<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, 1997

                                      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 1-11995

                        CONSOLIDATED CIGAR HOLDINGS INC.
      ------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

              Delaware                              13-3694743
     ------------------------------      ------------------------------------
     (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:

                                                 Name of Each Exchange
          Title of Each Class                     on Which Registered
----------------------------------------   ---------------------------------
 Class A Common Stock, $0.01 par value         New York Stock Exchange

       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 _X_ No___

         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]

         As of March 24, 1998 the Registrant had 10,975,101 shares of Class
A Common Stock and 19,600,000 shares of Class B Common Stock outstanding. All
of the shares of Class B Common Stock were held by Mafco Consolidated Group
Inc.

                      DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Company's proxy statement for the Annual Meeting of
Stockholders, which is to be filed within 120 days of the end of the fiscal
year, are incorporated by reference into Part III.

                          Exhibit Index on Page 24


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               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                         1997 FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----
                                    PART I
ITEM 1.   BUSINESS........................................................   3
ITEM 2.   PROPERTIES......................................................   13
ITEM 3.   LEGAL PROCEEDINGS...............................................   13
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............   13

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 
          STOCKHOLDER MATTERS.............................................   14
ITEM 6.   SELECTED FINANCIAL DATA.........................................   15
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
          CONDITION  AND RESULTS OF OPERATIONS............................   18
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.....................   23
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 
          ACCOUNTING AND FINANCIAL DISCLOSURE.............................   23

                                   PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............   23
ITEM 11.  EXECUTIVE COMPENSATION..........................................   23
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..   23
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................   23

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K   24


                                      2
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                                     PART I


ITEM 1. BUSINESS

BACKGROUND

         Consolidated Cigar Holdings Inc. (the "Company" or the "Registrant")
is a holding company with no business operations of its own. The Company was
formed as a Delaware corporation on January 6, 1993 to hold all of the
outstanding capital stock of Consolidated Cigar Corporation ("Consolidated
Cigar"), through which the Company conducts its business operations.

         On August 21, 1996, the Company, then a direct wholly-owned
subsidiary of Mafco Consolidated Group Inc. ("Mafco Consolidated Group"),
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. On March
20, 1997 the Company 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 the Company to approximately 63.9%. The Company did
not receive any of the proceeds from the Offering. As a result of Mafco
Consolidated Group's ownership decreasing below 80.0%, the Company is no
longer subject to the consolidated tax return provisions of the Tax Sharing
Agreement with Mafco Consolidated Group and as such, has begun paying taxes
directly to the federal government and will be filing tax returns on a
separate company basis.

         Since July 9, 1997, Mafco Consolidated Group has been a wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings"), which is owned by Ronald
O. Perelman. Prior to that date, Mafco Holdings held an 85% ownership interest
in Mafco Consolidated Group.

GENERAL

         The Company is the largest manufacturer and marketer of cigars sold
in the United States in terms of dollar sales, with a 1997 market share of
approximately 24% 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, MONTECRUZ, LAS CABRILLAS and SANTA ROSA 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 these positive trends will
continue or that the Company would be able to offset any future decline in
consumption.

                                      3
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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 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 1997.

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,
MONTECRUZ, LAS CABRILLAS and SANTA ROSA brands as well as other recognized
brand names. The Company's premium cigars are manufactured in its Dominican
Republic, Jamaica and two Honduras facilities, except for Te-Amo, which is
manufactured in Mexico and purchased from a third party. On August 26, 1997,
the Company entered into a stock purchase agreement with certain shareholders
of Fabrica de Tabacos La Flor de Copan, S.A. de C.V., a Honduran corporation
("La Flor"), to acquire 75% of La Flor's outstanding capital stock. La Flor is
a manufacturer of handmade premium cigars located in Santa Rosa, Honduras.

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
include ANTONIO Y CLEOPATRA, DUTCH MASTERS, EL PRODUCTO, BACKWOODS, MURIEL,
SUPER VALUE and SUPRE SWEETS.

         Generally, little cigars consist of filler tobacco wrapped only by a
wrapper with a filter tip. Most little cigars are made on a high-speed machine
with man-made wrapper made from tobacco ingredients and no binder. Little


                                      4
<PAGE>

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 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 1997.

         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 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, had
caused the Company's backorders of premium cigars to increase from 4.3 million
cigars at December 31, 1995 to 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars continued to increase, the substantial
increase in backorders of premium cigars experienced by the Company in 1996
was due, 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
did not accurately reflect the demand for the Company's premium cigars. In
1997, the Company established new ordering policies to reduce backorders.
These actions greatly reduced the number of backorders, rendering them more
manageable.

         At the same time, the Company was successful in significantly
increasing plant capacity and production of its premium cigars, and, in the
second half of 1997, especially the last quarter, began to fill distribution
pipelines, reducing back orders even further. However, the Company's
backorders of premium cigars were still at a level of 4.8 million cigars at
December 31, 1997. It is expected that these backorders will reduce to more
normal levels during the first quarter of 1998.

         The Company's ability to manufacture premium and mass market cigars
may 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 demand. In addition,
increases in acreage of tobacco grown requires significant capital, which
growers may be unable or unwilling to invest. Tobacco crops are also
susceptible to the variances of severe weather conditions, when they occur.


                                      5
<PAGE>



SALES AND MARKETING

         The Company sells its cigar and pipe tobacco products throughout the
United States to over 3,000 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 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 87% of the Company's mass market cigar
products are sold through wholesale distributors while approximately 13% 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.

         For the year ended December 31, 1997, the Company had more than 3,000
customers, the top five of which accounted for approximately 23% of annual
sales with the largest customer accounting for approximately 7%. 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 is continuing its efforts 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. During 1997, the Company hired a Business Development Director for
Europe to concentrate on foreign sales and promotions. Currently the Company
has a total of 68 agents and distributors throughout 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.

                                      6
<PAGE>

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

                            PREMIUM CIGAR TRADEMARKS

       Cabanas                       H. Upmann(a)               Primo Del Rey
      Don Diego                       Henry Clay                Royal Jamaica
      Don Marcos                    Las Cabrillas               Santa Damiana
       Don Melo                       Malaguena                   Santa Rosa
      Don Miguel                    Montecristo(a)                Santa Ynez
       Encanto                        Montecruz                  Super Value
   Flor de Canarias                Por Larranaga(a)                 Te-Amo
                                                                 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.

RAW MATERIALS

         The Company has developed and continues to develop 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.
Additionally, some shortages of wrapper tobaccos have also been the result of
heavy rains in South America and damaging organism growths (blue mold) in the
United States. 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. and General Cigar Co. Inc., majority
controlled public companies and Havatampa/Phillies Cigar Corporation, a
privately held corporation, recently sold to Tabacalera S.A. (the former
Spanish tobacco monopoly). In addition, Tobacco Exporters International Limited
(a subsidiary of Rothmans 


                                      7
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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 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 (the "FTC") 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;
however, to date, only excise tax increases on tobacco products starting in the
year 2000, in varying amounts, 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. The FTC on
February 9, 1998 ordered the five largest cigar companies, including the
Company, to report, for 1996 and 1997, the number of cigars sold and their
dollar value and the amount of money spent on advertising, merchandising, and
promotion. The orders also require a listing of different categories of
advertising and marketing expenses for each cigar brand marketed, including any
payments for placement of cigar products in movies and on television. These
categories of information are similar to those that cigarette and smokeless
tobacco manufacturers are required to report to the FTC, which information then
is reported on an aggregate basis by the FTC to Congress. The FTC's activities
may result in regulations and/or legislation concerning cigar advertising and
promotion, including health warning labels.

         As a result primarily of lawsuits brought by a large number of state
Attorneys General against certain tobacco companies and others seeking to
recover, among other things, health care cost reimbursement, five tobacco
manufacturers agreed on June 20, 1997 to support the adoption by Congress of a
proposed resolution (the "Proposed Resolution") that calls for significant
regulation of tobacco products and the payment of $368.5 billion over the first
25 years. As a result, a number of bills have been introduced in Congress that
would result in significant regulation of tobacco. Some of these bills cover
cigars, as well as substantial tax increases on tobacco products. Although it
is not possible to predict whether and when any such legislation will be
enacted into law, its enactment may fundamentally alter the way in which
tobacco companies conduct business in this country.

         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 




                                      8
<PAGE>

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 an 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). In California, the exemption that had
applied generally to certain establishments, including bars, with respect to
that state's ban on smoking in public places lapsed on January 1, 1998. In late
January 1998, however, the California state Assembly approved a bill that
generally would repeal the current total smoking ban in bars. The California
Senate has not yet acted. There can be no assurance that regulation relating to
second-hand smoke will not be adopted elsewhere and 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 response to challenges to the law
brought by a number of tobacco manufacturers, in December 1997 the United
States District Court for the District of Massachusetts preliminarily enjoined
the additive disclosure requirement. The nicotine yield rating reporting
requirement was unaffected by this decision. In addition, various legislative
proposals have been introduced in Massachusetts that would extend such
reporting requirements to cigar manufacturers and require health warnings on
cigars. Several other states have proposed or enacted similar laws.

         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. In April 1997, the plaintiffs moved for partial summary judgment,
and, in May 1997, the EPA cross-moved for partial summary judgment. 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.


                                      9
<PAGE>




         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 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 in 1996 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 were
challenged by tobacco companies in the United States District Court for the
Eastern District of North Carolina. In April 1997, the district court ruled
that the FDA was not precluded as a matter of law from regulating cigarettes
and smokeless tobacco as medical devices and from implementing certain labeling
and access restrictions. The court also ruled that the FDA lacked authority to
implement advertising and promotion restrictions. Certain aspects of the
Court's ruling are on appeal to the United States Court of Appeals for the
Fourth Circuit. Pending before the FDA is a petition by Action on Smoking and
Health requesting that the FDA assert jurisdiction over cigars. The Cigar
Association of America, an industry trade organization, has opposed the
petition on behalf of the cigar industry. While the Company is unable to
predict the effect of these regulatory efforts 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 and actions brought by individual
states or localities, unions and others, to recover health care 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. During 1997, the
health care cost reimbursement actions brought by state Attorneys General in
Mississippi, Florida, and Texas were settled for significant amounts in the
billions of dollars for the first 25 years and the Minnesota Attorney General
action is currently in trial. As noted above, five tobacco companies on June
20, 1997, entered into a Proposed Resolution that contains provisions that, if
enacted by Congress, would significantly impact tobacco litigation. The
Proposed Resolution requires the payment of $368.5 billion dollars over the
first 25 years and would, in effect, limit litigation to individual actions for
compensatory damages. As discussed above, several bills purporting to implement
some or all of the provisions of the Proposed Resolution have been introduced
in Congress and some of those bills include cigars.

