UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-K/A

                                 AMENDMENT NO. 1



(MARK ONE)

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
           EXCHANGE ACT OF 1934

       FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

                                       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 333-31931

                      NORTH ATLANTIC TRADING COMPANY, INC.
                      ------------------------------------
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                     13-3961898
      ------------------------------                     -------------------
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                     Identification No.)

              257 PARK AVENUE SOUTH, NEW YORK, NEW YORK 10010-7304
              ----------------------------------------------------
              (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:  (212) 253-8185

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes  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 materials or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes      No  X.
                                         ---     ---
As of March 26, 2003, the only class of voting or non-voting common equity
issued and outstanding was the Registrant's Voting Common Stock, par value $.01
per share, 100% of which was owned by 43 holders of record, 13 of whom are
affiliates or employees of the Registrant. There is no trading market for the
Voting Common Stock.

<PAGE>
As of March 26, 2003, 528,241 shares of the Registrant's Voting Common Stock,
par value $.01 per share were outstanding.

                                EXPLANATORY NOTE

           Items 1, 3, 6, 7, 8 and 15 of North Atlantic Trading Company, Inc.'s
(the "Company's") Annual Report on Form 10-K for the fiscal year ended December
31, 2002 are hereby amended by deleting these Items in their entirety and
replacing them with revised Items filed herewith. The primary purpose of this
amendment is to provide expanded disclosure regarding (i) the Company's Legal
Proceedings in Item 3 and (ii) the Company's business segments in the Segment
Information note to the Consolidated Financial Statements included in the
Financial Statements and Supplementary Data that were included in Item 8 of the
subject Form 10-K as originally filed (the "Original Filing") and to make
corresponding changes to Management's Discussion and Analysis of Financial
Condition and Results of Operations that were included in Item 7, of the
Original Filing.

           In addition the Company adopted Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections" on January 1, 2003. As a
result, the Company has reclassified the write-off of $1.4 million of deferred
financing costs incurred upon refinancing the Company's term loan on December
29, 2000 to other expense from extraordinary loss. This reclassification is
reflected in the Consolidated Financial Statements included in the Financial
Statements and Supplementary Data included in Item 8, the Selected Financial
Data in Item 6 and Management's Discussion and Analysis of Financial Condition
and Results of Operations that was included in Item 7, of the Original Filing.

           The Company's Form 10-K continues to speak as of the date of the
Original Filing and the disclosure in that report has not been updated to speak
to any later date. Any items in the Original Filing not expressly changed hereby
shall be as set forth in the Original Filing. All information contained in this
amendment and the Original Filing is subject to updating and supplementing as
provided in the Company's periodic reports filed with the SEC subsequent to the
date of such reports.


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                      North Atlantic Trading Company, Inc.
                         2002 Form 10-K/A Annual Report


                                TABLE OF CONTENTS
                                                                                                                               PAGE
<S>                <C>                                                                                                        <C>

                                    PART I
     ITEM 1.         BUSINESS.....................................................................................................4
     ITEM 3.         LEGAL PROCEEDINGS...........................................................................................15

                                   PART II

     ITEM 6.         SELECTED FINANCIAL DATA.....................................................................................20
     ITEM 7.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......................21
     ITEM 8.         FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................................32

                                   PART IV
     ITEM 15.        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................................33


</TABLE>

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                                     PART I

ITEM 1.    BUSINESS
           --------

OVERVIEW

           North Atlantic Trading Company, Inc. (the "Company") is a holding
company, which is organized under the laws of the State of Delaware. The Company
has two significant wholly owned subsidiaries: National Tobacco Company, L.P.
("NTC") and North Atlantic Operating Company, Inc. ("NAOC"). NTC is the third
largest manufacturer and marketer of loose leaf chewing tobacco in the United
States, selling its products under the brand names BEECH-NUT REGULAR, BEECH-NUT
WINTERGREEN, TROPHY, HAVANA BLOSSOM and DURANGO. NAOC is the largest importer
and distributor in the United States of premium cigarette papers and related
products, which are sold under the ZIG-ZAG brand name pursuant to an exclusive
long-term distribution and license agreement with Bollore, S.A. ("Bollore").
NAOC also contracts for the manufacture of and distributes Make-Your-Own ("MYO")
smoking tobaccos and related products under the ZIG-ZAG brand name.

