnings. As part of the Omnibus Budget Reconciliation
Act of 1993, for the years after December 31, 1993, the possessions tax credit
has been limited based upon a percentage of qualified wages in Puerto Rico,
plus certain amounts of depreciation (the "Current Limitation"). The Company
believes that it qualified for the possessions tax credit during 1996, 1995
and 1994. The Company expects that it will continue to

                                      17
<PAGE>

qualify for the possessions tax credit for every year that such credit is
available in such amounts to offset the majority of any United States federal
income tax related thereto, but eligibility and the amounts of the credit will
depend on the facts and circumstances of the Company's Puerto Rico operations
during each of the taxable years subsequent to 1996. Failure to receive the
possessions tax credit attributable to the Company's Puerto Rico operations
would have a material adverse effect on the Company.

         On August 20, 1996, the Small Business Job Protection Act of 1996
(the "SBJPA") was enacted into law. Under the SBJPA, Section 936 of the Code,
the possessions tax credit, was repealed, subject to special grandfather rules
for which the Company would be eligible, provided that the Company does not
add a "substantial new line of business." Under the grandfather rules, for the
Company's taxable years beginning after December 31, 2001 and before January
1, 2006, the Company's business income from its Puerto Rico operations
eligible for the possessions tax credit would, in addition to the Current
Limitation, generally be limited to its average annual income from its Puerto
Rico operations, adjusted for inflation, computed during the Company's five
most recent taxable years ending before October 14, 1995 and excluding the
highest and lowest years (the "Income Limitation"). For taxable years after
December 31, 2005, the possessions tax credit would be eliminated. The repeal
of the possessions tax credit could have a material adverse effect on the
Company for taxable years beginning after December 31, 2001 and before January
1, 2006, to the extent that the Company's annual income from its Puerto Rico
operations exceeds its average annual income from its Puerto Rico operations
(as computed in the manner described in the preceding sentence), and for
taxable years after December 31, 2005. Although it does not currently have any
definitive plans with respect thereto, the Company expects to evaluate
alternatives that may be available to it in order to mitigate the effects of
the SBJPA. On February 6, 1997, President Clinton proposed certain tax law
changes which, if enacted, would eliminate the Income Limitation, extend the
possession tax credit indefinitely and make the credit available to newly
established business operations.

PUERTO RICO TAX EXEMPTION 

         Pursuant to a grant of industrial tax exemption which expires in
2002, income earned by Congar International Corporation from the manufacture
of cigars in Puerto Rico enjoys a 90% income tax exemption from Puerto Rican
income taxes. The remaining 10% of such income is taxed at a maximum surtax
rate of 45%, resulting in an effective income tax rate for such income of
approximately 4.5% under current tax rates. Funds repatriated to the Company
are subject to a maximum Puerto Rican tollgate tax of 10%. Legislation enacted
in Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.
There can be no assurance that the Puerto Rico tax exemption will not be
limited or eliminated in the future. Any significant limitation on or
elimination of the Puerto Rico tax exemption would have a material adverse
effect on the Company. See Note H of the Notes to Consolidated Financial
Statements of the Company included elsewhere in this Report.

REGULATION

         Cigar manufacturers, like other producers of tobacco products, are
subject to regulation in the United States at the federal, state and local
levels. The recent trend is toward increasing regulation of the tobacco
industry. There can be no assurance as to the ultimate content, timing or
effect of any additional regulation of tobacco products by any federal, state,
local or regulatory body, and there can be no assurance that any such
legislation or regulation would not have a material adverse effect on the
Company's business.

FORWARD-LOOKING STATEMENTS

         The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-K are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
factors that could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein is the Company's ability to implement its business strategy
successfully, which will be dependent on business, financial, and other
factors beyond the Company's control, including, among others, prevailing
changes in consumer preferences, access to sufficient quantities of raw
materials, availability of trained laborers and changes in tobacco products
regulation. There can be no assurance that the Company will continue to be
successful in implementing its business strategy. Other factors could also
cause actual results to vary materially from the future results covered in
such forward-looking statements.

                                      18
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Registrant's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of Ernst & Young LLP,
independent certified public accountants, with respect thereto, referred to in
the Index to Consolidated Financial Statements and Financial Statement
Schedules of the Registrant contained in Item 14(a), appear on pages F-1
through F-17 of this Form 10-K and are incorporated herein by reference
thereto. Information required by schedules called for under Regulation S-X is
either not applicable or is included in the Consolidated Financial Statements
or Notes thereto.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

         None.

                                      19

<PAGE>

                                   PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information (ages as of
February 28, 1997) concerning the Directors and executive officers of the
Company. All Directors serve terms of one year or until the election of their
respective successors.
<TABLE>
<CAPTION>

NAME                                     AGE           POSITION
----                                     ---           --------
<S>                                      <C>           <C>                                                            
Ronald O. Perelman..................     54..........  Chairman of the Board of Directors and a Director
Howard Gittis.......................     63..........  Vice Chairman of the Board of Directors and a Director
Donald G. Drapkin...................     48..........  Director
Theo W. Folz........................     53..........  President, Chief Executive Officer and a Director
Richard L. DiMeola..................     62..........  Executive Vice President and Chief Operating Officer
Gary R. Ellis.......................     43..........  Senior Vice President, Chief Financial Officer,
                                                        Secretary and Treasurer
James L. Colucci....................     50..........  Senior Vice President -- Sales and Marketing
George F. Gershel, Jr...............     66..........  Senior Vice President -- Tobacco
Denis F. McQuillen..................     51..........  Senior Vice President -- Manufacturing
James M. Parnofiello................     48..........  Vice President and Controller
</TABLE>

         Mr. Perelman has been Chairman of the Board and a Director of the
Company and Consolidated Cigar Holdings since 1993. Mr. Perelman has been
Chairman of the Board and Chief Executive Officer of Mafco Holdings and
MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes Holdings" and,
together with Mafco Holdings, "MacAndrews & Forbes") and various of its
affiliates since 1980. Mr. Perelman also is Chairman of the Board of Andrews
Group Incorporated ("Andrews Group"), Mafco Consolidated Group, Meridian
Sports Incorporated ("Meridian Sports"), Power Control Technologies Inc.
("PCT") and Toy Biz, Inc. ("Toy Biz") and is the Chairman of the Executive
Committee of the Boards of Directors of Marvel Entertainment Group, Inc.
("Marvel"), Revlon Consumer Products Corporation ("Revlon Products") and
Revlon, Inc. ("Revlon"). Mr. Perelman is a Director of the following
corporations which file reports pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"): Andrews Group, California Federal Bank,
a Federal Savings Bank ("California Federal"), The Coleman Company, Inc.
("Coleman"), Coleman Holdings Inc. ("Coleman Holdings"), Coleman Worldwide
Corporation ("Coleman Worldwide"), First Nationwide Holdings, Inc. ("First
Nationwide"), First Nationwide (Parent) Holdings Inc. ("First Nationwide
Parent"), Mafco Consolidated Group, Marvel, Marvel Holdings Inc. ("Marvel
Holdings"), Marvel (Parent) Holdings Inc. ("Marvel Parent"), Marvel III
Holdings Inc. ("Marvel III"), Meridian Sports, PCT, Pneumo Abex Corporation
("Pneumo Abex"), successor by merger to Mafco Worldwide Corporation ("Mafco
Worldwide"), Revlon, Revlon Products, Revlon Worldwide Corporation ("Revlon
Worldwide") and Toy Biz. (On December 27, 1996, Marvel Holdings, Marvel
Parent, Marvel III and Marvel and several of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)

         Mr. Gittis has been a Director of the Company and Consolidated Cigar
Holdings since 1993 and Vice Chairman of the Board of Directors of the Company
and Consolidated Cigar Holdings since July 1996. Mr. Gittis has been Vice
Chairman and a Director of MacAndrews & Forbes and various of its affiliates
since 1985. Mr. Gittis is a Director of the following corporations which file
reports pursuant to the Exchange Act: Andrews Group, California Federal, First
Nationwide, First Nationwide Parent, Jones Apparel Group, Inc., Loral Space &
Communications Ltd., Mafco Consolidated Group, PCT, Pneumo Abex, Revlon,
Revlon Products, Revlon Worldwide and Rutherford-Moran Oil Corporation.


                                      20

<PAGE>

         Mr. Drapkin has been a Director of the Company and Consolidated Cigar
Holdings since August 1996. Mr. Drapkin has been Vice Chairman and a Director
of MacAndrews & Forbes Holdings and various of its affiliates since March
1987. Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate,
Meagher & Flom LLP for more than five years prior to March 1987. Mr. Drapkin
is a Director of the following corporations which file reports pursuant to the
Exchange Act: Algos Pharmaceutical Corporation, Andrews Group, Coleman,
Coleman Holdings, Coleman Worldwide, Marvel, Marvel Holdings, Marvel Parent,
Marvel III, Revlon, Revlon Products, Revlon Worldwide, Toy Biz and VIMRx
Pharmaceuticals Inc. (On December 27, 1996, Marvel Holdings, Marvel Parent,
Marvel III and Marvel and several of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.)

         Mr. Folz has been President, Chief Executive Officer and a Director
of the Company and Consolidated Cigar Holdings since August 1984 and June
1996, respectively. Mr. Folz has been a Director and President and Chief
Executive Officer of the Tobacco Products Group of Mafco Consolidated Group
since June 1995 and Vice Chairman, Director and Chief Executive Officer of
Pneumo Abex, successor by merger to Mafco Worldwide, since January 1995. Mr.
Folz is a Director of PCT, which files reports pursuant to the Exchange Act.

         Mr. DiMeola has been Executive Vice President and Chief Operating
Officer of the Company since November 1988. Mr. DiMeola joined the Company in
January 1985 as President of the Premium Products Division.