         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. In addition, the
National 




                                      10
<PAGE>

Cancer Institute is expected to issue in the near future a comprehensive
report on the alleged health effects of cigar smoking. Such studies and
reports 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 been filed in a number of states. To date, a
number of pending class actions against major cigarette manufacturers have been
certified. One class action that had been pending in Florida was settled in
1997 for several hundred million dollars. The class was composed of 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.

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. In
1997, Congress approved excise tax increases, effective January 1, 2000 which
will bring the federal excise tax rate on large cigars to 18.063% of wholesale
list price, capped at $42.50 per thousand cigars, and will increase to 20.719%,
capped at $48.75 per thousand cigars, effective January 1, 2002. In addition,
the federal excise tax on pipe tobacco will increase to $0.9567 per pound
effective January 1, 2000 and will increase on January 1, 2002 to $1.097 per
pound. The federal excise tax on little cigars effective January 1, 2000 will
increase to $1.594 per thousand cigars and will increase to $1.828 per thousand
cigars on January 1, 2002. The Company does not believe the federal excise tax
rate increases scheduled for 2000 and again for 2002 will have a material
adverse effect on product sales. 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-two. Since 1988, the following twelve 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, Michigan and Massachusetts. State excise taxes
generally range from 2% to 78% of the wholesale purchase price. In addition,
the following twelve states have increased existing taxes on large cigars since
1988: Alaska, Arizona, Arkansas, Idaho, Iowa, Maine, New Jersey, New York,
North Dakota, Oregon, Vermont and Washington. Most 


                                      11
<PAGE>

recently, New Jersey increased their state excise taxes effective January 1,
1998 on cigars and other tobacco products from 24% to 48%. 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.

         In most states, 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, 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 7,800 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 eleven 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.




                                      12
<PAGE>


ITEM 2. PROPERTIES

         As of December 31, 1997, 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             Distribution center and mass market cigar         Owned           369,000
                                 manufacturing
Cayey, Puerto Rico               Mass market cigar manufacturing                   Owned           280,000
La Romana, Dominican Republic    Premium cigar manufacturing                       Leased          230,000
Comerio, Puerto Rico             Tobacco processing                                Owned           151,000
Santa Rosa, Honduras             Premium cigar manufacturing                       Leased          130,000
                                                                                   Owned            46,000
Richmond, Virginia               Pipe tobacco manufacturing                        Leased           90,000
Danli, Honduras                  Premium cigar manufacturing                       Owned            77,000
May Pen, 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. In 1997, the Company expanded its existing manufacturing
facilities in the Dominican Republic and Danli, Honduras and acquired
additional manufacturing equipment for a total cost of approximately $3.9
million. In addition, the Company invested $14.4 million during 1997 for the La
Flor acquisition.

         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 2008, many of which are renewable at the option of the
Company.

         All of the principal properties owned by the Company were subject to
first priority liens granted in favor of the lenders under the credit
agreement, as amended to February 4, 1998 (the "Credit Agreement") of the
Company. Such liens were removed on March 2, 1998 when the Credit Agreement was
replaced by an unsecured new credit agreement (see Note G in the Notes to
Consolidated Financial Statements of the Company included elsewhere in this
report).

         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 1997.

                                      13
<PAGE>

                                    PART II


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

         Since the IPO of the Company's Class A Common Stock at $23.00 per
share in August 1996, the Class A Common Stock has been traded on the New York
Stock Exchange (the "NYSE") under the symbol "CIG." The following table sets
forth for the periods indicated the high and low sale prices per share of the
Class A Common Stock as reported by the NYSE.

                                                                HIGH     LOW
          1997                                                  ----     ---
          First Quarter...................................... $27.25  $22.25
          Second Quarter.....................................  30.25   21.75
          Third Quarter......................................  40.33   24.67
          Fourth Quarter.....................................  44.20   26.00

                                                                HIGH     LOW
          1996                                                  ----     ---
          Third Quarter (August 16 to September 30).......... $32.63  $26.00
          Fourth Quarter.....................................  31.25   23.50


         As of the close of business on March 2, 1998, there were
approximately 162 holders of record of the Company's Class A Common Stock and
one holder of record of the Company's Class B Common Stock.

         The Company does not anticipate that any dividends will be declared
on the Class A Common Stock in the foreseeable future. The Company intends to
retain earnings to finance the expansion of its business. For the year ended
December 31, 1996, the Company paid cash dividends of $12.8 million (excluding
the dividend of the proceeds of the IPO). The Company did not pay any
dividends for the year ended December 31, 1997.


         The Company, as a holding company with no business operations of its
own, is dependent on dividends and distributions from Consolidated Cigar to
pay any cash dividends or distributions on the Common Stock. The terms of the
Credit Agreement and the 10 1/2% Senior Subordinated Notes due 2003 (the
"Senior Subordinated Notes") of Consolidated CigaR limit the payment of
dividends or distributions to the Company by Consolidated Cigar to an amount
(based on a formula set forth in the indenture (the "Senior Subordinated Notes
Indenture") pursuant to which the Senior Subordinated Notes were issued) equal
to approximately $26.4 million as of December 31, 1997. In connection with the
IPO, Consolidated Cigar entered into an amendment to the Credit Agreement,
which, among other things, permitted Consolidated Cigar to pay a $5.6 million
dividend to the Company and permits Consolidated Cigar to pay dividends and
make distributions on terms substantially similar to those contained in the
Senior Subordinated Notes Indenture. So long as the Credit Agreement is in
effect and the Senior Subordinated Notes are outstanding, each in their
current form, the Company's ability to obtain distributions from Consolidated
Cigar to enable it to fund dividend payments will be limited. Subject to such
restrictions, any future declaration of cash dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board of Directors of the Company.

         On March 2, 1998, the Senior Subordinated Notes were redeemed and the
Credit Agreement was replaced by the New Credit Agreement (see Note G in the
Notes to Consolidated Financial Statements of the Company included elsewhere in
this report).

         The Company did not sell any unregistered securities in 1997.

                                      14
<PAGE>


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, 1997 have been derived from the audited Consolidated Financial
Statements of the Company.

         The Company's only material asset is all of the outstanding capital
stock of Consolidated Cigar through which the Company conducts its business
operations. The selected historical financial data, therefore, reflects the
consolidated results of Consolidated Cigar and its predecessors. Prior to
March 3, 1993, Consolidated Cigar 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 Consolidated Cigar, with Consolidated Cigar 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 Consolidated
Cigar, 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").

         On August 21, 1996, the Company completed the IPO of 6,075,000 shares
of Class A Common Stock at an initial public offering price of $23.00 per
share. The proceeds, net of underwriter's discount and related fees and
expenses, of $127.8 million, were paid as a dividend to Mafco Consolidated
Group. Simultaneously with the IPO, each of the Company's then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock, resulting in a total of 24,600,000 shares of Class B
Common Stock outstanding following the IPO. In addition, the Company issued a
non-interest bearing promissory note in an original principal amount of $70.0
million (the "Promissory Note") to Mafco Consolidated Group. On March 20, 1997,
the Company completed the Offering of 5,000,000 shares of Class A Common Stock
sold by Mafco Consolidated Group, reducing its ownership in the Company to
approximately 63.9%.

         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.



                                      15
<PAGE>





ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)


                                   PRE-ACQUISITION                                 POST-ACQUISITION
                                   ----------------------------------------------------------------------------------------------
                                     TWO MONTHS |    TEN MONTHS
                                       ENDED    |       ENDED         YEAR ENDED      YEAR ENDED      YEAR ENDED       YEAR ENDED
                                      MARCH 2,  |   DECEMBER 31,     DECEMBER 31,    DECEMBER 31,    DECEMBER 31,     DECEMBER 31,
                                        1993    |       1993             1994            1995            1996             1997
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
<S>                                <C>          |   <C>               <C>            <C>            <C>              <C>
STATEMENT OF OPERATIONS DATA:                   |
Net sales......................     $  15,563   |    $110,384          $131,510         $158,166       $216,868         $299,067
Cost of sales..................         9,088   |      69,871            78,836           94,347        126,013          167,285
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
Gross profit...................         6,475   |      40,513            52,674           63,819         90,855          131,782
Selling, general an                             |
   administrative expenses.....         4,580   |      24,956            29,413           32,393         36,776           39,468
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
Operating income...............         1,895   |      15,557            23,261           31,426         54,079           92,314
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
                                                |
                                                |
Interest expense, net..........        (1,660)  |     (10,930)          (12,838)         (12,635)       (10,619)         (10,551)
Minority interest..............             5   |         209                78             (262)          (310)          (1,598)
Miscellaneous, net.............          (226)  |        (690)             (828)          (1,000)          (906)          (1,355)
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
                                                |
Income before provision for                     |
   income taxes ...............            14   |       4,146             9,673           17,529         42,244           78,810
Provision for income taxes.....            91   |       1,267             1,989            3,599         12,449           25,219
                                    ---------   |   ---------         ---------        ---------      ---------        ---------
                                                |
Net income (loss)..............     $     (77)  |    $  2,879          $  7,684         $ 13,930       $ 29,795         $ 53,591
                                    =========   |   =========         =========        =========      =========        =========
                                                |
                                                |
Basic net income per common                     |
   share(a)....................     $       -   |    $   0.12          $   0.31         $   0.57       $   1.11         $   1.75
                                    =========   |   =========         =========        =========      =========        =========
                                                |
Basic weighted average common                   |
   shares outstanding (a)......        24,600   |      24,600            24,600           24,600         26,891           30,682
                                    =========   |   =========         =========        =========      =========        =========
                                                |
Diluted net income per common                   |
   share (a)...................     $       -   |    $   0.12          $   0.31         $   0.57       $   1.11         $   1.73
                                    =========   |   =========         =========        =========      =========        =========
                                                |
Diluted weighted average common                 |
   shares outstanding (a)........      24,600   |      24,600            24,600           24,600         26,964           31,019
                                    =========   |   =========         =========        =========      =========        =========

<CAPTION>

                                                                            POST-ACQUISITION
                                                ----------------------------------------------------------------------------------
                                                  DECEMBER 31,      DECEMBER 31,    DECEMBER 31,    DECEMBER 31,      DECEMBER 31,
                                                     1993              1994            1995            1996              1997
                                                --------------    --------------  --------------  --------------   ---------------
<S>                                             <C>               <C>             <C>             <C>              <C>
BALANCE SHEET DATA (AT PERIOD
END):
Total assets................................     $205,906            $196,909        $191,730       $205,511          $279,433
Long-term debt (including current
   portion and the Promissory Note).........      145,300             126,200         110,600        167,500           173,557
Total stockholders' equity..................       32,879              40,563          54,328          1,355            55,137
</TABLE>

                         (Footnotes on following page)