EVOLUTION OF THE COMPANY

           In 1988, Thomas F. Helms, Jr., Chairman and Chief Executive Officer
of the Company, and an investor group led by Lehman Brothers, formed NTC to
acquire the smokeless tobacco division of Lorillard Tobacco Company
("Lorillard"). Lorillard had manufactured and sold the popular BEECH-NUT brand
of loose leaf chewing tobacco since 1897. Since 1988, Mr. Helms has continued to
upgrade and expand the core of the management team which directs the Company
today.

           In 1997, the Company was formed to facilitate a corporate
reorganization undertaken in connection with the acquisition (the "1997
Acquisition") of NATC Holdings USA, Inc., which owned the exclusive rights to
market and distribute ZIG-ZAG premium cigarette papers in the United States,
Canada and certain other international markets. The ZIG-ZAG brand was originally
introduced in France in 1879 by Bollore, a major French industrial concern. Upon
consummation of the 1997 Acquisition and the related reorganization, the Company
became the holding company of NTC, which operates the Company's smokeless
tobacco business, and NAOC, which operates the Company's premium cigarette paper
and MYO cigarette business.

           The Company's principal executive offices are located at 257 Park
Avenue South, 7th Floor, New York, New York 10010, and its telephone number is
(212) 253-8185.

RECENT EVENTS

           On February 18, 2003, the Company entered into an asset purchase
agreement (the "Star Cigarette Asset Purchase Agreement") with Star Scientific,
Inc. ("Star Scientific"), and Star Tobacco, Inc., a wholly-owned subsidiary of
Star Scientific ("Star Tobacco" and, together with Star Scientific, "Star").
Pursuant to the Star Cigarette Asset Purchase Agreement, the Company has agreed
to purchase substantially all of the assets of Star relating to the
manufacturing, marketing and distribution of four discount cigarette brands in
the United States (the "Star Cigarette Assets"). The purchase price for the Star
Cigarette Assets is $80 million in cash, subject to certain closing adjustments
and the assumption of certain liabilities related to the Star Cigarette Assets.

           All requisite corporate approvals for this transaction have been
obtained, including the approvals of the Star Cigarette Asset Purchase Agreement
by the respective Boards of Directors of the Company and Star, by the holders of


                                       4
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a majority of the outstanding shares of common stock of Star Scientific and by
Star Scientific as the sole stockholder of Star Tobacco.

           The transaction is expected to close in the second quarter of 2003.
The closing is subject to the Company's receipt of financing and to customary
closing conditions. Contemporaneously with the signing of the Star Cigarette
Asset Purchase Agreement, the Company placed a $2 million earnest money deposit
into escrow. In the event that, on or after July 15, 2003, the Star Cigarette
Asset Purchase Agreement is terminated by either the Company or Star and, at
that time, the Company has been unable to obtain the requisite financing for the
transaction and all other conditions to closing have been satisfied or are
capable of being satisfied, then such deposit will be paid to Star. In all other
events, the deposit will either be used to satisfy a portion of the purchase
price or repaid to the Company, as applicable.

BUSINESS STRATEGY

           The Company's business strategy is to grow, both internally and
through acquisitions, by responsibly marketing its products to adult consumers
and by complying with all applicable laws, regulations and statutes. The Company
intends to (i) capitalize on the strong brand identities of its products with a
focus on product linkages and extensions; and (ii) improve the sales, marketing
and operating efficiencies of its subsidiaries. Through the acquisition of the
Star Cigarette Assets, the Company intends to enter the discount cigarette
market and to expand that business with a strategy tailored to maximize
profitability.

INDUSTRY AND MARKETS

           The Company currently competes in two distinct markets: (1) the
smokeless tobacco market and (2) the MYO cigarette segment of the cigarette
market. The Company believes that both the smokeless tobacco market, which
includes the loose leaf chewing tobacco segment, and the MYO cigarette segment
of the cigarette market, which is composed of the premium cigarette papers
sector and the rapidly growing MYO smoking tobaccos and related products sector,
are each characterized by non-cyclical demand, relative brand loyalty,
meaningful barriers to entry, similar channels of distribution, modest capital
expenditure requirements, relatively high profit margins, generally stable
wholesale prices and the ability to generate significant and consistent free
cash flows.

Smokeless Tobacco

           Smokeless tobacco products, including chewing tobacco, have a long,
established tradition of use in the United States dating back to colonial times.
Currently, an estimated 7 million Americans are regular users of smokeless
tobacco products, according to the Smokeless Tobacco Council.