         Mr. Ellis has been Senior Vice President, Chief Financial Officer,
Secretary and Treasurer of the Company since November 1988 and Senior Vice
President, Chief Financial Officer and Treasurer of Consolidated Cigar
Holdings since June 1996. Mr. Ellis has been Senior Vice President and Chief
Financial Officer of the Tobacco Products Group of Mafco Consolidated Group
since June 1995. From 1987 to 1988 Mr. Ellis was the Executive Vice President,
Chief Financial Officer and Treasurer of Brooks Drug, Inc. and from 1985 to
1987 he was the Vice President and Controller of MacAndrews & Forbes Holdings.

         Mr. Colucci has been Senior Vice President of Sales and Marketing of
the Company since November 1988. Mr. Colucci was Vice President of Sales and
Marketing of the Company from 1985 to 1988. From 1982 to 1985, Mr. Colucci was
Senior Vice President and General Manager of Design Wire, Inc. (a company
selling wire racks to supermarkets). Prior to 1982, for eight years, Mr.
Colucci held various sales and marketing positions with the Company.

         Mr. Gershel has been Senior Vice President--Tobacco of the Company
since June 1977. Mr. Gershel joined the Company in 1961.

         Mr. McQuillen has been Senior Vice President of Manufacturing of the
Company since December 1985. Mr. McQuillen joined the Company in 1981.

         Mr. Parnofiello has been Vice President of the Company since January
1996 and Controller of the Company since September 1989. Mr. Parnofiello has
been Vice President and Controller of Consolidated Cigar Holdings since June
1996. Mr. Parnofiello was Assistant Controller of the Company from March 1989
to September 1989.

COMPENSATION OF DIRECTORS

         The Company does not compensate its directors who are employees or
officers of any of the affiliated companies, except for reasonable expenses
for each meeting attended.


ITEM 11.    EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

         The following table presents certain information concerning
compensation paid or accrued for services rendered to the Company in all
capacities during the three years ended December 31, 1996 for the Chief
Executive Officer and the four other most highly compensated executive
officers of the Company whose total annual salary and bonus in the last fiscal
year exceeded $100,000 (collectively, the "Named Executive Officers").




                                      21
<PAGE>



                          SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                                 ANNUAL COMPENSATION
                                                             --------------------------   OTHER ANNUAL        ALL OTHER
                                               YEAR             SALARY        BONUS       COMPENSATION     COMPENSATION(A)
                                               ----             ------        -----       ------------     ---------------
<S>                                            <C>        <C>              <C>            <C>              <C>              
Theo W. Folz
 President and Chief Executive Officer.        1996            $770,000    $1,155,000      $51,243(b)          $3,000
                                               1995             700,000       700,000              --           3,000
                                               1994             675,000       400,000              --           3,000
Richard L. DiMeola
 Executive Vice President and Chief
 Operating Officer.....................        1996            $275,000      $412,500              --          $3,000
                                               1995             260,000       260,000              --           3,000
                                               1994             245,000       120,000              --           3,000
Gary R. Ellis
 Senior Vice President, Chief Financial
 Officer, Secretary and Treasurer......        1996            $217,500      $326,250              --          $3,000
                                               1995             200,000       200,000              --           3,000
                                               1994             185,000       100,000              --           3,000
James L. Colucci
 Senior Vice President of Sales and
Marketing..............................        1996            $217,500      $326,250              --          $3,000
                                               1995             200,000       200,000              --           3,000
                                               1994             185,000       100,000              --           3,000
George F. Gershel, Jr.
 Senior Vice President Tobacco.........        1996            $247,500      $297,000              --          $3,000
                                               1995             230,000       170,000              --           3,000
                                               1994             214,000        75,000              --           3,000

</TABLE>

(a)      Represents the Company's contribution to the employee's account under
         the Company's 401(k) plan.

(b)      Represents perquisites and other personal benefits, which, in total,
         are valued in excess of $50,000 of which $39,046 was related to the
         personal use of a company automobile.


EMPLOYMENT AGREEMENTS

         Mafco Consolidated Group entered into an employment agreement (the
"MCG Employment Agreement") with Mr. Folz with respect to an employment term
commencing on July 1, 1995 and ending on December 31, 1998 unless sooner
terminated by Mr. Folz's death, disability, gross neglect or willful
misconduct (in which case Mafco Consolidated Group may terminate Mr. Folz's
employment immediately upon written notice), or breach by Mafco Consolidated
Group of the agreement. In the event of Mr. Folz's death or disability, a
pro-rated performance bonus and 60% of his base compensation is to be paid to
Mr. Folz or his beneficiaries, as the case may be, for the longer of the
remaining term of the agreement or twelve months. In the event that Mafco
Consolidated Group breaches the MCG Employment Agreement, Mr. Folz is entitled
to terminate his employment under the agreement; in that event, a pro-rated
performance bonus and the remaining base compensation specified in the
agreement is to be paid to Mr. Folz offset by any other compensation Mr. Folz
receives during this period, and Mr. Folz is entitled to group life, health
and pension plan coverage, for the remaining term of the agreement or, if
longer and if no non-renewal notice has been given by the Company prior to
that time, twelve months. Until August 1, 1996, Mr. Folz served the Company
and Consolidated Cigar Holdings pursuant to the MCG Employment Agreement. The
MCG Employment Agreement also provides for a performance bonus under the
Tobacco Products Group Performance Bonus Plan based on achievement of certain
EBITDA targets. As of August 1, 1996, for the services to be rendered by Mr.
Folz to the Company and Consolidated Cigar Holdings, the Company has assumed
the obligations of Mafco Consolidated Group under the MCG Employment Agreement
with respect to a portion of the base salary and employee benefits to be
provided to Mr. Folz under the MCG Employment Agreement and, simultaneously
therewith, has entered into a new employment agreement with Mr. Folz
memorializing such assumption and expiring on December 31, 1999. After
December 31, 1998, the Company may give notice of non-renewal, in which case
the term of the agreement will be extended for a period of twelve months
following such notice. From and after January 1, 2000, the term will be

                                      22
<PAGE>

automatically extended day-by-day until the Company gives notice of
non-renewal, in which case the term will be extended for a period of twelve
months. The Company has assumed 70% of the obligations of Mafco Consolidated
Group under the MCG Employment Agreement with respect to any payments or
benefits payable upon Mr. Folz's severance, death or disability. The
employment agreement provides for an initial annual base salary of $770,000.
In addition, subject to approval by stockholders, Mr. Folz is eligible to
receive annual performance bonus payments, subject to an annual maximum of $2
million, based on achievement by the Company of certain EBITDA targets, which
bonus payments shall be made pursuant to the Consolidated Cigar Performance
Bonus Plan, as set forth in his employment agreement. See "--Consolidated
Cigar Performance Bonus Plan."

         On August 1, 1996, the Company entered into an employment agreement
with each of Messrs. DiMeola, Ellis, Colucci and Gershel, each of which
expires on December 31, 1999, unless sooner terminated by the employee's
death, disability (in which case the Company may elect to terminate the
employment agreement), gross neglect or willful misconduct (in which case the
Company may terminate the employment agreement immediately upon written
notice), the employee's willful and material failure to perform his
contractual obligations or by the Company's material breach of the agreement.
After December 31, 1998, the Company may give notice of non-renewal, in which
case the term of the agreement will be extended for a period of twelve months
following such notice. From and after January 1, 2000, the term will be
automatically extended day-by-day until the Company gives notice of
non-renewal, in which case the term will be extended for a period of twelve
months. In the event of the Company's breach, the employee is entitled to
terminate the employment agreement; in that event, base salary, performance
bonuses and benefits are to be paid to the employee for the remaining term of
the employment agreement or, if longer and if no non-renewal notice has been
given by the Company prior to that time, twelve months, offset by any other
compensation the employee receives during this period. The employment
agreements provide for initial annual base salaries of $275,000 for Mr.
DiMeola, $217,500 for each of Messrs. Ellis and Colucci and $247,500 for Mr.
Gershel. The employment agreements also provide, subject to approval by
stockholders, for annual performance bonus payments, subject to an annual
maximum of $1 million, based on achievement by the Company of certain EBITDA
targets, which bonus payments shall be made pursuant to the Consolidated Cigar
Performance Bonus Plan, as set forth in the employment agreements.

CONSOLIDATED CIGAR PERFORMANCE BONUS PLAN

         The Company has entered into employment agreements with certain
employees, including Messrs. Folz, DiMeola, Ellis, Colucci and Gershel, each
of which provides, among other things, for payment of performance bonuses (the
"Consolidated Cigar Performance Bonus Plan"), subject to stockholder approval.
Compensation payable under the Consolidated Cigar Performance Bonus Plan is
intended to qualify as "performance based compensation" under Section 162(m)
of the Code. Under the Consolidated Cigar Performance Bonus Plan, the
participants are eligible to receive annual performance bonus cash awards
based on achievement of EBITDA targets established by the Compensation
Committee and set forth in their respective employment agreements with respect
to each calendar year. The payments under the Consolidated Cigar Performance
Bonus Plan to any one individual during any calendar year may not exceed $2
million for the Chief Executive Officer and $1 million for each of the other
participants.

DEFINED BENEFIT PLAN

         Domestic (United States) salaried employees of the Company are
eligible to participate in the Consolidated Cigar Domestic Salaried Employees'
Defined Benefit Plan, a defined benefit pension plan (the "Plan"), which,
effective as of the end of 1995, was merged into a defined benefit pension
plan sponsored by a subsidiary of Mafco Consolidated Group. The merger of the
Plan did not change the level of pension benefits provided to the Company
employees. Plan benefits are a factor of service (up to a maximum of 33 years)
with the Company and "Average Final Compensation" (average monthly
compensation during the 60 consecutive months in which compensation was
highest in the ten years prior to termination of employment). Compensation
includes total wages, overtime, bonuses and 401(k) salary deferrals, and
excludes fringe benefits and employer contributions to other deferred
compensation plans. Benefits in the Plan are reduced by (i) any annuity
purchased under the Gulf Western Consumer Products Salaried Employees
Retirement Plan (the "Gulf & Western Plan") as of March 8, 1983 and (ii) the
actuarial equivalent of any the Company provided benefits received under the
Company's 401(k) plan.