                                      16
<PAGE>


ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
                                  PRE-ACQUISITION                                POST-ACQUISITION
                                  -------------------------------------------------------------------------------------------------
                                     TWO MONTHS  |   TEN MONTHS
                                        ENDED    |     ENDED          YEAR ENDED       YEAR ENDED      YEAR ENDED       YEAR ENDED
                                      MARCH 2,   |  DECEMBER 31,     DECEMBER 31,     DECEMBER 31,    DECEMBER 31,     DECEMBER 31,
                                        1993     |     1993              1994             1995            1996             1997
                                  --------------------------------  ----------------  --------------  ---------------  ------------
<S>                                <C>           |<C>               <C>              <C>             <C>               <C> 
OTHER DATA:                                      |
Gross margin (b).................          41.6% |         36.7%           40.1%           40.3%             41.9%         44.1%
Operating margin (b).............          12.2  |         14.1            17.7            19.9              24.9          30.9
EBITDA(c)........................        $2,792  |      $25,156         $30,046         $38,125           $60,547       $99,287
EBITDA margin (c)................          17.9% |         22.8%           22.8%           24.1%             27.9%         33.2%
Capital expenditures.............        $  115  |      $   881         $   788         $   983           $ 5,278       $ 6,176
Amortization of goodwill.........            18  |        1,399           1,771           1,771             1,651         1,702
Cash flows provided by                           |
   operating activities..........         3,462  |        8,842          14,259          19,801            32,583        17,250
Cash flows provided by                           |
   (used for) investing activities         (247) |         (611)          5,036            (989)           (5,875)      (20,290)
Cash flows provided by(used for)                 |
financing activities.............        (2,078) |      (12,143)        (18,810)        (19,367)          (25,947)        4,365


(a) Basic and diluted net income per common share has been computed assuming
the conversion of the Company's common stock, prior to the IPO, into Class B
Common Stock as of the beginning of all periods presented and is therefore
based upon the weighted average of 24,600,000 shares of common stock
outstanding prior to the IPO and in 1996, 30,675,000 shares of common stock
outstanding after the IPO. The weighted average of common stock outstanding for
1997 is based on 30,693,332 shares of common stock outstanding. For 1997 and
1996, the only difference between the basic and diluted net income per common
share calculation is the dilutive effect of stock options which are included in
the diluted net income per common share calculation. For the years 1995 and
earlier, there is no difference between the basic and the diluted net income
per common share calculation.

(b) 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.

(c) 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.


                                      17
<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 1997 market share of
approximately 24% 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, 1997, cigars accounted for approximately 94% 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. On March 10,
1998 the Company announced that due to a number of factors, including
non-recurring timing issues related to retailer/wholesaler inventory
imbalances, the excess of historically unknown brands in the marketplace and
production problems in the Company's supplier's new facility in Mexico, the
Company expects its first quarter 1998 results to show little or no earnings
growth compared with the first quarter of 1997 (before an extraordinary charge
related to debt refinancing).

         The increased demand for cigars, especially premium cigars, and the
shortage of experienced skilled laborers caused the Company's backorders of
premium cigars to increase from 4.3 million cigars at December 31, 1995 to 37.0
million cigars at December 31, 1996. Although the demand for premium cigars
continued to increase , the substantial increase in backorders of premium
cigars experienced by the Company in 1996 was due, 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 did not accurately reflect the
demand for the Company's premium cigars. Beginning in 1997, the Company
established new ordering policies which had the effect of reducing backorders.
As a result of such new ordering policies and an increase in cigar production,
the amount of premium cigar backorders decreased to 4.8 million cigars at
December 31, 1997. The Company believes the majority of the backorders will be
filled by the end of the first quarter of 1998.

         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, 1995, 1996 and 1997.



                                      18
<PAGE>

         The following table sets forth certain statement of operations data
and the related percentage of net sales (dollars in millions):


</TABLE>
<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31,
                                                  -------------------------------------------------------------------
                                                           1995                    1996                     1997
                                                  --------------------     -----------------        -----------------
<S>                                               <C>        <C>           <C>       <C>            <C>       <C>
Net sales...................................       $158.2        100.0%      $216.9    100.0%        $299.1    100.0%
Cost of sales...............................         94.4         59.7        126.0     58.1          167.3     55.9
                                                    -----    ---------     --------     ----         ------     ----
Gross profit................................         63.8         40.3         90.9     41.9          131.8     44.1
Selling, general and administrative
        expenses............................         32.4         20.4         36.8     17.0           39.5     13.2
                                                    -----    ---------     --------     ----         ------     ----
Operating income............................         31.4         19.9         54.1     24.9           92.3     30.9
Interest expense, net.......................         12.6          8.0         10.6      4.9           10.6      3.5
Minority interest and miscellaneous
        expense, net........................          1.3          0.8          1.3      0.6            2.9      1.0
Provision for income taxes..................          3.6          2.3         12.4      5.7           25.2      8.5
                                                    -----    ---------     --------     ----         ------     ----
Net income..................................       $ 13.9          8.8%      $ 29.8     13.7%        $ 53.6     17.9%
                                                    =====    =========     ========     ====         ======     ====
</TABLE>

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

         Net sales were $299.1 million and $216.9 million in 1997 and 1996,
respectively, an increase of $82.2 million or 37.9%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales 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, particularly in the premium market.

         Gross profit was $131.8 million and $90.9 million in 1997 and 1996,
respectively, an increase of $40.9 million or 45.1%. The increase in gross
profit for 1997 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 44.1% in 1997 from 41.9% in 1996, primarily due to the impact of
price increases, increased sales of higher margin premium cigars and fixed
manufacturing costs spread over increased production volume.

         Selling, general and administrative ("SG&A") expenses were $39.5
million and $36.8 million in 1997 and 1996, respectively, an increase of $2.7
million or 7.3%, primarily due to increased marketing and selling expenses in
addition to increased professional fees. As a percentage of net sales, SG&A
expenses decreased to 13.2% in 1997 from 17.0% in 1996. The decrease was
primarily due to SG&A expenses increasing at a lower rate relative to the
increase in net sales.

         Operating income was $92.3 million and $54.1 million in 1997 and 1996,
respectively, an increase of $38.2 million or 70.7%. As a percentage of net
sales, operating income increased to 30.9% in 1997 from 24.9% in 1996,
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 in both 1997 and 1996.
Interest expense for 1997 reflects lower average borrowings under the Company's
Credit Agreement which was offset by slightly higher interest rates. In
addition, the Company had funded the La Flor acquisition in the third quarter
through borrowings of approximately $15.0 million under the Credit Agreement.

         The provision for income taxes as a percentage of income before income
taxes was 32.0% and 29.5% in 1997 and 1996, respectively. The increase in the
effective rate is primarily due to an increase in income subject to United
States taxation during 1997 partially offset by tax benefits associated with
the Company's operations in Puerto Rico. Income tax expense for 1997 and 1996
reflect provisions for federal income taxes, Puerto Rico tollgate taxes and on
Puerto Rico source income, together with state income and franchise taxes.

         As a result of the foregoing, the Company had net income of $53.6
million in 1997, compared to $29.8 million in 1996, an increase of $23.8
million or 79.9%.

                                      19
<PAGE>

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.

         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 113.9%.

LIQUIDITY AND CAPITAL RESOURCES

         Net cash flows from operating activities were $17.2 million, $32.6
million and $19.8 million for 1997, 1996, and 1995, respectively. The decrease
in cash flows of $15.4 million between 1997 and 1996 was due primarily to a
significant increase in inventories and other working capital requirements,
partially offset by an increase in net income. 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.

         Cash flows used for investing activities were $20.3 million, $5.9
million and $1.0 million for 1997, 1996, and 1995, respectively. Cash flows
used for investing activities for 1997 include $14.4 million for the La Flor
acquisition. Capital expenditures were $6.2 million, $5.3 million and $1.0
million for the years ended December 31, 1997, 1996, and 1995, respectively.
The capital expenditures in 1995 relate primarily to investments in cigar
manufacturing equipment which were part of the continual maintenance and
upgrading of the Company's manufacturing facilities. The capital expenditures
in 1996 and 1997 relate primarily to investments in the Company's manufacturing
facilities to meet the increased demand for the Company's premium cigars,
including expansion of its existing facilities in the Dominican Republic and
Danli, Honduras. In 1996, capital expenditures also included construction, as
part of a joint venture, of a new facility in Jamaica. In 1998, the Company
plans to continue expanding its facilities in the Dominican Republic and in
Santa Rosa, Honduras, as well as to add equipment to other facilities for a
total cost of approximately $7.5 million.


                                      20
<PAGE>

         Cash flows provided by financing activities for 1997 were $4.4 million
and consisted primarily of net borrowings under the Credit Agreement reduced by
payments of the Promissory Note. Cash flows used for financing activities in
1996 and 1995 were $25.9 million and $19.4 million, respectively. 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
1996, cash flows included $127.8 million of net proceeds from the IPO, which
were immediately paid as a dividend to Mafco Consolidated Group.

         In December 1993 and January 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 received a fixed
interest rate averaging 5.8% and paid a variable interest rate equal to the six
months London inter-bank offered rate (LIBOR). In October 1997, the Company
paid $0.5 million to terminate the swap agreements upon completion of the
coupon periods, which ended in December 1997 and January 1998. The termination
payment will be amortized over the remaining original term of the swap
agreements.

         The Company funded working capital requirements, capital expenditures
and debt service requirements through cash flows from operations and borrowings
under the Credit Agreement through February 1998. As of December 31, 1997,
there was approximately $23.4 million unused and available under the Credit
Agreement, after taking into account approximately $0.7 million utilized to
support letters of credit.

         On March 2, 1998 the Company entered into a new credit agreement (the
"New Credit Agreement") with Chase Manhattan Bank ("Chase") as administrative
agent for the lenders. The New Credit Agreement provides for an unsecured
revolving credit facility in an aggregate principal amount not to exceed $140.0
million. The New Credit Agreement was used to satisfy obligations under the
Credit Agreement as of March 2, 1998, and will replace it as the source for
working capital needs and other general corporate purposes. The Senior
Subordinated Notes were redeemed with borrowings under the New Credit
Agreement. As of March 2, 1998, there was approximately $13.1 million unused
and available under the New Credit Agreement, after taking into account $0.4
million utilized to support letters of credit. The New Credit Agreement
requires the Company to maintain certain financial tests including maximum
leverage ratios and minimum interest coverage ratios. The New Credit Agreement
also contains customary events of default and permits Consolidated Cigar to pay
dividends to the Company which include amounts required for the Company to
satisfy the payment terms of the Promissory Note.

         On February 11, 1998 the Company's Board of Directors authorized the
Company to repurchase from time to time up to 4.0 million shares of the
Company's Common Stock at prices deemed by the Company's officers to be
advantageous. The Board specified that any such purchase be subject to
compliance with applicable law and any credit or other agreements by which the
Company may be bound.

         The Company intends to fund working capital requirements, capital
expenditures and debt service requirements for the forseeable future through
cash flows from operations and borrowings under the New Credit Agreement. See
Note G of the Notes to Consolidated Financial Statements of the Company
included elsewhere in this report.