           The smokeless tobacco market is composed of the following five
product categories:

          o    Moist snuff, which is cured, aged, flavored and finely ground
               tobacco packaged in round fiber or plastic cans;

          o    Loose leaf chewing tobacco, which is typically made from
               air-cured leaf tobacco, using both domestic and imported
               tobaccos, aged, flavored and packed in foil pouches;

          o    Plug chewing tobacco, which is made from air-cured leaf tobacco,
               heavily flavored and pressed into small bricks or blocks;


                                       5
<PAGE>
          o    Twist chewing tobacco, which is made of dark, air-cured leaf
               tobacco twisted into strands that are dried and packaged like a
               dry, pliable rope; and

          o    Dry snuff, which is a powdered tobacco product that is sometimes
               flavored and is packaged in a variety of containers.

           The Company believes that many consumers of smokeless tobacco
regularly use products in more than one of these categories. Further, many of
its competitors in the smokeless tobacco market offer products in more than a
single smokeless tobacco category.

           According to information provided by the Smokeless Tobacco Council,
manufacturers' sales for the smokeless tobacco market were $1.1 billion in 1990
and $2.2 billion in 2001, representing a compounded annual growth rate of 5.9%.
This growth is primarily related to the increase in manufacturers' sales of
moist snuff which have grown from $705.7 million in 1990 to $1.8 billion in
2001, representing a compounded annual sales growth rate of 8.1%, an increase
from 42.5 million pounds in 1990 to 62.4 million pounds in 2001, representing a
compounded annual volume growth rate of 3.2%. Manufacturers' sales of chewing
tobacco products were $334.0 million in 1990 and $321.8 million in 2001,
representing a compounded annual sales rate of decline of 0.3%. During the same
period, the volume of chewing tobacco products has declined from 66.9 million
pounds to 44.7 million pounds, a compounded annual volume rate of decline of
3.3%.

           Loose leaf chewing tobacco, which is the second largest product
category in the smokeless tobacco market, has generally been most popular in the
Southeast, Southwest and rural Northeast and North Central regions of the United
States. Loose leaf chewing tobacco products are typically sold through mass
merchandisers, chain and independent convenience stores, tobacco outlets, food
stores and chain and independent drug stores. Tobacco outlets have become an
increasingly important distribution channel for all tobacco products, including
loose leaf chewing tobacco, as their volume has grown to approximately 23% of
all tobacco sales in 2002. Convenience stores have also grown their share of the
tobacco market by increasing their sales of tobacco products while, during the
same period, food stores and drug stores have been deemphasizing their focus on
sales of tobacco products and, as a result, their volume has declined. Among
these channels of distribution, some retail customers choose to purchase loose
leaf chewing tobacco directly from manufacturers, although most choose to
purchase through wholesale distributors.

MYO Cigarettes

           Although rapidly growing, the MYO cigarette segment remains a minor
component of the overall U.S. cigarette market. If viewed as a part of that
total market, sales of MYO smoking tobacco on a cigarette equivalent basis,
would represent an estimated market share of 1.4% for 2002, up from 0.6% in
1997. In 2002, according to the USDA, the U.S. cigarette market sold
approximately 415 billion cigarettes. According to industry sources, these
cigarettes were consumed by approximately 23.3% of the adult population, or
approximately 45 million persons.

           The MYO cigarette segment consists of several different products,
designed to work with each other. Among these products are cigarette papers;
cigarette tubes, which are cigarette papers with a filter fashioned into an
"empty" cigarette; cigarette smoking tobacco in loose form, packaged typically
in canisters, pouches or bags; cigarette rolling machines, used to roll
cigarette papers and smoking tobacco into a cigarette; and cigarette injector
machines, used to insert the smoking tobacco into the empty cigarette tubes.


                                       6
<PAGE>
           Cigarette papers are sold in booklets, and come in various size
papers. Cigarette papers can also be segmented by price and quality
characteristics, for example, premium interleaved papers in contrast to discount
"flat" or non-interleaved papers.

           The MYO products are typically sold through mass merchandisers, chain
and independent convenience stores, tobacco outlets, food stores and chain and
independent drug stores. Among these channels of distribution, certain retail
customers choose to purchase MYO products directly from manufacturers, although
most choose to purchase through wholesale distributors.

PRODUCTS

           Currently, the Company manufactures and markets loose leaf chewing
tobacco for the smokeless tobacco market, and imports and distributes premium
cigarette papers and related products and contract manufactures and markets MYO
smoking tobaccos and related products for the MYO cigarette market.