         The Company established a benefit restoration plan effective January
1, 1994 (the "BRP") which was designed to restore retirement benefits to those
employees whose eligible pension earnings were limited to $150,000 under
regulations recently enacted by the Internal Revenue Service. The BRP is not
funded and all other vesting and payment rules follow the Plan.

                                      23
<PAGE>
         Beginning in 1996, the annual payment under the Plan and BRP,
expressed as a straight life annuity, before adjustment for social security
beginning at age 65 and before reduction for benefits payable under the Gulf &
Western Plan or the Company's 401(k) plan, are as follows:
<TABLE>
<CAPTION>

                                                                       YEARS OF SERVICE
                                 ----------------------------------------------------------------------------------------------
      REMUNERATION                   5                10              15             20                25               33
                                 -------           -------         -------         -------           -------           -------
<S>                             <C>                <C>             <C>            <C>              <C>                 <C>

       $50,000                   $3,788            $7,575          $11,363         $15,150           $18,938           $25,000
        75,000                    5,681            11,363           17,044          22,725            28,406            37,500
       100,000                    7,575            15,150           22,725          30,300            37,875            50,000
       125,000                    9,469            18,938           28,406          37,875            47,344            62,500
       150,000                   11,363            22,725           34,088          45,450            56,813            75,000
       175,000                   13,256            26,513           39,769          53,025            66,281            87,500
       200,000                   15,150            30,300           45,450          60,600            75,750           100,000
       225,000                   17,044            34,088           51,131          68,175            85,219           112,500
       250,000                   18,938            37,875           56,813          75,750            94,688           125,000
       300,000                   22,725            45,450           68,175          90,900           113,625           150,000
       400,000                   30,300            60,600           90,900         121,200           151,500           200,000
       450,000                   34,088            68,175          102,263         136,350           170,438           225,000
       500,000                   37,875            75,750          113,625         151,500           189,375           250,000

</TABLE>
         Benefits under the Plan are subject to the maximum limitations
imposed by federal law on pension benefits. The annual limitation in 1996 was
$120,000 or $10,000 per month, based on a maximum annual compensation of
$150,000. The maximum annual remuneration considered for purposes of the BRP
was $500,000 in 1996.

         As of December 31, 1996, the credited years of service under the Plan
were 13 years for Mr. Folz, 12 years for Mr. DiMeola, eight years for Mr.
Ellis, 20 years for Mr. Colucci and 36 years for Mr. Gershel.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Company did not have a Compensation Committee prior to the IPO.
Officers' compensation prior to the IPO was determined by the Compensation
Committee of Mafco Consolidated Group. Following the IPO, the Compensation
Committee of Consolidated Cigar Holdings and the Company is comprised of
Messrs. Gittis and Drapkin.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Consolidated Cigar Holdings owns 100% of the outstanding capital
stock of the Company. No other director or executive officer beneficially owns
any shares of the capital stock of the Company.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

RELATIONSHIP WITH MAFCO CONSOLIDATED GROUP AND MAFCO HOLDINGS

         As a result of Mafco Consolidated Group's stock ownership, the
Company's Board of Directors is, and is expected to continue to be, comprised
entirely of designees of Mafco Consolidated Group, and Mafco Consolidated
Group is, and is expected to continue to be, able to direct and control the
policies of the Company and its subsidiaries, including with respect to
mergers, sales of assets and similar transactions.

         Mafco Consolidated Group is 85% owned through Mafco Holdings by
Ronald O. Perelman, who is Chairman of the Board of Directors of the Company.
Mafco Holdings is a diversified holding company with interests in several
industries. Through its 63.9% ownership of Consolidated Cigar Holdings
subsequent to the Offering, Mafco Holdings is engaged in the manufacture and
distribution of cigars and pipe tobacco. Mafco Holdings is engaged in the
cosmetics and skin care, fragrance and personal care products business through
its 83% ownership of Revlon. Mafco 

                                      24

<PAGE>

Holdings owns 83% of Coleman, which is engaged in the manufacture and
marketing of recreational outdoor products, portable generators, power-washing
equipment, spas and hot tubs and 65% of Meridian Sports, a manufacturer and
marketer of specialized boats and water sports equipment. Marvel, a youth
entertainment company, is 80% owned by Mafco Holdings. Mafco Holdings is also
engaged in the financial services business through its 80% ownership of First
Nationwide. The principal executive offices of Mafco Holdings are located at
35 East 62nd Street, New York, New York 10021.

         The Company is insured under policies maintained by Mafco Holdings,
and the Company reimburses Mafco Holdings for the portion of the cost of such
policies attributable to the Company. Management of the Company believes that
such cost is lower than would be incurred were such entities to be separately
insured. In addition, the Company reimburses Mafco Holdings for the Company's
allocable portion of certain costs such as legal, accounting and other
professional fees and other services and related expenses.

TAX SHARING AGREEMENT

         The Company, Consolidated Cigar Holdings and Mafco Consolidated Group
have been, for federal income tax purposes, members of an affiliated group of
corporations of which Mafco Holdings is the common parent (the "Tax Group").
As a result of such affiliation, the Company, Consolidated Cigar Holdings, and
Mafco Consolidated Group have been included in the consolidated federal income
tax returns and, to the extent permitted by applicable law, included in
combined state or local income tax returns filed on behalf of the Tax Group.
Pursuant to a tax sharing agreement among the Company, Consolidated Cigar
Holdings, and Mafco Consolidated Group and a tax sharing agreement between
Mafco Consolidated Group and Mafco Holdings (collectively, the "Tax Sharing
Agreements"), the Company has been required to pay to Mafco Consolidated Group
with respect to each taxable year an amount equal to the consolidated federal
and state and local income taxes that would have been incurred by the Company
had it not been included in the consolidated federal and any combined state or
local income tax returns filed by the Tax Group. The net amounts paid by the
Company during the years ended December 31, 1994, 1995, and 1996 were
approximately $0.4 million, $0.4 million and $9.8 million, respectively.

         As a result of the completion of the Offering, the Company will no
longer be included in the Tax Group's consolidated tax returns and will
instead, file its own tax returns and pay its own taxes on a separate company
basis.

         Under existing federal income tax regulations the Company,
Consolidated Cigar Holdings and Mafco Consolidated Group are jointly and
severally liable for the consolidated federal income taxes of the Tax Group
for any taxable year in which they were a member of the Tax Group. Pursuant to
the Tax Sharing Agreements, Mafco Holdings has agreed to indemnify the Company
and Consolidated Cigar Holdings for any such federal income tax liability.

PURCHASE OF LICORICE EXTRACT

         The Company purchases all of the licorice extract used as flavoring
and moistening agents in its manufacturing processes from Mafco Worldwide,
formerly an indirect wholly owned subsidiary of Mafco Consolidated Group.
During the years ended December 31, 1994, 1995, and 1996, the Company
purchased approximately $265,000, $269,000, and $211,000 of licorice extract
from Pneumo Abex (successor by merger to Mafco Worldwide). The Company
believes that the licorice extract purchased from Pneumo Abex was purchased on
terms no less favorable to the Company than those obtainable in an arm's
length transaction with an independent third party.

SPECIALTY PRODUCTS DIVISION

         The Company's Specialty Products Division assembles lipstick
containers for Revlon Products, an 83% owned subsidiary of Mafco Holdings.
Revlon Products purchased lipstick containers from the Company for
approximately $763,000, $874,000 and $958,000 for the years ended December 31,
1994, 1995, and 1996, respectively. The Company believes that the terms of
such arrangements with Revlon Products were no less favorable to the Company
than those obtainable in an arm's length transaction with an independent third
party.

                                      25

<PAGE>
                                    PART IV



ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


(a)      1.  Financial Statements:

             The following consolidated financial statements of Consolidated
Cigar Corporation and subsidiaries are filed as part of this Form 10-K and are
incorporated by reference in Item 8:

                         INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

CONSOLIDATED CIGAR CORPORATION                                                                                     PAGE
------------------------------                                                                                     ----

<S>                                                                                                                <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants............................................................        F-1
Consolidated Balance Sheets as of December 31, 1995 and 1996..................................................        F-2
Consolidated Statements of Operations
   for the years ended December 31, 1994, 1995 and 1996.......................................................        F-3
Consolidated Statements of Stockholder's Equity
   for the years ended December 31, 1994, 1995 and 1996.......................................................        F-4
Consolidated Statements of Cash Flows
   for the years ended December 31, 1994, 1995 and 1996.......................................................        F-5
Notes to Consolidated Financial Statements....................................................................        F-7
The following financial statements schedules of the Company are included in Item 14(d):

         2.  Financial Statement Schedule:


             Schedule II -Valuation and Qualifying Accounts...................................................        S-1


         3.  See the accompanying Index to Exhibits which precedes the Exhibits filed with this Form 10-K.

</TABLE>

All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.