YEAR 2000 ISSUE

         The Company is currently working to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 issue is the result of computer
programs being written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the Year
2000, which could result in miscalculations or system failures. Based on a
recent assessment, the Company currently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems. If such modifications and conversions
are not made, or are not completed in a timely way, the Year 2000 issue could
have a material impact on operations. In addition, formal communications with
all significant suppliers and customers have been initiated to determine the
extent to which related interfaces with company systems are vulnerable if these
third parties fail to remediate their own Year 2000 issues. There can be no
assurance that these third-party systems will be converted on a timely basis
and that they will not adversely affect the Company's systems.

         The Company will utilize both internal and external resources to
complete and test Year 2000 modifications and expects to substantially complete
this process by the early part of 1999. Based on preliminary information, costs
of 


                                      21
<PAGE>

addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. However, if the Company, its customers or vendors
are unable to resolve such processing issues in a timely manner, it could
result in a material financial risk. Accordingly, the Company plans to devote
the necessary resources to resolve all significant Year 2000 issues in a timely
manner.

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. In 1997
Congress passed federal excise tax increases amounting to 41.7% effective
January 1, 2000 with an additional increase of 14.7% scheduled for January 1,
2002. The Company does not believe these increases will have a material adverse
effect on the 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 1997 and all
prior years. The Company expects that it will continue to 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 1997. 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, the possessions tax credit
allowed by Section 936 of the Code, 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"). Alternatively, the Company
may elect to use as its Income Limitation, the annualized amount of its
possession business income for the first 10 months of calendar year 1995. 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.


                                      22
<PAGE>


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 I 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.

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-26 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.

                                   PART III

         The information required by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the registrant's definitive proxy
statement for its 1998 annual meeting of stockholders, which is to be filed
pursuant to Regulation 14A no later than 120 days following the end of the
fiscal year reported upon.


                                      23
<PAGE>


                                    PART IV


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

         (a)      (1) and (2)  Financial Statements and Schedules

                  See List of Financial Statements and Schedules which appears
                  on page F-1 herein.

                 3) Exhibits

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

  3.1           Amended and Restated Certificate of Incorporation of
                Registrant (incorporated by reference from Exhibit 3.1 to
                Registrant's Registration Statement on Form S-1 (Registration
                No. 333-20743)).

  3.2           Amended and Restated By-laws of Registrant (incorporated by
                reference from Exhibit 3.2 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-20743)).

  4.1           Specimen Certificate of Class A Common Stock (incorporated by
                reference from Exhibit 4.1 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-6819)).

  10.1(a)       Guarantee and Security Agreement, dated as of March 3, 1993,
                between the Registrant and The Chase Manhattan Bank, N.A.
                (incorporated by reference from Exhibit 10.16(a) to
                Registrant's Registration Statement on Form S-1 (Registration
                No. 333-6819)).

  10.1(b)       First Amendment to Guarantee and Security Agreement, dated as
                of July 31, 1996 (incorporated by reference from Exhibit
                10.16(b) to Registrant's Registration Statement on Form S-1
                (Registration No. 333-6819)).

  10.3          Reimbursement Agreement, dated as of March 3, 1993, between
                Consolidated Cigar Corporation and Mafco Holdings Inc.
                (incorporated by reference from Exhibit 10.10 to Registrant's
                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 Registrant and Consolidated Cigar
                Corporation and its subsidiaries (incorporated by reference
                from Exhibit 10.10(a) to Consolidated Cigar Corporation's
                Annual Report on Form 10-K for the fiscal year ended December
                31, 1995).

  10.5          Registration Rights Agreement, dated as of August 21, 1996,
                between the Registrant and Mafco Consolidated Group Inc.
                (incorporated by reference from Exhibit 10.22 to Amendment No.
                1 to Mafco Consolidated Group Inc.'s Registration Statement on
                Form S-1 (Registration No. 333-15257)).

  10.6          Registrant's Promissory Note (incorporated by reference from
                Exhibit 10.5 to Amendment No. 1 to Mafco Consolidated Group
                Inc.'s Registration Statement on Form S-1 (Registration No.
                333-15257)).

  10.8          Executive Employment Agreement, dated as of August 1, 1996,
                between Consolidated Cigar Corporation and Theo W. Folz
                (incorporated by reference from Exhibit 10.17 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-6819)).

  10.9          Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation and Richard L. DiMeola
                (incorporated by reference from Exhibit 10.3 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-20743)).

  10.10         Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation 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)).


                                      24
<PAGE>

  10.11         Employment Agreement, dated July 1, 1996, between Consolidated
                Cigar Corporation and James L. Colucci (incorporated by
                reference from Exhibit 10.5 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-20743)).

  10.12         Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation and George F. Gershel, Jr.
                (incorporated by reference from Exhibit 10.6 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-20743)).

  10.13         Employment Agreement, dated July 1, 1995, Consolidated Cigar
                Corporation and Denis F. McQuillen (incorporated by reference
                from Exhibit 10.7 to Consolidated Cigar Corporation's Annual
                Report on Form 10-K for the fiscal year ended December 31,
                1995).

  10.14         Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated
                by reference from Exhibit 10.12 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-6819)).

  10.15         Pension Plan Merger Agreement into Abex Retirement Plan
                (incorporated by reference from Exhibit 10.1 to Consolidated
                Cigar Corporation's Annual Report on Form 10-K for the fiscal
                year ended December 31, 1995).

  *10.16        Credit Agreement between Consolidated Cigar Corporation and
                The Chase Manhattan Bank, as Administrative Agent, Chase
                Securities Inc., as Arranger, Nationsbank, N.A., as
                Documentation Agent and Credit Suisse First Boston, as
                Syndication Agent, dated as of March 2, 1998.

  *10.17        Preamble to the Consolidated Cigar Corporation Retirement
                Plan, dated as of December 19, 1997.

  *21.1         Subsidiaries of the Registrant.

  *24.1         Powers of Attorney

  *27.0         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, 1997.



                                      25
<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.

                                            CONSOLIDATED CIGAR HOLDINGS INC.


      March 26, 1998                        By: /s/ Gary R. Ellis
      --------------                           -------------------------------
          Date                                 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>
                   *                        Director                                                            March 26, 1998
-------------------------------------
     Ronald O. Perelman
                   *                        Director                                                            March 26, 1998
-------------------------------------
     Howard Gittis

                   *                        Director                                                            March 26, 1998
-------------------------------------
     Philip E. Beekman

                   *                        Director                                                            March 26, 1998
-------------------------------------
     Michael J. Fuchs

                   *                        Director                                                            March 26, 1998
-------------------------------------
     Robert Sargent Shriver III

  /s/ Theo W. Folz                          Chairman of the Board of Directors, President and                   March 26, 1998
------------------------------------        Chief Executive Officer  (Principal Executive Officer)
     Theo W. Folz                           
                                                 

  /s/ Gary R. Ellis
------------------------------------        Senior Vice President and Chief Financial Officer                   March 26, 1998
     Gary R. Ellis                          (Principal Financial Officer) 


  /s/ James M. Parnofiello                  Vice President and Controller                                       March 26, 1998
------------------------------------         (Principal Accounting Officer)
     James M. Parnofiello                   
</TABLE>

         *Gary R. Ellis, 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/ Gary R. Ellis
                                                           --------------------
                                                             Gary R. Ellis
                                                              Attorney-in-fact


                                      26
<PAGE>


                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                          Pages
AUDITED CONSOLIDATED FINANCIAL STATEMENTS                                 -----


     Report of Independent Certified Public Accountants...................  F-2

     Consolidated Balance Sheets as of December 31, 1996 and 1997.........  F-3

     Consolidated Statements of Operations
         for the years ended December 31, 1995, 1996 and 1997.............  F-5


     Consolidated Statements of Stockholders' Equity
         for the years ended December 31, 1995, 1996 and 1997.............  F-6


     Consolidated Statements of Cash Flows
         for the years ended December 31, 1995, 1996 and 1997.............  F-7

     Notes to Consolidated Financial Statements...........................  F-9




              The following financial statements schedules of 
     Consolidated Cigar Holdings Inc. are included in Item 14(d):

         Schedule I - Condensed Financial Information of Registrant....... F-23

         Schedule II - Valuation and Qualifying Accounts.................. F-26



     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.


                                     F-1
<PAGE>



              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS





The Board of Directors and Stockholders
 Consolidated Cigar Holdings Inc.


         We have audited the accompanying consolidated balance sheets of
Consolidated Cigar Holdings Inc. and subsidiaries (the "Company") as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules 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, 1996 and 1997, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
herein.


Miami, Florida
February 4, 1998, except for Note G (e), 
as to which the date is March 2, 1998

                                             /S/ ERNST & YOUNG LLP
                                             ---------------------
                                             ERNST & YOUNG LLP



                                     F-2

<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES

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

                                                                      December 31,         December 31,
                                                                          1996                 1997
                                                                   -------------------  --------------------

                     ASSETS
<S>                                                                <C>                  <C>
Current assets:
  Cash and cash equivalents                                                 $   1,906             $   3,231
  Accounts receivable, less allowances
   of $5,604 and $6,008, respectively                                          19,498                24,969
  Inventories                                                                  45,957                88,945
  Deferred taxes                                                                3,914                 4,187
  Prepaid and other                                                             1,677                13,220
                                                                   -------------------  --------------------
Total current assets                                                           72,952               134,552

Property, plant and equipment, net                                             37,224                39,511

Trademarks, less accumulated amortization
 of $3,319 and $4,190, respectively                                            31,155                30,876
Goodwill, less accumulated amortization
 of $6,593 and $8,295, respectively                                            59,723                70,590
Other intangibles and assets, less accumulated
 amortization of $3,406 and $4,359, respectively                                4,457                 3,904
                                                                   -------------------  --------------------
Total assets                                                                $ 205,511             $ 279,433
                                                                   ===================  ====================

</TABLE>




                See notes to consolidated financial statements.