Loose Leaf Chewing Tobacco

           Loose leaf chewing tobacco is made from aged, air-cured tobacco,
which is processed and flavored and then packaged in foil pouches. Loose leaf
chewing tobacco products can be broadly characterized as either full-flavored or
mild. According to A.C. Nielsen, in 2002 full-flavored products accounted for
approximately 47% of the loose leaf volume and mild flavored products comprised
an estimated 53%. The Company sells its loose leaf chewing tobacco products
under the BEECH-NUT, TROPHY, HAVANA BLOSSOM and DURANGO brand names. The
BEECH-NUT brands are available in two flavors: Regular and Wintergreen.
BEECH-NUT REGULAR is a full-flavored product, which is ranked second in market
share in the full-flavored loose leaf chewing tobacco category, and third
overall. BEECH-NUT WINTERGREEN was introduced in 1979 and has the largest market
share of any flavored loose leaf brand. The Company introduced its TROPHY brand
into the mild product category in 1992. The Company's HAVANA BLOSSOM brand is a
regional brand, sold primarily in West Virginia, Pennsylvania and Ohio. Its
DURANGO brand, which was introduced in March 1998, is a nationally distributed
value brand.

Premium Cigarette Papers and MYO Smoking Tobaccos and Related Products

           The Company sells its premium cigarette papers under the ZIG-ZAG
brand. Although premium cigarette papers are sold in a variety of different
widths and styles, the Company's primary styles are its standard width ZIG-ZAG
White and ZIG-ZAG 1 1/4 sized French Orange premium cigarette papers. These
styles are the most important in terms of sales, and they accounted for
approximately 91% of the Company's unit volume in 2002. Other premium paper
products sold under the ZIG-ZAG name are Kutcorners, which are designed for
easier handrolling; 1 1/2 sized, king sized; and double-wide.

           The Company's MYO smoking tobacco products include its European
blend, ZIG-ZAG Gold Standard, and its American blend, ZIG-ZAG Classic American
Blend, tobaccos. MYO related products include ZIG-ZAG cigarette tubes, ZIG-ZAG
cigarette rolling and injector machines and a complete line of ZIG-ZAG MYO
cigarette starter kits.

SALES AND MARKETING

           The Company has a 112 person nationwide sales organization, which is
divided into a national accounts group, a field sales organization, a sales
training department and a sales administration staff. The sales organization was
expanded and re-organized in 2002, primarily to allow the Company to more


                                       7
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effectively provide sales coverage and to penetrate the distribution channel of
the large chain convenience stores.

           The Company has focused and will continue to focus its sales efforts
on both wholesale distributors and retail merchants in the independent large
chain convenience store, drug store and mass merchandising channels as well as
the food store and tobacco outlet channels. Since the 1997 Acquisition, the
Company has expanded and will continue to expand the sales of its smokeless
tobacco and MYO products into geographic markets and retail channels that had
previously been underdeveloped. The Company currently distributes its products
through approximately 1,000 customers.

           At the retail level, the Company's loose leaf chewing tobacco
products are promoted through volume and price-discount programs and the use of
innovative, high visibility point-of-purchase floor and shelf displays, banners
and posters. The Company has neither relied upon nor conducted any advertising
in the consumer media for its loose leaf chewing tobacco products.

           The majority of ZIG-ZAG premium cigarette papers promotional activity
is at the wholesale distributor level and consists of distributor promotions,
trade shows and trade advertising. The MYO smoking tobaccos and related
products' promotional activity is more focused at the retail level with spending
on point-of-sale displays and at the consumer level with price-off promotions,
primarily through the use of coupons.

           The Company's largest customers, COD Company and McLane Company,
accounted for approximately 13.1% and 8.7%, respectively, of its net sales in
2002. The loss of either of these customers could have a material adverse effect
on the results of operations, financial position and cash flows of the Company.
The Company does not believe that the loss of any other customer would have a
material effect on the results of operations, financial position or cash flows
of the Company either in the intermediate or long term.

DISTRIBUTION AGREEMENTS

           NAOC is party to two long-term distribution and licensing agreements
with Bollore with respect to sales of premium cigarette papers, cigarette tubes
and cigarette injector machines (collectively the "Products") in the United
States and Canada (the "U.S. Distribution Agreement" and the "Canada
Distribution Agreement," respectively). Under these distribution agreements,
Bollore granted NAOC the exclusive right to purchase the Products bearing the
ZIG-ZAG brand name from Bollore for resale in the United States and Canada. NAOC
has the sole right to determine the price and other terms upon which NAOC may
resell any products purchased from Bollore, including the right to determine the
distributors of such products within these countries.