                                      26


<PAGE>
                                INDEX TO EXHIBITS

    EXHIBIT
      NO.       DESCRIPTION
      ---       -----------
      3.1       Certificate of Incorporation of CCC Acquisition.
      3.2       By-laws of CCC Acquisition.
      4.1       Form of Indenture by and between the Company and Continental
                Bank, National Association, as Trustee, relating to the Senior
                Subordinated Notes Due 2003 (the "Indenture").
     10.1       Credit Agreement between Registrant and The Chase Manhattan 
                Bank, N.A., dated as of February 23, 1993 (incorporated
                by reference from Exhibit 10.2 to Amendment No. 2 of
                Registrant's Registration Statement on Form S-1 (Registration
                No. 33-56902)).
    10.1(a)     Amendment No. 1 to the Credit Agreement, dated as of March 2,
                1993 (incorporated by reference from Exhibit 10.2(a) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1993).
    10.1(b)     Amendment No. 2 to the Credit Agreement, dated as of March 12,
                1993 (incorporated by reference from Exhibit 10.2(b) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1993).
    10.1(c)     Amendment No. 3 to the Credit Agreement, dated as of March 17,
                1993 (incorporated by reference from Exhibit 10.2(c) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1993).
    10.1(d)     Amendment No. 4 to the Credit Agreement, dated as of April 5, 
                1993 (incorporated by reference from Exhibit 10.2(d) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1993).
    10.1(e)     Amendment No. 5 to the Credit Agreement, dated as of June 15, 
                1993 (incorporated by reference from Exhibit 10.2(e) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1993).
    10.1(f)     Amendment No. 6 to the Credit Agreement, dated as of Septembe
                12, 1994 (incorporated by reference from Exhibit 10.2(f) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1994).
    10.1(g)     Amendment No. 7 to the Credit Agreement, dated as of May 31,
                1995 (incorporated by reference from Exhibit 10.2(g) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1995).
    10.1(h)     Amendment No. 8 to the Credit Agreement dated as of October 18,
                1995 (incorporated by reference from Exhibit 10.2(h) to
                Registrant's Annual Report on Form 10-K for the fiscal year
                ended December 31, 1995).
    10.1(i)     Amendment No. 9 to the Credit Agreement dated as of March 13
                1996 (incorporated by reference from Exhibit 10.2(i) to
                Consolidated Cigar Holdings' Registration Statement on Form
                S-1 (Registration No. 333-6819)).
    10.1(j)     Amendment No. 10 to the Credit Agreement dated as of July 31,
                1996 (incorporated by reference from Exhibit 10.2(j) to
                Consolidated Cigar Holdings' Registration Statement on Form
                S-1 (Registration No. 333-6819)).
    10.1(k)     Amendment No. 11 to the Credit Agreement dated as of February 
                3, 1997 (incorporated by reference from Exhibit 10.1(k) to
                Consolidated Cigar Holdings' Registration Statement on Form
                S-1 (Registration No. 333-20743)).
    10.2(a)     Guarantee and Security Agreement, dated as of March 3, 1993,
                between Consolidated Cigar Holdings and The Chase Manhattan
                Bank, N.A. (incorporated by reference from Exhibit 10.16(a) to
                Consolidated Cigar Holdings' Registration Statement on Form
                S-1 (Registration No. 333-6819)).
    10.2(b)     First Amendment to Guarantee and Security Agreement, dated as
                of July 31, 1996 (incorporated by reference from Exhibit
                10.16(b) to Consolidated Cigar Holdings' Registration
                Statement on Form S-1 (Registration No. 333-6819)).
     10.3       Reimbursement Agreement, dated as of March 3, 1993, between 
                Registrant and Mafco Holdings Inc. (incorporated by reference
                from Exhibit 10.10 to Consolidated Cigar Holdings'
                Registration Statement on Form S-1 (Registration No.
                333-6819)).
     10.4       Amended and Restated Tax Sharing Agreement entered into as of
                June 15, 1995 by and among Mafco Holdings Inc., Mafco
                Consolidated Group Inc., the Consolidated Cigar Holdings and
                the Company and its subsidiaries (incorporated by reference
                from Exhibit 10.10(a) to Registrant's Annual Report on Form
                10-K for the fiscal year ended December 31, 1995).

                  MANAGEMENT CONTRACTS AND COMPENSATORY PLANS

    10.5(a)     Employment Agreement, dated July 1, 1995, between Mafco
                Consolidated Group Inc. and Theo W. Folz (incorporated by
                reference from Exhibit 10.34 to Mafco Consolidated Group
                Inc.'s Annual Report on Form 10-K for the fiscal year ended
                December 31, 1995).
    10.5(b)     First Amendment, dated February 29, 1996, to the Employment
                Agreement, dated July 1, 1995, between Mafco Consolidated
                Group Inc. and Theo W. Folz (incorporated by reference from
                Exhibit 10.35 to Mafco Consolidated Group Inc.'s Annual Report
                on Form 10-K for the fiscal year ended December 31, 1995).
    10.5(c)     Second Amendment, dated August 1, 1996, to the Employment
                Agreement, dated July 1, 1995, between Mafco Consolidated
                Group Inc. and Theo W. Folz (incorporated by reference from
                Exhibit 10.4(c) to Consolidated Cigar Holdings' Registration
                Statement on Form S-1 (Registration No. 333-6819)).

                                      27
<PAGE>


    EXHIBIT
      NO.       DESCRIPTION
      ---       -----------

     10.6       Executive Employment Agreement, dated as of August 1, 1996,
                between Registrant and Theo W. Folz (incorporated by reference
                from Exhibit 10.17 to Consolidated Cigar Holdings'
                Registration Statement on Form S-1 (Registration No.
                333-6819)).
     10.7       Employment Agreement, dated August 1, 1996, between Registrant
                and Richard L. DiMeola (incorporated by reference from Exhibit
                10.3 to Consolidated Cigar Holdings' Registration Statement on
                Form S-1 (Registration No. 333-20743)).
     10.8       Employment Agreement, dated August 1, 1996, between Registrant
                and Gary R. Ellis (incorporated by reference from Exhibit 10.9
                to Amendment No. 1 of Mafco Consolidated Group Inc.'s
                Registration Statement on Form S-1 (Registration No.
                333-15257)).
     10.9       Employment Agreement, dated July 1, 1996, between Registrant 
                and James L. Colucci (incorporated by reference from Exhibit
                10.5 to Consolidated Cigar Holdings' Registration Statement on
                Form S-1 (Registration No. 333-20743)).
     10.10      Employment Agreement, dated August 1, 1996, between Registrant
                and George F. Gershel, Jr. (incorporated by reference from
                Exhibit 10.6 to Consolidated Cigar Holding's Registration
                Statement on Form S-1 (Registration No. 333-20743)).
     10.11      Employment Agreement, dated July 1, 1995, between Registrant
                and Denis F. McQuillen (incorporated by reference from Exhibit
                10.7 to the Company's Annual Report on Form 10-K for the
                fiscal year ended December 31, 1995).
     10.12      Pension Plan Merger Agreement into Abex Retirement Plan 
                (incorporated by reference from Exhibit 10.1 to Registrant's
                Annual Report on Form 10-K for the fiscal year ended December
                31, 1995).
     21.1       Subsidiaries of the Registrant.
    *24.1       Powers of Attorney.
    *27.1       Financial Data Schedule



     *   Filed herewith

    (b)  Reports on Form 8-K
         No reports on Form 8-K were filed during the quarter ended December
         31, 1996.

                                      28


<PAGE>

                                  SIGNATURES



         Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
New York, State of New York, on March 28, 1997.

                                            CONSOLIDATED CIGAR CORPORATION
                                            By: /s/ Gary R. Ellis
                                               -------------------------------
                                            Gary R. Ellis
                                            Senior Vice President and Chief
                                            Financial Officer

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
                   NAME                                               TITLE                               DATE

<S>                                          <C>                                                                       <C> 
                  *                         Chairman of the Board of Directors                           March 28, 1997
------------------------------------
Ronald O. Perelman


                  *                         Director                                                     March 28, 1997
------------------------------------
Howard Gittis                               


                  *                         Director                                                     March 28, 1997
------------------------------------
Donald G. Drapkin                           


/s/ Theo W. Folz                            President, Chief Executive Officer and Director              March 28, 1997
---------------------------                 (Principal Executive Officer)
 Theo W. Folz                               


/s/ Gary R. Ellis                           Senior Vice President and Chief Financial Officer            March 28, 1997
---------------------------                 (Principal Financial Officer)
  Gary R. Ellis                             


/s/ James M. Parnofiello                    Vice President and Controller                                March 28, 1997
---------------------------                 (Principal Accounting Officer)
 James M. Parnofiello                       

</TABLE>

         *Joram C. Salig, by signing his name hereto, does hereby execute this
report on behalf of the directors and officers of the Registrant indicated
above by asterisks, pursuant to powers of attorney duly executed by such
directors and officers and filed as exhibits to this report.

                                            By: /s/ Joram C. Salig
                                                ------------------------------
                                                Joram C. Salig
                                                Attorney-in-Fact


                                      29
<PAGE>




              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS




The Board of Directors and Stockholder
 Consolidated Cigar Corporation

         We have audited the accompanying consolidated balance sheets of
Consolidated Cigar Corporation and subsidiaries (the "Company") as of December
31, 1995 and 1996 and the related consolidated statements of operations,
stockholder's equity, and cash flows for each of the three years in the period
ended December 31, 1996. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

         We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1995 and 1996, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
herein.