                                      F-3

<PAGE>



               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES

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

                                                                                 December 31,         December 31,
                                                                                     1996                 1997
                                                                              -------------------  --------------------

           LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                                           <C>                  <C>
Current liabilities:
  Current portion of promissory note due to affiliate                                   $ 10,000              $ 10,000
  Current portion of long-term debt                                                            -                   657
  Accounts payable                                                                         7,197                13,704
  Accrued expenses and other                                                              21,812                18,440
                                                                              -------------------  --------------------
Total current liabilities                                                                 39,009                42,801

Long-term debt due to third parties                                                       97,500               112,900
Promissory note due to affiliate                                                          60,000                50,000
Deferred taxes                                                                             5,851                13,810
Other liabilities                                                                          1,796                 4,785
                                                                              -------------------  --------------------
Total liabilities                                                                        204,156               224,296
                                                                              -------------------  --------------------

Commitments and contingencies

Stockholders' equity:
  Preferred stock, par value $0.01 per share, 20,000,000 shares
    authorized, no shares issued and outstanding                                               -                     -
  Class A Common Stock, par value $0.01 per share; 300,000,000
   shares authorized, 6,075,000 and 11,093,332 shares issued and                                                     -
   outstanding, respectively                                                                  61                   111
  Class B Common Stock, par value $0.01 per share; 250,000,000 shares
   authorized, 24,600,000 and 19,600,000 shares issued and
   outstanding, respectively                                                                 246                   196

  Capital deficiency                                                                     (13,314)              (13,123)
  Retained earnings                                                                       14,362                67,953
                                                                              -------------------  --------------------
Total stockholders' equity                                                                 1,355                55,137
                                                                              -------------------  --------------------
Total liabilities and stockholders' equity                                             $ 205,511             $ 279,433
                                                                              ===================  ====================
</TABLE>


                  See notes to consolidated financial statements.

                                      F-4

<PAGE>



               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 (Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                     Year Ended            Year Ended           Year Ended
                                                                    December 31,          December 31,         December 31,
                                                                        1995                  1996                 1997
                                                                 --------------------  -------------------  ---------------------
<S>                                                              <C>                   <C>                  <C>
Net sales                                                                 $  158,166           $  216,868            $  299,067
Cost of sales                                                                 94,347              126,013               167,285
                                                                 --------------------  -------------------  --------------------

Gross profit                                                                  63,819               90,855               131,782

Selling, general
 and administrative expenses                                                  32,393               36,776                39,468
                                                                 --------------------  -------------------  --------------------
Operating income                                                              31,426               54,079                92,314
                                                                 --------------------  -------------------  --------------------

Other expenses:
 Interest expense, net                                                       (12,635)             (10,619)              (10,551)
 Minority interest                                                              (262)                (310)               (1,598)
 Miscellaneous, net                                                           (1,000)                (906)               (1,355)

                                                                 --------------------  -------------------  --------------------
                                                                             (13,897)             (11,835)              (13,504)
                                                                 --------------------  -------------------  --------------------

Income before provision
 for income taxes                                                             17,529               42,244                78,810

Provision for income taxes                                                     3,599               12,449                25,219
                                                                 --------------------  -------------------  --------------------
Net income                                                                $   13,930           $   29,795            $   53,591
                                                                 ====================  ===================  ====================

Basic net income per common share                                         $     0.57           $     1.11            $     1.75
                                                                 ====================  ===================  ====================
Basic weighted average common
 shares outstanding                                                       24,600,000           26,890,574            30,681,926
                                                                 ====================  ===================  ====================


Diluted net income per common share                                       $     0.57           $     1.11            $     1.73
                                                                 ====================  ===================  ====================
Diluted weighted average common
 shares outstanding                                                       24,600,000           26,963,752            31,018,727
                                                                 ====================  ===================  ====================
</TABLE>


                See notes to consolidated financial statements.

                                      F-5


<PAGE>




               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                     Additional
                                                                                       Paid-in
                                                        Class A       Class B          Capital
                                          Common        Common         Common         (Capital         Retained
                                          Stock          Stock         Stock         Deficiency)       Earnings         Total
                                          ----------  ------------  -------------  ----------------  -------------  --------------

<S>                                       <S>         <C>           <C>            <C>               <C>            <C>     
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                                                                                    29,795          29,795

Promissory note dividend                          -             -              -           (47,842)       (22,158)        (70,000)

Net proceeds from initial public offering        (1)           61            246           127,503              -         127,809

Cash dividends paid                               -             -              -          (127,809)       (12,768)       (140,577)
                                          ----------  ------------  -------------  ----------------  -------------  --------------

Balance at December 31, 1996                      -            61            246           (13,314)        14,362           1,355
                                          ----------  ------------  -------------  ----------------  -------------  --------------


Net income for the year                           -             -              -                 -         53,591          53,591

Exercise of stock options                         -             -              -               480              -             480

Secondary public offering and retirement
 of Class B Common Stock sold                     -            50            (50)                -              -               -

Assumption of pension
 liability from parent                            -             -              -              (289)             -            (289)
                                          ----------  ------------  -------------  ----------------  -------------  --------------

Balance at December 31, 1997                    $ -          $111           $196         $ (13,123)      $ 67,953        $ 55,137
                                          ==========  ============  =============  ================  =============  ==============

</TABLE>

                See notes to consolidated financial statements.

                                      F-6


<PAGE>



               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                     Year Ended            Year Ended           Year Ended
                                                                    December 31,          December 31,         December 31,
                                                                        1995                  1996                 1997
                                                                 --------------------  -------------------  --------------------
<S>                                                              <C>                   <C>                  <C>
Cash flows from operating activities:

  Net income                                                                $ 13,930             $ 29,795              $ 53,591

  Adjustments to reconcile net income
   to net cash provided by
   operating activities:

    Depreciation and amortization                                              7,699                7,357                 7,906
    Deferred income                                                             (205)                (177)                 (160)
    Changes in assets and liabilities
     net of acquisitions:
      Increase in:
       Accounts receivable                                                    (1,971)              (4,615)               (4,597)
       Inventories                                                            (1,148)              (6,935)              (39,588)
       Deferred taxes and other                                               (1,367)              (1,762)              (11,931)
      Increase (decrease) in:
       Accounts payable                                                         (276)               3,400                 5,841
       Accrued expenses and
        other liabilities                                                      3,139                5,520                 6,188
                                                                 --------------------  -------------------  --------------------
Net cash provided by operating activities                                     19,801               32,583                17,250
                                                                 --------------------  -------------------  --------------------

Cash flows used for investing activities:
  Capital expenditures                                                          (983)              (5,278)               (6,176)
  Acquisition, net of cash acquired                                                -                    -               (14,420)
  Investment in joint venture                                                      -                 (482)                    -
  Decrease (increase) in other assets                                             (6)                (115)                  306
                                                                 --------------------  -------------------  --------------------

Net cash used for investing activities                                          (989)              (5,875)              (20,290)
                                                                 --------------------  -------------------  --------------------
</TABLE>


                See notes to consolidated financial statements.

                                      F-7

<PAGE>




               CONSOLIDATED CIGAR HOLDINGS INC. 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,
                                                                        1995                  1996                 1997
                                                                 --------------------  -------------------  --------------------
<S>                                                              <C>                   <C>                  <C>
Cash flows provided by (used for) financing activities:
  Net proceeds from initial public offering                                $       -            $ 127,809             $       -
  Exercise of stock options                                                        -                    -                   480
  Borrowings (repayment) of revolving loan, net                              (15,600)             (13,100)               15,565
  Cash dividends paid                                                         (5,000)            (140,577)                    -
  Due to affiliates and other borrowings, net                                  1,233                  (79)              (11,680)
                                                                 --------------------  -------------------  --------------------
Net cash provided by
 (used for) financing activities                                             (19,367)             (25,947)                4,365
                                                                 --------------------  -------------------  --------------------

Increase (decrease) in cash and
 cash equivalents                                                               (555)                 761                 1,325

Cash and cash equivalents,
 beginning of period                                                           1,700                1,145                 1,906
                                                                 --------------------  -------------------  --------------------
Cash and cash equivalents, end of period                                   $   1,145            $   1,906             $   3,231
                                                                 ====================  ===================  ====================


Supplemental disclosures of cash flow information:

  Interest paid during the period                                          $  13,067            $  10,927             $  10,818
  Income taxes paid during the period                                          1,477               12,676                26,515


</TABLE>


                See notes to consolidated financial statements.

                                      F-8


<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION

         Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) (the "Company") is a holding company with no business operations
of its own and was formed as a Delaware corporation on January 6, 1993 to hold
all of the outstanding capital stock of Consolidated Cigar Corporation
("Consolidated Cigar"), through which the Company conducts its business
operations. The results of operations and financial position of the Company
therefore reflect the consolidated results of operations and financial position
of Consolidated Cigar. Unless the context otherwise requires, all references in
these notes to the consolidated financial statements of the Company shall mean
Consolidated Cigar Holdings Inc. and its subsidiaries.


         On August 21, 1996, the Company 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"). Simultaneously with the
IPO each of the Company's then outstanding shares of common stock was converted
into 24,600 shares of the newly created Class B Common Stock which totaled
24,600,000 shares. On March 20, 1997 the Company 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 the Company to approximately
63.9%. The Company did not receive any of the proceeds from the Offering. As a
result of Mafco Consolidated Group's ownership decreasing below 80%, the
Company is no longer subject to the consolidated tax return provisions of the
Tax Sharing Agreement with Mafco Consolidated Group and as such, has begun
paying taxes directly to the federal government and will be filing tax returns
on a separate company basis.


         Since July 9, 1997 Mafco Consolidated Group has been a wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings") which is owned by Ronald
O. Perelman. Prior to that date Mafco Holdings held an 85% ownership interest
in Mafco Consolidated Group.


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
inter-company accounts and transactions have been eliminated in consolidation.


CASH AND CASH EQUIVALENTS

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


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-9
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 resulting from the Mafco Holdings acquisition of Consolidated Cigar in
1993 (the "1993 Acquisition") and all subsequent acquisitions. Goodwill is
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.


IMPAIRMENT OF LONG-LIVED ASSETS

         In 1996 the Company adopted 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 has not impacted the operating results 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 were $1.2 million, $2.5 million, and $3.7 million for the
years ended December 31, 1995, 1996 and 1997, respectively.

NET INCOME PER COMMON SHARE

         In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share ("EPS") with basic
and diluted EPS. Unlike primary EPS, basic EPS will typically be higher than
primary EPS due to the exclusion of any dilutive effects of stock options from
the calculation. Diluted EPS is very similar to the previously reported fully
diluted EPS. EPS amounts for all periods presented have been restated to
conform with SFAS 128. For the years ended December 31, 1996 and 1997, the only
difference between the basic and diluted EPS calculation is the dilutive impact
of stock options which are included in the diluted EPS calculations. For the
year ended December 31, 1995, there is no difference between the basic and
diluted EPS calculation.


                                     F-10
<PAGE>


               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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. The swap
agreements were terminated in October 1997 and the termination payment is being
amortized over the remaining original term of the swap agreement, (see Note G).
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.


STOCK-BASED COMPENSATION

         In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages, but does not
require, companies to record compensation plans at fair value. The Company has
chosen, in accordance with provisions of SFAS 123, to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued Employees" ("APB
25") for its stock plan. Under APB 25, because the exercise price of the
Company's stock options were not less than the market price of the underlying
stock on the date of grant, no compensation expense was recognized.

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.

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.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company is
in the process of evaluating the disclosure requirements but believes that it
operates solely in one segment. The adoption of SFAS No. 131 will have no
impact on the Company's consolidated statement of income, financial condition
or cash flows.