Miami, Florida
January 28, 1997





                                                  /s/  Ernst & Young LLP
                                                       -----------------------
                                                       ERNST & YOUNG LLP
                                     F-1

<PAGE>

                          CONSOLIDATED BALANCE SHEETS
                            (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                        December 31,       December 31,
                                                                                            1995               1996
                                                                                       ----------------  -----------------
<S>                                                                                    <C>                <C>
                   ASSETS
Current assets:
  Cash and cash equivalents                                                             $   1,145        $    1,906
  Accounts receivable, less allowances
   of $4,322 and $5,604, respectively                                                      14,883            19,498
  Inventories                                                                              39,022            45,957
  Deferred taxes and other                                                                  3,914             5,591
                                                                                       ----------------  -----------------
Total current assets                                                                       58,964            72,952
Property, plant and equipment, net of accumulated depreciation                             35,370            37,224
Trademarks, less accumulated amortization
 of $2,453 and $3,319, respectively                                                        32,021            31,155
Goodwill, less accumulated amortization
 of $4,942 and $6,593, respectively                                                        61,374            59,723
Other intangibles and assets, less accumulated
 amortization of $4,670 and $3,406, respectively                                            4,001             4,457
                                                                                       ----------------  -----------------

Total assets                                                                            $ 191,730        $  205,511
                                                                                       ================  =================

           LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
  Accounts payable                                                                      $   3,797        $    7,197
  Accrued expenses                                                                         16,103            20,206
  Due to affiliate                                                                          1,685             1,606
                                                                                       ----------------  -----------------
Total current liabilities                                                                  21,585            29,009
Long-term debt due to third parties                                                       110,600            97,500
Deferred taxes                                                                              4,066             5,851
Other liabilities                                                                           1,151             1,796
                                                                                       ----------------  -----------------
Total liabilities                                                                         137,402           134,156
                                                                                       ----------------  -----------------
Commitments and contingencies
Stockholder's equity:
  Common stock, $1.00 par value
  1,000 shares authorized, issued and outstanding                                               1                 1
  Additional paid-in capital                                                               34,834            34,834
  Retained earnings                                                                        19,493            36,520
                                                                                       ----------------  -----------------
Total stockholder's equity                                                                 54,328            71,355
                                                                                       ----------------  -----------------
Total liabilities and stockholder's equity                                               $191,730          $205,511
                                                                                       ================  =================
</TABLE>

               See notes to consolidated financial statements.

                                     F-2
<PAGE>

               CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                            (Dollars in thousands)


<TABLE>
<CAPTION>

                                                                     Year Ended            Year Ended         Year Ended
                                                                    December 31,          December 31,       December 31,
                                                                        1994                  1995               1996
                                                                 --------------------  ----------------  -----------------
<S>                                                               <C>                   <C>                <C>
Net sales                                                         $    131,510           $   158,166      $    216,868
Cost of sales                                                           78,836                94,347           126,013
                                                                 --------------------  ----------------  -----------------

Gross profit                                                            52,674                63,819            90,855

Selling, general
 and administrative expenses                                            29,413                32,393            36,776
                                                                 --------------------  ----------------  -----------------
Operating income                                                        23,261                31,426            54,079
                                                                 --------------------  ----------------  -----------------

Other (expenses) income:
 Interest expense, net                                                 (12,838)              (12,635)          (10,619)
 Minority interest                                                          78                  (262)             (310)
 Miscellaneous, net                                                       (828)               (1,000)             (889)

                                                                 --------------------  ----------------  -----------------
                                                                       (13,588)              (13,897)          (11,818)
                                                                 --------------------  ----------------  -----------------

Income before provision
 for income taxes                                                         9,673                17,529            42,261

Provision for income taxes                                                1,989                 3,599            12,449

                                                                 --------------------  ----------------  -----------------

Net income                                                        $       7,684           $    13,930        $   29,812
                                                                 ====================  ================  =================
</TABLE>

               See notes to consolidated financial statements.

                                     F-3
<PAGE>


                         CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
                                     (Dollars in thousands)

<TABLE>
<CAPTION>
                                              
                                              Additional
                                    Common     Paid-in     Retained
                                    Stock      Capital     Earnings      Total
                                    -----    -----------   ---------     -----
<S>                                <C>        <C>          <C>          <C>

Balance at December 31, 1993         $  1      $29,999      $ 2,879     $32,879
Net income for the year                                       7,684       7,684
                                     ----      -------      -------     -------
Balance at December 31, 1994            1       29,999       10,563      40,563
                                     ----      -------      -------     -------

Net income for the year                                      13,930      13,930
Cash dividends paid                    --           --       (5,000)     (5,000)
Contribution to capital by parent      --        4,835           --       4,835
                                     ----      -------      -------     -------
Balance at December 31, 1995            1       34,834       19,493      54,328
                                     ----      -------      -------     -------

Net income for the year                --           --       29,812      29,812
Cash dividends                         --           --      (12,785)    (12,785)
                                     ----      -------      -------     -------
Balance at December 31, 1996         $  1      $34,834      $36,520     $71,355
                                     ====      =======      =======     =======

</TABLE>
               See notes to consolidated financial statements.

                                     F-4


<PAGE>




                         CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Dollars in thousands)


<TABLE>
<CAPTION>

                                                                     Year Ended          Year Ended         Year Ended
                                                                    December 31,        December 31,       December 31,
                                                                        1994                1995               1996
                                                                 --------------------  ----------------  -----------------
<S>                                                              <C>                    <C>                <C>  

Cash flows from operating activities:

  Net income                                                      $   7,684              $ 13,930             $ 29,812

  Adjustments to reconcile net income
   to net cash provided by
   operating activities:
    Depreciation and amortization                                     7,613                 7,699                7,357
    Deferred income                                                    (205)                 (205)                (177)
    Gain on the sale of fixed assets                                   (390)                   --                   --
    Changes in assets and liabilities
     net of acquisitions:
       (Increase) decrease in:
       Accounts receivable                                           (1,852)               (1,971)              (4,615)
       Inventories                                                     (969)               (1,148)              (6,935)
       Deferred taxes and other                                          44                (1,367)              (1,762)
       Increase (decrease) in:
       Accounts payable                                                (326)                 (276)               3,400
       Accrued expenses and
        other liabilities                                             2,660                 3,139                5,520
                                                                 --------------------  ----------------  -----------------

Net cash provided by operating activities                            14,259                19,801               32,600
                                                                 --------------------  ----------------  -----------------

Cash flows from investing activities:
  Capital expenditures                                                 (788)                 (983)             (5,278)
  Investment in joint venture                                            --                    --                (482)
  Proceeds from the sale of fixed assets                              5,832                     1                  10
  Increase in other assets                                               (8)                   (7)               (125)
                                                                 --------------------  ----------------  -----------------

Net cash provided by
 (used for) investing activities                                      5,036                  (989)             (5,875)
                                                                 --------------------  ----------------  -----------------
</TABLE>

               See notes to consolidated financial statements.

                                     F-5
<PAGE>

                         CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                         CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                     (Dollars in thousands)



<TABLE>
<CAPTION>
                                            Year Ended       Year Ended     Year Ended
                                           December 31,     December 31,   December 31,
                                               1994             1995           1996
                                             ------------   ------------   ------------
<S>                                         <C>             <C>            <C>    
Cash flows from financing activities:
  Repayment of revolving loan, net            $(19,100)       $(15,600)      $(13,100)
  Dividends paid                                    --          (5,000)       (12,785)
  Due to affiliates and other borrowings           290           1,233            (79)
                                              --------        --------       --------
Net cash used for financing activities         (18,810)        (19,367)       (25,964)
                                              --------        --------       --------

Increase (decrease) in cash and
 cash equivalents                                  485            (555)           761

Cash and cash equivalents,
 beginning of year                               1,215           1,700          1,145
                                              --------        --------      --------

Cash and cash equivalents, end of year        $  1,700        $  1,145       $  1,906
                                              ========        ========       ========

Supplemental disclosures of
cash flow information:

  Interest paid during the year               $ 12,921        $ 13,067       $ 10,927
  Income taxes paid during the year              1,444           1,477         12,676
</TABLE>



               See notes to consolidated financial statements.

                                     F-6



<PAGE>

                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A -- BASIS OF PRESENTATION

         On March 3, 1993, Consolidated Cigar Corporation (the "Company"),
became a direct wholly owned subsidiary of Consolidated Cigar Holdings Inc.
("Consolidated Cigar Holdings"), a holding company with no business operations
of its own that was formed as a Delaware corporation on January 6, 1993 to
hold all of the outstanding capital stock of the Company. The results of
operations and financial position of the Company therefore do not reflect the
consolidated results of operations and financial position of Consolidated
Cigar Holdings. Unless the context otherwise requires, all references in these
notes to the consolidated financial statements of the Company shall mean
Consolidated Cigar Corporation and its subsidiaries.

         On August 21, 1996, Consolidated Cigar Holdings completed an initial
public offering (the "IPO") in which it issued and sold 6,075,000 shares of
its Class A Common Stock for $23.00 per share. The proceeds, net of
underwriters' discount and related fees and expenses, of $127.8 million, were
paid as a dividend to Mafco Consolidated Group Inc. ("Mafco Consolidated
Group"). On March 20, 1997 Consolidated Cigar Holdings completed a secondary
offering (the "Offering"), of 5,000,000 shares of Class A Common Stock sold by
Mafco Consolidated Group, reducing its ownership in Consolidated Cigar
Holdings to approximately 63.9%.

         On June 15, 1995 Mafco Holdings Inc. ("Mafco Holdings") and Mafco
Consolidated Group formerly known as Abex Inc. ("Abex"), consummated an
agreement and plan of merger (the "Merger Agreement") executed between the
parties on January 6, 1995. The Merger Agreement provided for, among other
things, the merger of C & F Merger Inc., a subsidiary of Mafco Holdings and
the indirect parent of both Consolidated Cigar Holdings and Mafco Worldwide
Corporation ("Mafco Worldwide"), with Mafco Consolidated Group, which was the
surviving corporation in the merger. As a result, the Company became an
indirect wholly owned subsidiary of Mafco Consolidated Group.

         On December 11, 1992, Triple C Acquisition Corp. ("Triple C"), Mafco
Holdings and a wholly owned subsidiary of Mafco Holdings entered into an
agreement and plan of merger, pursuant to which the wholly owned subsidiary
was merged into Triple C, with Triple C being the surviving corporation.
Pursuant to the merger which was consummated on March 3, 1993, Mafco Holdings
acquired all the outstanding shares of Triple C common stock and warrants to
purchase Triple C common stock (the "1993 Acquisition") for an aggregate
purchase price of $188.0 million, including fees and expenses. Immediately
following the 1993 Acquisition, Triple C merged into the Company, with the
Company being the surviving corporation. As a result, the Company became an
indirect wholly owned subsidiary of Mafco Holdings.


NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

         The Company operates principally in one segment, manufacturing,
distributing, and selling cigars in all sections of the industry. The Company
also manufactures smoking tobaccos for sale under its own brand names, in bulk
to tobacconists as well as private label brands for chain stores and wholesale
distributors.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company and its majority and wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

INVENTORIES

         Leaf tobacco is carried at the lower of average cost or market. In
accordance with generally recognized industry practice, all leaf tobacco
inventory is classified as current although portions of such inventory,
because of the duration of the aging process, ordinarily would not be utilized
within one year. Cigars and other inventories are generally valued at the
lower of cost (using the first-in, first-out method) or market.

                                     F-7
<PAGE>

                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

PROPERTY, PLANT AND EQUIPMENT

         Property, plant and equipment is recorded at cost and depreciated on
a straight-line basis over the estimated useful lives of the assets which
range from 5 years to 20 years. Leasehold improvements are amortized over
their estimated useful lives or the term of the lease, whichever is shorter.
Repairs and maintenance are charged to operations as incurred and expenditures
for additions and improvements are capitalized.

TRADEMARKS

         Trademarks consist of registered and unregistered tradenames of
cigars or other tobacco brands which are being amortized on a straight-line
basis over 40 years.

GOODWILL

         Goodwill represents the excess of cost over fair value of net assets
acquired in the 1993 Acquisition. Goodwill is being amortized over 40 years on
a straight-line basis which is consistent with industry practice. The
Company's accounting policy regarding the assessment of the recoverability of
the carrying value of goodwill and other intangibles is to review the carrying
value of goodwill and other intangibles if the facts and circumstances suggest
that they may be impaired. If this review indicates that goodwill and other
intangibles will not be recoverable, as determined based on the undiscounted
future cash flows of the Company, the carrying value of goodwill and other
intangibles will be reduced to their estimated fair value.

         As discussed in Notes H and I, during 1995, goodwill was reduced by
$4.4 million due to the reduction in the valuation allowance for deferred tax
assets and due to the establishment and transfer of deferred tax assets
related to certain pension plan liabilities that were transferred to a related
affiliate.

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company accounts for the impairment of long-lived assets under
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. The adoption of SFAS 121 did not impact the
operations of the Company.

REVENUE RECOGNITION

         Revenue is recognized from product sales upon shipment. Allowances
for sales returns, customer incentive programs and promotions are recorded at
the time of sale.

ADVERTISING

         The Company expenses advertising costs as incurred. Amounts charged
to advertising expense totaled $0.9 million, $1.2 million and $2.1 million for
the years ended December 31, 1994, 1995 and 1996, respectively.

INTEREST RATE SWAPS

         The Company entered into interest rate swap agreements to modify the
interest characteristics of its outstanding debt from a fixed to a floating
rate basis. These agreements involve the receipt of fixed rate amounts in
exchange for floating rate interest payments over the life of the agreement
without an exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in accrued expenses. To the
extent previous interest rate swap agreements have been terminated, the
resulting gain is being recognized over the remaining original life of the
terminated agreements. The fair values of the swap agreements (which amount is
described in Note F), are not recognized in the financial statements.

                                     F-8
<PAGE>

               CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.

CONCENTRATION OF CREDIT RISK

         Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company's customers are geographically dispersed but are concentrated in the
tobacco industry. The Company historically has had no material losses on its
accounts receivable from customers in the tobacco industry in excess of
allowances provided.

CASH FLOW INFORMATION

         Cash equivalents are considered to be all highly liquid investments
with maturities of three months or less when acquired and exclude restricted
cash.

USE OF ESTIMATES

         Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.

RECLASSIFICATIONS

         Certain reclassifications of 1995 amounts have been made to conform
to the 1996 financial statement presentation.



NOTE C -- INVENTORIES

         The components of inventories are as follows:
<TABLE>
<CAPTION>

                                                                DECEMBER 31,       DECEMBER 31,
                                                                    1995               1996
                                                                    ----               ----
                                                                       (IN THOUSANDS)

<S>                                                                 <C>              <C>    
          Raw materials and supplies....................            $26,922          $34,469
          Work in process...............................              1,692            1,974
          Finished goods................................             10,408            9,514
                                                                     ------            -----
                                                                    $39,022          $45,957
                                                                    =======          =======

</TABLE>

                                     F-9
<PAGE>


                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


NOTE D -- PROPERTY, PLANT AND EQUIPMENT, NET

         The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>

                                                                DECEMBER 31,       DECEMBER 31,
                                                                    1995               1996
                                                                    ----               ----
                                                                       (IN THOUSANDS)
<S>                                                                 <C>              <C>    
          Land..........................................            $ 1,804          $ 1,884
          Buildings.....................................             13,254           14,140
          Machinery and equipment.......................             28,597           33,188
          Leasehold improvements........................                276              361
          Furniture and fixtures........................              1,555            1,573
                                                                   --------         --------
                                                                     45,486           51,146
          Accumulated depreciation......................            (10,116)         (13,922)
                                                                   ---------         --------
                                                                    $35,370          $37,224
                                                                    =======          =======
</TABLE>

         Depreciation expense was $3.7 million for 1994, $3.6 million for 1995
and $3.9 million for 1996.

NOTE E -- ACCRUED EXPENSES

         Included in accrued expenses are the following:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,       DECEMBER 31,
                                                                    1995               1996
                                                                    ----               ----
                                                                       (IN THOUSANDS)
<S>                                                                 <C>              <C>    
Employee benefits and other compensation................            $ 7,226          $10,126
Interest................................................              3,452            3,388
Promotional.............................................              1,345            1,281
Taxes...................................................              1,592            1,849
Other...................................................              2,488            3,562
                                                                    -------          -------
                                                                    $16,103          $20,206
                                                                    =======          =======
</TABLE>

NOTE F -- LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,       DECEMBER 31,
                                                                    1995               1996
                                                                    ----               ----
                                                                       (IN THOUSANDS)
<S>                                                                <C>              <C>     
Bank borrowings (a).....................................           $ 20,600         $  7,500
Senior Subordinated Notes (b)...........................             90,000           90,000
                                                                   --------         --------
                                                                    110,600           97,500
                                                                      --                --
Less amounts payable within one year....................           --------         --------
                                                                   $110,600          $97,500
                                                                   ========          =======
</TABLE>


(a)  Represents borrowings under a credit agreement (the "Credit Agreement")
     with Chase dated February 23, 1993, which provides for a revolving credit
     facility (the "Revolving Credit Facility") and a working capital facility
     (the "Working Capital Facility"). The Revolving Credit Facility and the
     Working Capital Facility have final maturities on April 3, 1999. The
     Revolving Credit Facility was subject to quarterly commitment reductions
     of $2.5 million through the end of 1996. The Credit Agreement was amended
     on February 3, 1997 to reduce the amount of various interest rate margins
     charged against outstanding borrowings and waive any further scheduled
     amortization of the commitment on the Revolving Credit Facility.

                                     F-10
<PAGE>
                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


     The Credit Agreement is secured by perfected first priority liens on all
     of the material assets of the Company and its domestic subsidiaries and
     perfected pledges of the stock of all the Company's subsidiaries (with
     certain exceptions for the stock of foreign subsidiaries). The Credit
     Agreement is guaranteed by Consolidated Cigar Holdings and by all of the
     domestic subsidiaries of the Company. The guarantee by Consolidated Cigar
     Holdings is secured by a pledge of all the outstanding stock of the
     Company.

     The maximum borrowings under the Credit Agreement, as amended, at the end
     of December 31, 1996 and through maturity are $20 million under the
     Working Capital Facility and $14.9 million under the Revolving Credit
     Facility. Outstanding letters of credit of approximately $1.7 million
     reduced the available borrowings under the Credit Agreement at December
     31, 1996.

     The following indicates the Credit Agreement's established and amended
     interest payment rates available at the option of the Company:
<TABLE>
<CAPTION>

                                                             INITIAL             1996          RATE EFFECTIVE
                                                               RATE              RATE           MARCH 1997
                                                             -------             ----         --------------
<S>                                 <C>                      <C>            <C>                <C>
          Base Rate Loans           Prime plus                1 3/4%             1%                 0%
          936 Loans                 936 Rate plus             2 3/4%             2%                 1%
          Eurodollar Funds          Eurodollar plus           2 3/4%             2%                 1%
</TABLE>

     The average interest rate under the Credit Agreement was approximately
     7.7% at December 31, 1996.

     The Credit Agreement contains various covenants which govern, among other
     things, the ability to incur indebtedness, pay dividends, incur lease
     rental obligations, make capital expenditures, use proceeds from asset
     sales, participate in mergers and other activities. The Credit Agreement
     also requires the Company to satisfy certain financial covenants related
     to net worth, capital expenditures and various ratios.

(b)  Represents the balance of $90.0 million in principal amount of 10 1/2%
     Senior Subordinated Notes Due 2003 (the "Senior Subordinated Notes")
     issued in connection with the 1993 Acquisition.

     The Senior Subordinated Notes bear interest at the rate of 10 1/2% per
     annum, mature on March 1, 2003 and are redeemable at a premium prior to
     maturity starting March 1, 1998. The Senior Subordinated Notes are
     redeemable earlier at a premium in the event of a change of control.

     The indenture relating to the Senior Subordinated Notes limits, among
     other things, dividends and other distributions, certain types of
     indebtedness, certain mergers, consolidations and sales of assets.

         The scheduled repayments of long-term debt for the next five years
based on the outstanding balances at December 31, 1996 are as follows:

<TABLE>
<CAPTION>

           YEAR ENDING
            DECEMBER 31,                                                                    (IN THOUSANDS)
            ------------                                                                    --------------
<S>                                                                                       <C>     
               1997...................................................................     $   ----
               1998...................................................................         ----
               1999...................................................................        7,500
               2000...................................................................         ----
               2001...................................................................         ----

</TABLE>


                                     F-11
<PAGE>


                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         The fair value of the Company's long-term debt at December 31, 1996
is estimated based on the quoted market prices for the same issues or on the
current rates offered to the Company for debt of the same remaining
maturities.