                                     F-11
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATIONS

         Certain reclassifications of prior year amounts have been made to
conform to the 1997 financial statement presentation.

NOTE C - ACQUISITION

         On August 26, 1997, the Company entered into a stock purchase
agreement with certain shareholders of Fabrica de Tabacos La Flor de Copan,
S.A., a Honduran corporation ("La Flor"), to acquire 75% of La Flor's
outstanding capital stock for $14.4 million, net of cash acquired. La Flor is a
manufacturer of handmade premium cigars located in Santa Rosa, Honduras. The
acquisition was accounted for utilizing the purchase method with the purchase
price allocated to tangible and intangible assets acquired and liabilities
assumed based upon initial fair value estimates. The excess cost over the fair
value of the net assets acquired resulted in $12.6 million recorded as
goodwill. The consolidated financial statements include the operating results
of La Flor from the date of the acquisition. Pro forma results of operations
reflecting the La Flor acquisition have not been presented because the effect
of this acquisition was not significant.

NOTE D - INVENTORIES

         The components of inventories are as follows:
<TABLE>
<CAPTION>
                                                                DECEMBER 31,                      DECEMBER 31,
                                                                    1996                              1997
                                                            ---------------------             ----------------------
                                                                                (IN THOUSANDS)
<S>                                                         <C>                               <C>
          Raw materials and supplies....................           $34,469                            $61,764
          Work in process...............................             1,974                              3,977
          Finished goods................................             9,514                             23,204
                                                                   -------                            -------
                                                                   $45,957                            $88,945
                                                                   =======                            =======
</TABLE>


NOTE E -- PROPERTY, PLANT AND EQUIPMENT, NET

         The components of property, plant and equipment are as follows:

<TABLE>
<CAPTION>
                                                                DECEMBER 31,                      DECEMBER 31,
                                                                    1996                               1997
                                                            ---------------------             ----------------------
                                                                                (IN THOUSANDS)
<S>                                                         <C>                               <C>
          Land..........................................           $ 1,884                           $  1,958
          Buildings.....................................            14,140                             15,172
          Machinery and equipment.......................            33,188                             37,565
          Leasehold improvements........................               361                              1,096
          Furniture and fixtures........................             1,573                              1,921
                                                                     -----                              -----

                                                                    51,146                             57,712
          Accumulated depreciation......................          ( 13,922)                          ( 18,201)
                                                                   -------                           --------
                                                                   $37,224                           $ 39,511
                                                                   =======                           ========
</TABLE>

         Depreciation expense was $3.6 million for 1995, $3.9 million for 1996
and $4.4 million for 1997.


                                     F-12
<PAGE>
               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE F - ACCRUED EXPENSES

         Included in accrued expenses are the following:
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,                      DECEMBER 31,
                                                                            1996                              1997
                                                                    ---------------------             ----------------------
                                                                                        (IN THOUSANDS)
<S>                                                                 <C>                                <C>
                 Employee benefits and other compensation.........         $10,126                           $ 9,403
                 Interest.........................................           3,388                             3,175
                 Promotional......................................           1,281                             1,257
                 Taxes............................................           1,849                             1,734
                 Other............................................           5,168                             2,871
                                                                           -------                           -------
                                                                           $21,812                           $18,440
                                                                           =======                           =======
</TABLE>

NOTE G - LONG-TERM DEBT

         Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                                                        DECEMBER 31,                      DECEMBER 31,
                                                                            1996                              1997
                                                                    ---------------------             ----------------------
                                                                                          (IN THOUSANDS)
<S>                                                                 <C>                               <C>
                 Bank borrowings (a)..............................       $    7,500                        $  25,800
                 Senior Subordinated Notes (b)....................           90,000                           87,100
                 Promissory note (c)..............................           70,000                           60,000
                 Other long term indebtedness (d).................                -                              657
                                                                         ----------                        ---------
                                                                            167,500                          173,557
                 Less amounts payable within one year.............        (  10,000)                       (  10,657)
                                                                          ---------                        ---------
                                                                           $157,500                         $162,900
                                                                           ========                         ========
</TABLE>
         (a)  Represents borrowings under a credit agreement (the "Credit
              Agreement") with The Chase Manhattan Bank, N.A. The maximum
              borrowings under the Credit Agreement, as amended, at the end of
              December 31, 1997 and through maturity were $49.9 million.
              Outstanding letters of credit of approximately $0.7 million
              reduced the available borrowings under the Credit Agreement at
              December 31, 1997. The Credit Agreement was replaced by the New
              Credit Agreement (herein after defined) as described in (e) of
              this Note.

         (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. On January 30, 1998, holders were notified that all 
              of the outstanding Senior Subordinated Notes have been called for
              redemption on March 2, 1998 at a price of 103% of the principal
              amount thereof together with accrued interest. The redemption of
              the Senior Subordinated Notes was financed by the New Credit
              Agreement as described in (e) of this Note. In connection with
              the redemption of the Senior Subordinated Notes, a $3.2 million
              extraordinary loss, net of tax, was recorded in the first quarter
              of 1998.

         (c)  Represents a non-interest bearing promissory note issued in
              connection with the IPO as a dividend in an original principal
              amount of $70.0 million (the "Promissory Note") to Mafco
              Consolidated Group. The Promissory Note is payable in quarterly
              installments of $2.5 million, beginning March 31, 1997 with the
              final installment payable on December 31, 2003.




                                     F-13
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE G -- LONG-TERM DEBT (CONTINUED)


         (d)  Represents unsecured borrowings with a Honduran bank. The
              average interest rate for the borrowings was 13.4% at December
              31, 1997 and have maturity dates through December, 1998.


         (e)  The Company entered into a credit agreement (the "New Credit
              Agreement") dated March 2, 1998 among several financial
              institutions, with Chase as administrative agent. The New Credit
              Agreement provides for an unsecured revolving credit facility in
              an aggregate principal amount outstanding at any time not to
              exceed $140.0 million. The New Credit Agreement financed the
              redemption of the Senior Subordinated Notes and will finance the
              working capital needs of the Company and its subsidiaries as
              well as for other general corporate purposes. The closing date
              of the New Credit Agreement was concurrent with the redemption
              of the Senior Subordinated Notes on March 2, 1998. The New
              Credit Agreement matures on March 3, 2003 and has no
              amortization requirements. The New Credit Agreement is
              guaranteed by the Company and by all of the domestic
              subsidiaries of Consolidated Cigar. The guarantee by the Company
              is secured by a pledge of all the outstanding stock of
              Consolidated Cigar.

              The New Credit Agreement's initial interest payment rates
              available at the option of Consolidated Cigar are Base Rate
              Loans at the Prime rate and Eurodollar Loans at the Eurodollar
              rate plus 3/4%. The Eurodollar rate is subject to change
              resulting from changes in the leverage ratio, as defined in the
              New Credit Agreement. The average interest rate under the New
              Credit Agreement was approximately 6.5% at March 2, 1998.

              The New Credit Agreement contains covenants which govern, among
              other things, the ability to incur indebtedness, pay dividends,
              incur lease rental obligations, dispose of assets and to make
              investments, loans and advances. The New Credit Agreement also
              requires Consolidated Cigar to satisfy certain financial tests
              related to maximum leverage ratios and minimum interest coverage
              ratios. The New Credit Agreement also contains customary events
              of default and permits Consolidated Cigar to pay dividends and
              make distributions to the Company which include amounts required
              for the Company to satisfy principal payments of the Promissory
              Note as well as pay franchise and similar taxes to maintain its
              corporate existence and other expenses incidental to being a
              public reporting, but non-operating company.


         The scheduled repayments of long-term debt for the next five years
based on the outstanding balances at March 2, 1998 would only include the
$10.0 million annual installments owed under the terms of the Promissory Note
and $0.7 million in 1998 which represents short-term unsecured borrowings.


         The fair value of the Company's long-term debt at December 31, 1997
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 $2.6
million more than the carrying value of $173.6 million, which represented the
market price on the Senior Subordinated Notes which have been redeemed. The
estimated fair value of the bank borrowings under the Credit Agreement
approximated its carrying value.


         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.

         In December 1993 and January 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 received a fixed
interest rate averaging 5.8% and paid a variable interest rate equal to the
six month London inter-bank offered rate (LIBOR). In October 1997, the Company
paid $0.5 million to terminate the swap agreements upon completion of their
coupon periods, which ended in December 1997 and January 1998. The termination
payment will be amortized over the remaining original term of the swap
agreements.


                                     F-14
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H -- 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 $1.8 million for the year ended December 31, 1995,
$1.9 million for the year ended December 31, 1996, and $2.5 million for the
year ended December 31, 1997.

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

     YEAR ENDING
     DECEMBER 31,                                                (IN THOUSANDS)
     ------------                                                --------------
        1998................................................       $1,292
        1999................................................        1,121
        2000................................................          544
        2001................................................          178
        2002................................................          178
        2003 and thereafter.................................          171


         Additional commitments exist resulting from contracts to purchase
tobacco from various suppliers. At the end of fiscal 1997, outstanding
contracts to purchase tobacco amounted to $4.5 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.

NOTE I -- INCOME TAXES

         The Company, Consolidated Cigar 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, 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, 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 carry-forward losses that arose prior to the 1993 Acquisition
were not available to the Company on a go-forward basis. The Company had
generated U.S. tax net operating loss carry-forwards of $2.9 million subsequent
to the 1993 Acquisition, which were completely utilized during 1994 and 1995.
The net amounts paid by the Company under the Tax Sharing Agreement during the
years ended December 31, 1995, 1996, and 1997 were approximately $0.4 million,
$9.8 million and $4.4 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 beginning with fiscal 1997.