The estimated fair value of long-term debt was approximately $3.6 million more
than the carrying value of $97.5 million.

         Because judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies
may be material to the estimated fair value amounts.

         The Company entered into two five year interest rate swap agreements
in an aggregate notional amount of $85.0 million. Under the terms of the
agreements, the Company receives a fixed interest rate averaging 5 4/5% and
pays a variable interest rate equal to the six month LIBOR. The Company
entered into such agreements to take advantage of the differential between
long-term and short-term interest rates and effectively converted the interest
rate on $85.0 million of fixed-rate indebtedness to a variable rate. From
inception of the agreements through January 1997 the Company has paid $0.8
million in settlement, which occurs at the end of each six month period of the
agreements. Had the Company terminated these agreements, which the Company
considers to be held for other than trading purposes, on January 31, 1997, a
combined loss of approximately $1.1 million would have been realized. Future
positive or negative cash flows associated with these agreements will depend
upon the trend of short-term interest rates during the remaining life of the
agreements. In the event of non-performance of the counterparties at anytime
during the remaining lives of these agreements which expire at December 1998
and January 1999, the Company could lose some or all of any future positive
cash flows. However, the Company does not anticipate non-performance by such
counterparties.


NOTE G -- COMMITMENTS AND CONTINGENCIES

         The Company rents facilities and equipment under operating lease
agreements which expire at various dates through 2008. Net rental expense
under operating leases was $1.7 million for the year ended December 31, 1994,
$1.8 million for the year ended December 31, 1995, and $1.9 million for the
year ended December 31, 1996.

         Future minimum rental commitments on a cash basis for all
noncancellable operating leases are as follows:

<TABLE>
<CAPTION>

           YEAR ENDING
           DECEMBER 31,                                                                 (IN THOUSANDS)
           ------------                                                                 --------------
<S>                                                                                       <C>   
              1997.................................................................       $1,251
              1998.................................................................        1,263
              1999.................................................................        1,101
              2000.................................................................          528
              2001.................................................................          173
</TABLE>



         Additional commitments exist resulting from contracts to purchase
tobacco from various suppliers. At the end of fiscal 1996, outstanding
contracts to purchase tobacco amounted to $7.3 million which were all U.S.
dollar obligations.

         The Company is a party to various pending legal actions. In the
opinion of management, based upon the advice of its outside counsel, the
liability, if any, from all pending litigation will not materially affect the
Company's consolidated financial position or results of operations.

                                     F-12
<PAGE>

                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE H -- INCOME TAXES

         The Company, Consolidated Cigar Holdings and Mafco Consolidated Group
have been, for federal income tax purposes, members of an affiliated group of
corporations of which Mafco Holdings is the common parent (the "Tax Group").
As a result of such affiliation, the Company, Consolidated Cigar Holdings, and
Mafco Consolidated Group have been included in the consolidated federal income
tax returns and, to the extent permitted by applicable law, included in
combined state or local income tax returns filed on behalf of the Tax Group.
Pursuant to a tax sharing agreement among the Company, Consolidated Cigar
Holdings, and Mafco Consolidated Group and a tax sharing agreement between
Mafco Consolidated Group and Mafco Holdings (collectively, the "Tax Sharing
Agreements"), the Company has been required to pay to Mafco Holdings or Mafco
Consolidated Group with respect to each taxable year an amount equal to the
consolidated federal and state and local income taxes that would have been
incurred by the Company had it not been included in the consolidated federal
and any combined state or local income tax returns filed by the Tax Group.
Pursuant to the Tax Sharing Agreements, tax carryforward losses that arose
prior to the 1993 Acquisition are not available to the Company on a go-forward
basis. The Company had generated U.S. tax net operating loss carryforwards of
$2.9 million subsequent to the 1993 Acquisition, which were utilized
completely during 1994 and 1995. The net amounts paid by the Company during
the years ended December 31, 1994, 1995, and 1996 were approximately $0.4
million, $0.4 million and $9.8 million, respectively.

         As a result of the completion of the Offering, the Company will no
longer be included in the Tax Group's consolidated tax returns and will
instead, file its own tax returns and pay its own taxes on a separate company
basis.

         The provision (benefit) for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                               YEAR ENDED        YEAR ENDED         YEAR ENDED
                                                               DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                                   1994              1995              1996
                                                                   ----              ----              ----
                                                                                (IN THOUSANDS)
<S>                                                          <C>                <C>                <C>             
     Current:
                Federal...................................      $   266           $ 1,880            $ 9,286
                State.....................................          222               423              1,547
                Foreign...................................        1,494             1,292              1,826
                                                                  -----             -----              -----
                                                                  1,982             3,595             12,659
                                                                  -----             -----             ------
          Deferred:
                Federal...................................           --              (600)              (986)
                State.....................................           --                --               (165)
                Foreign...................................            7               604                941
                                                                  -----             -----              -----
                                                                      7                 4               (210)
                                                                  -----             -----              -----
                                                                 $1,989            $3,599            $12,449
                                                                 ======            ======            =======
</TABLE>

         The approximate effect of the temporary differences that gave rise to
deferred tax balances were as follows:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,      DECEMBER 31,
                                                                   1995              1996
                                                                   ----              ----
                                                                      (IN THOUSANDS)
<S>                                                            <C>               <C>
          Deferred tax assets:
                Accounts receivable.....................           $1,437           $1,930
                Accrued expenses........................            1,628            1,875
                Other...................................            1,139            1,365
                                                                    -----            -----
                    Total deferred tax asset............            4,204            5,170
                                                                    -----            -----

          Deferred tax liabilities:
                Property, plant and equipment...........            3,474            3,318
                Unremitted earnings.....................            1,579            2,520
                Other...................................               42               13
                                                                    -----            -----
                    Total deferred tax liability........            5,095            5,851
                                                                    -----      -     -----
                    Net deferred tax liability..........          $   891          $   681
                                                                  =======          =======

</TABLE>
                                     F-13
<PAGE>


                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         The net deferred tax liability relates mainly to the Company's Puerto
Rico subsidiary which is not consolidated for federal income tax purposes.
This represents the temporary difference attributable to property, plant and
equipment at Puerto Rico's effective local tax and toll gate tax rate.

         As discussed in Note I, during 1995 certain pension liabilities were
transferred to an affiliate. In connection with this transaction, a deferred
tax asset in the amount of $2.4 million was recorded along with a reduction of
goodwill relating to the unfunded pension liability at the date of the 1993
Acquisition. This deferred tax asset was then transferred to Mafco
Consolidated Group.

         A reconciliation of the statutory U.S. income tax rate and the
effective income tax rate is as follows:

<TABLE>
<CAPTION>
                                                            YEAR ENDED      YEAR ENDED     YEAR ENDED
                                                           DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                                                               1994            1995           1996
                                                               ----            ----           ----
                                                                         (IN THOUSANDS)
<S>                                                             <C>            <C>           <C>    
          Statutory rate..............................          $3,386         $6,135        $14,785
          Realization of valuation reserve............            (589)          (600)            --
          Foreign income not subject
            to statutory tax rate.....................          (1,749)        (2,765)        (3,818)
          State income taxes,
            net in 1995 and 1996......................             222            275            898
          Non-deductible amortization.................             620            620            578
          Other.......................................              99            (66)             6
                                                                ------         ------        -------
                                                                $1,989         $3,599        $12,449
                                                                ======         ======        =======
</TABLE>

         The domestic and foreign components of income (loss) before income
taxes are as follows:
<TABLE>
<CAPTION>

                                                            YEAR ENDED      YEAR ENDED     YEAR ENDED
                                                           DECEMBER 31,    DECEMBER 31,   DECEMBER 31,
                                                               1994            1995           1996
                                                               ----            ----           ----
                                                                         (IN THOUSANDS)
<S>                                                          <C>           <C>                <C>    
          United States................................      $  (2,725)       $    66         $16,149
          Foreign......................................         12,398         17,463          26,112
                                                                ------         ------          ------
                                                             $   9,673        $17,529         $42,261
                                                             =========        =======         =======
</TABLE>

         Foreign income primarily consists of Puerto Rico and Dominican
Republic income. Pursuant to a grant of industrial tax exemption which expires
in 2002, 90% of the income earned from the manufacture of cigars in Puerto
Rico is tax exempt from Puerto Rican income taxes. The remaining 10% of such
income is taxed at a maximum surtax rate of 45%, resulting in an effective
income tax rate of approximately 4.5%. The benefit to the Company amounted to
approximately $3.5 million for the year ended December 31, 1994, $5.1 million
for the year ended December 31, 1995, and $7.4 million for the year ended
December 31, 1996.

         Funds repatriated to the Company from its Puerto Rico subsidiary are
subject to a maximum Puerto Rico tollgate tax of 10%. Legislation enacted in
Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.

                                     F-14
<PAGE>



                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         The Company manufactures cigars in the Dominican Republic pursuant to
a 100% exemption from Dominican Republic income taxes, which exemption expires
in 2010.

         Income earned from Puerto Rico operations is generally exempt from
federal income tax. Section 936 of the Internal Revenue Code allows a
"possessions tax credit" against U.S. income tax attributable to the Puerto
Rico taxable earnings. As part of OBRA 1993, the Internal Revenue Service has
limited this exemption based upon a percentage of qualified wages in Puerto
Rico, plus certain amounts of depreciation. The Company believes that it
qualified for the possessions tax credit during each of the fiscal years ended
1994, 1995 and 1996.

         On August 20, 1996, the Small Business Job Protection Act of 1996
(the "SBJPA") was enacted into law. Under the SBJPA, Section 936 of the
Internal Revenue Code, the possessions tax credit was repealed, subject to
special grandfather rules for which the Company would be eligible, provided
that the Company does not add a "substantial new line of business." Under the
grandfather rules, for the Company's taxable years beginning December 31, 2001
and before January 1, 2006, the Company's business income from its Puerto Rico
operations eligible for the possessions tax credit would, in addition to the
current limitation based upon a percentage of qualified wages in Puerto Rico,
plus certain amounts of depreciation, generally be limited to its average
annual income from its Puerto Rico operations, adjusted for inflation,
computed during the Company's five most recent taxable years ending before
October 14, 1995 and excluding the highest and lowest years (the "Income
Limitation"). For taxable years after December 31, 2005, the possessions tax
credit would be eliminated. The repeal of the possessions tax credit could
have a material adverse effect on the Company for taxable years beginning
after December 31, 2001 and before January 2006 to the extent that the
Company's annual income from its Puerto Rico operations exceeds its average
annual income from its Puerto Rico operations (as computed in the manner
described in the preceding sentence), and for taxable years after December 31,
2005. Although it does not currently have any definitive plans with respect
thereto, the Company expects to evaluate alternatives that may be available to
it in order to mitigate the effects of the SBJPA. On February 6, 1997,
President Clinton proposed certain tax law changes which, if enacted, would
eliminate the Income Limitation, extend the possession tax credit indefinitely
and make the credit available to newly established business operations.


NOTE I -- PENSION PLANS

         The Company maintains tax qualified non-contributory defined benefit
pension plans covering substantially all hourly and salaried employees in the
U.S. and Puerto Rico (the "Pension Plans"). In accordance with an agreement
between the Company and MCG Intermediate Holdings Inc. ("MCG"), which is a
wholly owned subsidiary of Mafco Consolidated Group who maintains the Abex
Retirement Plan, the Pension Plans were merged with and into the Abex
Retirement Plan, effective December 31, 1995.

         The Abex Retirement Plan was the surviving plan with all the assets
and liabilities of the merged Pension Plans becoming assets and liabilities of
the surviving Abex Retirement Plan. The effect of the merger of the Pension
Plans was recorded as a contribution to capital of $4.8 million by Mafco
Consolidated Group. The capital contribution is net of a $2.4 million deferred
tax asset. The Company will continue to record service cost, interest and
return on plan assets in future years based on a fully funded plan.

         The Company also provides a separate non-contributory defined benefit
pension plan for hourly employees in its Richmond, Virginia location and a
benefit restoration plan (BRP) for certain officers.

         The pension plans' benefit formulas generally base payments to
retired employees upon their length of service and a percentage of qualifying
compensation during the 60 consecutive months in which compensation was
highest, in the ten years prior to retirement. Pension benefits are limited to
33 years of credited service and are reduced by the actuarial equivalent of
any benefits received under the the Company's 401(k) Plans.

                                     F-15

<PAGE>



                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

         The following table sets forth the Company's remaining pension plans'
funded status after the merger with the Abex Retirement Plan. The Richmond,
Virginia plan's assets exceed its liabilities and the BRP is unfunded. These
amounts are recognized in the consolidated financial statements under the
captions "Other Liabilities" and "Accrued Expenses" as unfunded liabilities
with the 1996 data based upon actuarial projections:
<TABLE>
<CAPTION>

                                                                     DECEMBER 31,                     DECEMBER 31,
                                                                         1995                              1996
                                                            -------------------------------   ------------------------------
                                                            ASSETS EXCEED    ACCUMULATED      ASSETS EXCEED      ACCUMULATED
                                                              ACCUMULATED      BENEFITS         ACCUMULATED        BENEFITS
                                                               BENEFITS      EXCEED ASSETS       BENEFITS       EXCEED ASSETS
                                                            -------------    -------------    -------------     -------------
                                                                                     (IN THOUSANDS)
<S>                                                          <C>              <C>               <C>              <C>  
Plan assets at fair value.............................          $462            $  --              $452            $    --
Actuarial present value of benefit obligation:
   Vested benefits....................................           368              139               358                757
   Non-vested benefits................................            32                8                24                 64
                                                                ----            -----              ----            -------
Accumulated benefit obligations.......................           400              147               382                821
Effect of projected future salary increases...........            --              148                --                321
                                                                ----            -----              ----            -------
                                                                 400              295               382              1,142
                                                                ----            -----              ----            -------

Funded status-over (under)............................            62             (295)               70             (1,142)
Unrecognized net loss (gain)..........................             6             (249)              (16)               (22)
Prior service cost not yet recognized in
   net periodic pension cost..........................            27              309                35                541
Unrecognized net transition asset.....................           (67)              --               (62)                --
Adjustment required to recognize minimum
   liability..........................................            --               --                --               (198)
                                                                ----            -----              ----            -------
Net Pension asset (liability).........................          $ 28            $(235)             $ 27            $  (821)
                                                                ====            =====              ====            =======
</TABLE>

         The discount rate used in determining the actuarial present value of
the projected benefit obligation was 7 1/4% in 1995 and 1996. The rate of
increase in future compensation levels reflected in such determinations was 4
1/2% in 1995 and in 1996. The assumed long-term rate of return on assets was
8% in 1995 and 1996. The Company's funding policy is to contribute annually an
amount necessary to satisfy the Internal Revenue Service's minimum funding
standards. Plan assets consist principally of equity, fixed income and money
market funds.

         The following table sets forth the periodic pension expense as
follows:
<TABLE>
<CAPTION>

                                                                    YEAR ENDED         YEAR ENDED        YEAR ENDED
                                                                   DECEMBER 31,       DECEMBER 31,      DECEMBER 31,
                                                                       1994               1995              1996
                                                                       ----               ----              ----
                                                                                    (IN THOUSANDS)
<S>                                                                <C>               <C>                <C>
           Service cost--benefits earned during the period..
                                                                       $   615          $   490            $   716
           Interest cost on projected benefit obligation....             1,506            1,644              1,934
           Actual return on plan assets.....................              (942)          (2,598)            (4,087)
           Net amortizations and deferrals..................                42            1,661              1,977
                                                                        ------           ------            -------
           Net pension expense..............................            $1,221           $1,197            $   540
                                                                        ======           ======            =======

</TABLE>


         The Company has adopted two deferred compensation plans pursuant to
Section 401(k) of the Internal Revenue Code for all domestic salaried
employees and certain union employees who have a minimum of six months of
service (the "401(k) Plans"). It has been the Company's policy to contribute
2%, up to a maximum of $3,000, of each domestic salaried employee's
compensation into their 401(k) Plan. Effective with the 401(k) Plan year ended
December 31, 1995, the Company contributes 2% to the union employees 401(k)
Plan up to a maximum of $3,000. Prior to the 401(k) Plan year ended December
31, 1995, the Company did not contribute to the union employees 401(k) Plan.

                                     F-16
<PAGE>
                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


         Amounts expensed under the 401(k) Plans for the year ended December
31, 1994 were $192,000, for the year ended December 31, 1995 were $202,000 and
for the year ended December 31, 1996 were $368,000.


NOTE J -- RELATED PARTY TRANSACTIONS

         Pursuant to a Reimbursement Agreement between Mafco Holdings and the
Company, Mafco Holdings provides the Company with certain allocated services
upon request. In addition, as discussed in Note H, the Company has agreed to
pay Mafco Holdings and Mafco Consolidated Group certain amounts pursuant to
the Tax Sharing Agreements. Amounts due to affiliates totaled $1.7 million and
$1.6 million at December 31, 1995 and 1996 respectively, principally relating
to income taxes.

         The Company purchases certain raw materials from Mafco Worldwide
which amounted to $265,000, $269,000 and $211,000 for the years ended December
31, 1994, 1995 and 1996, respectively. The Company also provides services for
Revlon, Inc., a subsidiary of Mafco Holdings which amounted to $763,000,
$874,000 and $958,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. Amounts due to and from these affiliates were not significant at
December 31, 1995 and 1996.

                                     F-17

<PAGE>

                                                             SCHEDULE II

                CONSOLIDATED CIGAR CORPORATION AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
                            (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                            ADDITIONS
                                                                            ---------
                                                             BALANCE AT     CHARGED TO                      BALANCE
                                                              BEGINNING     COSTS AND                       AT END
                       DESCRIPTION                            OF PERIOD      EXPENSES    DEDUCTIONS (1)   OF PERIOD
                       -----------                            ---------      --------    --------------  ----------
<S>                                                           <C>           <C>            <C>           <C>                 
DECEMBER 31, 1994:
Allowance for doubtful accounts
   (deducted from Accounts receivable).................        $   754       $   200       $     86       $   868
                                                               =======       =======       ========       =======
Allowance for cash discounts and sales return
   (deducted from Accounts receivable).................         $2,734       $    --         $   --        $2,734
                                                                ======       =======         ======        ======

Inventory Reserves (deducted from Inventory)...........        $   514       $   247         $   --       $   761
                                                               =======       =======         ======       =======

DECEMBER 31, 1995:
Allowance for doubtful accounts
   (deducted from Accounts receivable).................        $   868       $   150        $    80       $   938
                                                               =======       =======        =======       =======

Allowance for cash discounts and sales return
   (deducted from Accounts receivable).................         $2,734       $   650         $   --        $3,384
                                                                ======       =======         ======        ======

Inventory Reserves (deducted from Inventory)...........        $   761       $   198        $   137       $   822
                                                               =======       =======        =======       =======


DECEMBER 31, 1996:
Allowance for doubtful accounts
   (deducted from Accounts receivable).................        $   938        $  150        $   425       $   663
                                                               =======        ======        =======       =======

Allowance for cash discounts and sales return
   (deducted from Accounts receivable..................         $3,384        $1,557         $   --        $4,941
                                                                ======        ======         ======        ======

Inventory Reserves (deducted from Inventory)...........        $   822       $   818         $  339        $1,301
                                                               =======       =======         ======        ======
</TABLE>

----------
(1) Write-off against reserve

                                     S-1