                                     F-15
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I -- INCOME TAXES (CONTINUED)


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

<TABLE>
<CAPTION>
                                                               YEAR ENDED        YEAR ENDED         YEAR ENDED
                                                              DECEMBER 31,      DECEMBER 31,       DECEMBER 31,
                                                                  1995              1996                1997
                                                              ------------      ------------       ------------
                                                                                (IN THOUSANDS)
<S>                                                          <C>                <C>                <C>
          Current:
                Federal...................................      $ 1,880          $  9,286            $14,474
                State.....................................          423             1,547              2,182
                Foreign...................................        1,292             1,826              2,191
                                                                -------          --------            -------
                                                                  3,595            12,659             18,847
                                                                -------          --------            -------
          Deferred:
                Federal...................................         (600)             (986)             5,325
                State.....................................           --              (165)               (43)
                Foreign...................................          604               941              1,090
                                                                -------          --------            -------
                                                                      4              (210)             6,372
                                                                -------          --------            -------
                                                                 $3,599           $12,449            $25,219
                                                                 ======           =======            =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                     YEAR ENDED                YEAR ENDED
                                                                    DECEMBER 31,              DECEMBER 31,
                                                                        1996                       1997
                                                                    ------------              ------------
                                                                                (IN THOUSANDS)
<S>                                                                <C>                       <C>
          Deferred tax assets:
                Accounts receivable.....................                $1,930                  $  2,086
                Accrued expenses........................                 1,875                     2,112
                Other...................................                 1,365                     1,534
                                                                        ------                  --------
                    Total deferred tax asset............                 5,170                     5,732
                                                                        ------                  --------

          Deferred tax liabilities:
                Property, plant and equipment...........                 3,318                     3,296
                Unremitted earnings.....................                 2,520                    10,368
                Other...................................                    13                       146
                                                                       -------                 ---------
                    Total deferred tax liability........                 5,851                    13,810
                                                                       -------                 ---------
                    Net deferred tax liability..........                $  681                  $  8,078
                                                                       =======                 =========
</TABLE>

         The net deferred tax liability as of the year ended December 31, 1997
relates mainly to temporary differences attributable to the Company's foreign
subsidiaries. In connection with the La Flor acquisition, a net deferred tax
liability of $1.2 million was recorded with a charge to goodwill primarily
relating to undistributed retained earnings at the acquisition date. The net
deferred tax liability as of December 31, 1997 and 1996, respectively, also
includes temporary differences of 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. The net deferred tax
liability as of the year ended December 31, 1996 mainly represents the
temporary difference attributable to the Company's Puerto Rico subsidiary.


                                     F-16
<PAGE>
               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I -- INCOME TAXES (CONTINUED)

         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,
                                                                  1995              1996                1997
                                                              ------------      ------------       ------------
                                                                               (IN THOUSANDS)
<S>                                                           <C>               <C>                <C>
          Statutory rate................................         $6,135            $14,785           $27,584
          Realization of valuation reserve..............           (600)                --                --
          Foreign income not subject
            to statutory tax rate.......................         (2,765)            (3,818)           (4,351)
          State income taxes, net.......................            275                898             1,390
          Non-deductible amortization...................            620                578               596
          Other.........................................            (66)                 6                --
                                                                 ------            -------           -------
                                                                 $3,599            $12,449           $25,219
                                                                 ======            =======           =======
</TABLE>

         The domestic and foreign components of income before income taxes are
as follows:

<TABLE>
<CAPTION>
                                                               YEAR ENDED        YEAR ENDED         YEAR ENDED
                                                              DECEMBER 31,      DECEMBER 31,       DECEMBER 31,
                                                                 1995              1996                1997
                                                              ------------      ------------       ------------
                                                                             (IN THOUSANDS)
<S>                                                           <C>               <C>                <C>
          United States................................        $    66            $16,132           $35,651
          Foreign......................................         17,463             26,112            43,159
                                                               -------            -------           -------
                                                               $17,529            $42,244           $78,810
                                                               =======            =======           =======
</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 $5.1 million for the year ended December 31, 1995, $7.4 million
for the year ended December 31, 1996, and $9.2 million for the year ended
December 31, 1997.

         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.

         The Company manufactures cigars in the Dominican Republic pursuant to
a 100% exemption from Dominican Republic income taxes which 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
1995, 1996 and 1997.

                                     F-17
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE I -- INCOME TAXES (CONTINUED)


         On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"SBJPA") was enacted into law. Under the SBJPA, the possessions tax credit
allowed by Section 936 of the Internal Revenue Code 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").
Alternatively, the Company may elect to use as its Income Limitation, the
annualized amount of its possession business income for the first 10 months of
calendar year 1995. 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 J -- 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
was net of a $2.4 million deferred tax asset.

         In accordance with an amendment to the Abex Retirement Plan, the
Company's assets and liabilities were spun-off to the Company in the form of a
new combined pension plan (the "New Pension Plan"), effective September 30,
1997. The effect of the assumption of the net accrued pension liability of the
New Pension Plan was recorded as a reduction of capital of $0.3 million from
Mafco Consolidated Group. The Company has recorded service cost, interest and
return on plan assets in 1996 and 1997 based upon 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 based 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 Company's 401(k) Plans.

         The following table sets forth the Company's pension plans' funded
status. The status as of December 31, 1996 reflects the Company's remaining
pension plan's funded status after the merger with the Abex Retirement Plan.
The status as of December 31, 1997 reflects the Company's pension plans'
funded status subsequent to the September 30, 1997 spin-off of the Company's
pension assets and liabilities. These amounts are recognized in the
consolidated financial statements under the captions "Other Liabilities" and
"Accrued Expenses" as unfunded liabilities with the 1997 data based upon
actuarial projections:


                                     F-18
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J -- PENSION PLANS (CONTINUED)

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,                           DECEMBER 31,
                                                                     1996                                   1997
                                                    ---------------------------------------   ----------------------------------
                                                      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                              $     452           $      --            $ 33,211          $     --
Actuarial present value of benefit obligation:
   Vested benefits.............................              358                 757              24,041               921
   Non-vested benefits.........................               24                  64                 524                30
                                                       ---------           ---------            
Accumulated benefit obligations................              382                 821              24,565               951
Effect of projected future salary increases....               --                 321               6,547               618
                                                       ---------           ---------            --------           -------
                                                             382               1,142              31,112             1,569
                                                       ---------           ---------            --------           -------

Funded status-over (under).....................               70              (1,142)              2,099            (1,569)
Unrecognized net loss (gain)...................              (16)                (22)             (2,277)              211
Prior service cost not yet recognized in
   net periodic pension cost...................               35                 541                (160)              443
Unrecognized net transition asset..............              (62)                 --                 (57)               --
Adjustment required to recognize minimum
   Liability...................................               --                (198)                 --               (36)
                                                       ---------           ---------            --------           -------
Net Pension asset (liability)..................       $       27          $     (821)            $  (395)          $  (951)
                                                       =========           =========            ========           =======
</TABLE>


         The discount rate used in determining the actuarial present value of
the projected benefit obligation was 7 1/4% in 1996 and 1997. The rate of
increase in future compensation levels reflected in such determinations was 
4 1/2 % in 1996 and 5 1/2% in 1997. The assumed long-term rate of return on
assets was 8% in 1996 and 9% in 1997. 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,
                                                                      1995               1996               1997
                                                                   ------------       ------------      ------------
                                                                                    (IN THOUSANDS)
<S>                                                                <C>                <C>              <C>
           Service cost--benefits earned during the period..           $   490          $   716            $   703
           Interest cost on projected benefit obligation....             1,644            1,934              1,666
           Actual return on plan assets.....................            (2,598)          (4,087)            (2,029)
           Net amortizations and deferrals..................             1,661            1,977                103
                                                                        ------          -------            -------
           Net pension expense..............................            $1,197          $   540            $   443
                                                                        ======          =======            =======
</TABLE>


                                     F-19
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE J -- PENSION PLANS (CONTINUED)


         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 $3,200, of each eligible employee's compensation into
their 401(k) Plan.

         Amounts expensed under the 401(k) Plans amounted to $202,000,
$368,000 and $322,000, for the years ended December 31, 1995, 1996 and 1997,
respectively.


NOTE K - STOCK PLAN

         The Company adopted the Consolidated Cigar Holdings Inc. Stock Plan
(the "Stock Plan") prior to the effectiveness of the IPO. Under the Stock
Plan, incentive stock options, non-qualified stock options, stock appreciation
rights, restricted and unrestricted stock (collectively "Awards"), may be
granted to selected employees, consultants and directors of the Company, and
any of its affiliates, from time to time. The aggregate number of shares of
Class A Common Stock as to which options and rights may be granted under the
Stock Plan may not exceed 3,000,000, and at December 31, 1997, 1,137,500
shares remained available for future grants. Options vest one third each year
beginning on the first anniversary of the date of grant and become 100% vested
on the third anniversary of the date of grant except 500,000 shares which
become exerciseable on the fifth anniversary of the date of the grant.

         A summary of information relative to the Company's Stock Option Plan
as follows:

<TABLE>
<CAPTION>
                                                                         OPTIONS OUTSTANDING
                                                             ------------------------------------------
                                                                                         WEIGHTED-
                                                             NUMBER OF                AVERAGE EXERCISE
                                                              SHARES                   PRICE PER SHARE
                                                             ---------                 ---------------
<S>                                                         <C>                        <C>
Balance as of December 31, 1995..............                       --                      $    --
Granted......................................                1,237,500                        23.14
Exercised....................................                       --                           --
Canceled/Forfeited...........................                       --                           --
                                                             ---------                    ---------
Balances as of December 31, 1996.............                1,237,500                      $ 23.14
Granted......................................                  625,000                        23.68
Exercised....................................                  (18,332)                       23.00
Canceled/Forfeited...........................                       --                           --
                                                             ---------                    ---------
                                                                    --
Balance as of December 31, 1997..............                1,844,168                      $ 23.33
                                                             =========                    =========
</TABLE>


         The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the Stock Plan. Had
compensation cost for the Company's Stock Plan been determined based on the
fair value at grant date for awards in 1996 and 1997 consistent with the
provisions of SFAS 123, the Company's net earnings and earnings per share would
have been reduced on a pro forma basis.

         The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option-pricing method with the following
weighted-average assumptions used for grants in 1996 and 1997:



                                     F-20
<PAGE>

               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE K - STOCK PLAN (CONTINUED)

<TABLE>
<CAPTION>
                                                            YEAR ENDED                  YEAR ENDED
                                                        DECEMBER 31, 1996           DECEMBER 31, 1997
                                                        -----------------           -----------------
<S>                                                     <C>                         <C>
Risk-free interest rate.....................                    6.13%                       5.63%
Average life of option (years)..............                    5.00                        5.00
Volatility..................................                   90.00%                      52.00%
Dividend yield..............................                     --                          --
</TABLE>

         The weighted average fair value of options granted in 1996 and 1997
was $16.91 and $12.21 per share, respectively.

         The Black-Scholes option valuation model was developed for use in
estimating the fair value of the traded stock options that have no restrictions
and are fully transferable. In addition, stock option valuation models require
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

         For purposes of pro forma disclosures, the estimated fair value of the
stock options has been amortized to expense over the options' vesting period.
The Company's net earnings and EPS would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
                                                            YEAR ENDED                  YEAR ENDED
                                                        DECEMBER 31, 1996           DECEMBER 31, 1997
                                                        -----------------           -----------------
                                                                      (IN THOUSANDS,
                                                                EXCEPT PER SHARE AMOUNTS)
<S>                                                    <C>                          <C>
Net earnings-pro forma......................                  $28,127                     $47,443
Basic earnings per share-pro forma..........                     1.05                        1.55
Diluted earnings per share-pro forma........                     1.04                        1.53
</TABLE>

         At December 31, 1997 the Company has 227,502 stock options
exerciseable at a weighted average exercise price per share of $23.26. At
December 31, 1997 the weighted average exercise price of the stock options
outstanding is $23.33 and range in price between $22.00 and $25.00 per share.
The weighted average remaining contractual life of these options is 8.82
years.



                                     F-21
<PAGE>


               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE L -- 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 I, 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 $1.6 million at
December 31, 1996, principally relating to income taxes and were not
significant at December 31, 1997.

         The Company purchases certain raw materials from Mafco Worldwide
Corporation ("Mafco Worldwide") which amounted to $269,000, $211,000 and
$239,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company sells certain raw materials to Mafco Worldwide which amounted to
$152,000 for the year ended December 31, 1997. The Company did not sell any
raw materials to Mafco Worldwide for the years ended December 31, 1995 and
1996. The Company also provides services for Revlon, Inc., a subsidiary of
Mafco Holdings which amounted to $874,000, $958,000 and $843,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. Amounts due to and from
these affiliates were not significant at December 31, 1996 and 1997.



NOTE M - QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)

         Summarized quarterly financial data for 1996 and 1997 are as follows
(in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                                       QUARTER ENDED
                                                        -------------------------------------------------------------------------
                                                          MARCH 30,           JUNE 29,          SEPTEMBER 28,      DECEMBER 31,
                                                        ---------------     -------------      ----------------   ---------------
<S>                                                     <C>                 <C>                <C>                <C>
         1996
         Net sales.................................       $40,225             $51,975             $60,620            $64,048
         Gross profit..............................        16,912              21,872              25,645             26,426
         Net income................................         4,334               6,843               9,577              9,041
         Basic net income per common share.........         $0.18               $0.28               $0.35              $0.29
         Diluted net income per common share.......         $0.18               $0.28               $0.35              $0.29

<CAPTION>
                                                                                       QUARTER ENDED
                                                        -------------------------------------------------------------------------
                                                          MARCH 29,           JUNE 28,          SEPTEMBER 27,      DECEMBER 31,
                                                        ---------------     -------------      ----------------   ---------------
<S>                                                     <C>                 <C>                <C>                <C>
         1997
         Net sales.................................       $55,888             $76,377             $82,642            $84,160
         Gross profit..............................        24,630              33,442              36,906             36,804
         Net income................................         8,395              13,204              16,792             15,200
         Basic net income per common share.........         $0.27               $0.43               $0.55              $0.50
         Diluted net income per common share.......         $0.27               $0.43               $0.54              $0.49
</TABLE>


                                     F-22

<PAGE>


                                                                    SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         BALANCE SHEETS (PARENT ONLY)
                   (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)


<TABLE>
<CAPTION>
                                                                          DECEMBER 31,
                                                                   ----------------------
                                                                     1996          1997
                                                                   ---------    ---------
<S.                                                               <C>           <C>
                                 ASSETS
Investment in subsidiary including cumulative income and net
  of distribution ..............................................   $  71,355    $ 115,137
                                                                   ---------    ---------
                                                                   $  71,355    $ 115,137
                                                                   =========    =========
                  LIABILITIES AND STOCKHOLDERS' EQUITY

Promissory note due to affiliate ...............................   $  70,000    $  60,000
Class A Common Stock, par value $0.01 per share; 300,000,000
  shares authorized, 6,075,000 and 11,093,332 shares issued
  and outstanding, respectively ................................          61          111
Class B Common Stock, par value $0.01 per share; 250,000,000
  shares authorized, 24,600,000 and 19,600,000 shares issued and
  outstanding, respectively ....................................         246          196
Capital deficiency .............................................     (13,314)     (13,123)
Retained earnings ..............................................      14,362       67,953
                                                                   ---------    ---------
                  Total stockholders' equity ...................       1,355       55,137
                                                                   ---------    ---------
                                                                   $  71,355    $ 115,137
                                                                   =========    =========
</TABLE>



                                     F-23
<PAGE>

                                                                    SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                     STATEMENT OF OPERATIONS (PARENT ONLY)
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------
                                                                 1995                    1996                    1997
                                                            ----------------        ----------------        ----------------
<S>                                                         <C>                     <C>                     <C>
Other income (expenses):

   Equity in earnings of subsidiary...................         $ 13,930                $ 29,795                $ 53,878

   Miscellaneous, net.................................                                                         (    422)
                                                               --------                --------                --------

Income before income
   tax benefit........................................           13,930                  29,795                  53,456

Income tax benefit....................................                                                              135
                                                               --------                --------                --------

Net income............................................         $ 13,930                $ 29,795                $ 53,591
                                                               ========                ========                ========
</TABLE>





                                     F-24
<PAGE>



                                                                    SCHEDULE I

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                     STATEMENT OF CASH FLOWS (PARENT ONLY)
                            (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------
                                                                 1995                    1996                    1997
                                                            ----------------        ----------------        ----------------
<S>                                                         <C>                     <C>                     <C>
Cash flows from operating activities:

     Net income.......................................         $ 13,930                $ 29,795                $ 53,591
     Adjustments to reconcile net income to net
         cash flows from operating activities:
              Equity in earnings of subsidiary in
              excess of cash distributions............           (8,930)                (17,027)                (44,071)
                                                               --------                --------                --------

                                                                 (8,930)                (17,027)                (44,071)
                                                               --------                --------                --------

     Net cash flows from operating activities.........            5,000                  12,768                   9,520
                                                               --------                --------                --------

Cash flows from financing activities:
     Net proceeds from initial public offering........               --                 127,809                      --

     Exercise of stock options........................               --                      --                     480

     Cash dividends paid..............................           (5,000)               (140,577)                     --

     Repayment of promissory note due to affiliate                                                              (10,000)
                                                                --------               ---------               --------
     Net cash flows from financing activities.........           (5,000)                (12,768)                 (9,520)
                                                                --------               ---------               --------

     Net increase in cash and cash equivalents........               --                      --                      --

     Cash and cash equivalents at beginning of
              year....................................               --                      --                      --
                                                               --------                --------                --------

     Cash and cash equivalents at end of year.........         $     --                $     --                $     --
                                                               ========                ========                ========


Supplemental disclosure of non cash financing activity:
     Promissory note dividend.........................         $     --                $ 70,000                $    --

     Contribution (reduction) to capital by parent....         $  4,835                $     --                $  (289)
</TABLE>


                                     F-25
<PAGE>

                                                                   SCHEDULE II
               CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                            (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, 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
                                                                 ======         ======        =======          ======


DECEMBER 31, 1997:
Allowance for doubtful accounts
   (deducted from Accounts receivable).................          $  663         $  150        $    46          $  767
                                                                 ======         ======        =======          ======

Allowance for cash discounts and sales return
   (deducted from Accounts receivable).................          $4,941         $  300        $   ---          $5,241
                                                                 ======         ======        =======          ======

Inventory Reserves (deducted from Inventory)...........          $1,301         $  233        $   326          $1,208
                                                                 ======         ======        =======          ======
</TABLE>

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




                                     F-26


<PAGE>

                             EXHIBIT INDEX
                             -------------

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

  3.1           Amended and Restated Certificate of Incorporation of
                Registrant (incorporated by reference from Exhibit 3.1 to
                Registrant's Registration Statement on Form S-1 (Registration
                No. 333-20743)).

  3.2           Amended and Restated By-laws of Registrant (incorporated by
                reference from Exhibit 3.2 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-20743)).

  4.1           Specimen Certificate of Class A Common Stock (incorporated by
                reference from Exhibit 4.1 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-6819)).

  10.1(a)       Guarantee and Security Agreement, dated as of March 3, 1993,
                between the Registrant and The Chase Manhattan Bank, N.A.
                (incorporated by reference from Exhibit 10.16(a) to
                Registrant's Registration Statement on Form S-1 (Registration
                No. 333-6819)).

  10.1(b)       First Amendment to Guarantee and Security Agreement, dated as
                of July 31, 1996 (incorporated by reference from Exhibit
                10.16(b) to Registrant's Registration Statement on Form S-1
                (Registration No. 333-6819)).

  10.3          Reimbursement Agreement, dated as of March 3, 1993, between
                Consolidated Cigar Corporation and Mafco Holdings Inc.
                (incorporated by reference from Exhibit 10.10 to Registrant's
                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 Registrant and Consolidated Cigar
                Corporation and its subsidiaries (incorporated by reference
                from Exhibit 10.10(a) to Consolidated Cigar Corporation's
                Annual Report on Form 10-K for the fiscal year ended December
                31, 1995).

  10.5          Registration Rights Agreement, dated as of August 21, 1996,
                between the Registrant and Mafco Consolidated Group Inc.
                (incorporated by reference from Exhibit 10.22 to Amendment No.
                1 to Mafco Consolidated Group Inc.'s Registration Statement on
                Form S-1 (Registration No. 333-15257)).

  10.6          Registrant's Promissory Note (incorporated by reference from
                Exhibit 10.5 to Amendment No. 1 to Mafco Consolidated Group
                Inc.'s Registration Statement on Form S-1 (Registration No.
                333-15257)).

  10.8          Executive Employment Agreement, dated as of August 1, 1996,
                between Consolidated Cigar Corporation and Theo W. Folz
                (incorporated by reference from Exhibit 10.17 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-6819)).

  10.9          Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation and Richard L. DiMeola
                (incorporated by reference from Exhibit 10.3 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-20743)).

  10.10         Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation 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)).



<PAGE>

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

  10.11         Employment Agreement, dated July 1, 1996, between Consolidated
                Cigar Corporation and James L. Colucci (incorporated by
                reference from Exhibit 10.5 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-20743)).

  10.12         Employment Agreement, dated August 1, 1996, between
                Consolidated Cigar Corporation and George F. Gershel, Jr.
                (incorporated by reference from Exhibit 10.6 to Registrant's
                Registration Statement on Form S-1 (Registration No.
                333-20743)).

  10.13         Employment Agreement, dated July 1, 1995, Consolidated Cigar
                Corporation and Denis F. McQuillen (incorporated by reference
                from Exhibit 10.7 to Consolidated Cigar Corporation's Annual
                Report on Form 10-K for the fiscal year ended December 31,
                1995).

  10.14         Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated
                by reference from Exhibit 10.12 to Registrant's Registration
                Statement on Form S-1 (Registration No. 333-6819)).

  10.15         Pension Plan Merger Agreement into Abex Retirement Plan
                (incorporated by reference from Exhibit 10.1 to Consolidated
                Cigar Corporation's Annual Report on Form 10-K for the fiscal
                year ended December 31, 1995).

  *10.16        Credit Agreement between Consolidated Cigar Corporation and
                The Chase Manhattan Bank, as Administrative Agent, Chase
                Securities Inc., as Arranger, Nationsbank, N.A., as
                Documentation Agent and Credit Suisse First Boston, as
                Syndication Agent, dated as of March 2, 1998.

  *10.17        Preamble to the Consolidated Cigar Corporation Retirement
                Plan, dated as of December 19, 1997.

  *21.1         Subsidiaries of the Registrant.

  *24.1         Powers of Attorney

  *27.0         Financial Data Schedule


-------------------
*    Filed herewith