           The Company also has a long-term distribution and licensing agreement
for sales of ZIG-ZAG brand premium cigarette papers in Hong Kong, Singapore,
Dubai, Oman and Jordan (the "Other Countries Distribution Agreement" and,
together with the U.S Distribution Agreement and the Canada Distribution
Agreement, the "Distribution Agreements"). Under this agreement, Bollore granted
NAOC the exclusive right to purchase premium cigarette papers bearing the
ZIG-ZAG brand name for resale in those countries. NAOC has the sole right to
determine the price and other terms upon which NAOC may resell any products
purchased from Bollore, including the right to determine the distributors of
such products within the countries noted above. The Company and Bollore are
currently in dispute as to whether the Other Countries Distribution Agreement is
renewable after March 31, 2003 based on whether or not certain minimum purchase
requirements have been satisfied. The expiration and failure to renew the Other


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Countries Distribution Agreement would not have a material adverse effect on the
results of operations, financial position or cash flows of the Company.

           The Distribution Agreements establish the purchase price for premium
cigarette papers through 2004, subject to certain adjustments to reflect
increases in the U.S. and Canadian Consumer Price Indices and to account for
material currency fluctuations. The Distribution Agreements provide that, in
order to assure each of the parties commercially reasonable profits in light of
inflationary trends and currency translation factors, prior to December 31, 2004
and each fifth-year anniversary from such date thereafter, the parties would
enter into good faith negotiations to agree on an index and currency adjustment
formula to replace the index and formula currently in effect. If the parties are
unable to agree, the dispute is to be submitted to binding arbitration.

           Pursuant to the Distribution Agreements, export duties, insurance and
shipping costs are the responsibility of Bollore and import duties and excise
taxes are the responsibility of NAOC. Bollore's terms of sale are 45 days after
the bill of lading date and its invoices are payable in Euros. The Distribution
Agreements reduce catastrophic foreign exchange risk by providing that Bollore
will bear certain exchange rate risks at levels fixed through 2004. The
catastrophic foreign exchange risk allocations set forth in the Distribution
Agreements will be renegotiated in 2004 in a similar manner as set forth above.

           According to the Distribution Agreements, NAOC must purchase the
Products from Bollore, subject to Bollore fulfilling its obligations under these
agreements. Bollore is required by the agreements to provide NAOC with the
quantities and quality of the products that it desires. The Distribution
Agreements provide NAOC with certain safeguards to help ensure that NAOC will be
able to secure a steady supply of product. Such safeguards include (i) granting
NAOC the right to seek third party suppliers with continued use of the ZIG-ZAG
trademark if Bollore is unable to perform its obligations or ceases its
cigarette paper manufacturing operation, in each case as set forth in the
Distribution Agreements, and (ii) maintaining a two month supply of emergency
inventory in the United States at Bollore's expense.

           Under the Distribution Agreements, NAOC, in agreeing to the terms of
the Distribution Agreements, has also agreed for a period of five years after
termination of such Distribution Agreements not to engage, directly or
indirectly, in the manufacturing, selling, distributing, marketing or otherwise
promoting in the countries identified above, of premium cigarette paper or
premium cigarette paper booklets of a competitor without Bollore's consent,
except for certain de minimis acquisitions of debt or equity securities of such
a competitor and certain activities with respect to an alternative supplier used
by NAOC as permitted under the Distribution Agreements.

           Each of the Distribution Agreements was entered into on November 30,
1992. Each of the U.S. Distribution Agreement and the Canada Distribution
Agreement was for an initial twenty year term commencing on the date of such
agreement and will be renewed automatically for successive twenty year terms
unless terminated in accordance with the provisions of such agreement. Each of
the Distribution Agreements permits Bollore to terminate such agreement (i) if
certain minimum purchases (which, in the case of the U.S. Distribution Agreement
and the Canada Distribution Agreement were significantly exceeded in 2002 and
which the Company believes were exceeded in the case of the Other Countries
Distribution Agreement) of premium cigarette paper booklets have not been made
by the Company for resale in the jurisdiction covered by such agreement within a
calendar year; (ii) if the Company assigns such agreement without the consent of
Bollore (other than certain permissible assignments to wholly owned subsidiaries
of the Company); (iii) upon a change of control of NAOC or any parent of NAOC
without the consent of Bollore; (iv) upon certain acquisitions of equity


                                       9
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securities of NAOC or any parent of NAOC by a competitor of NAOC or certain
investments by significant stockholders of the Company in a competitor of NAOC;
and (v) certain material breaches, including NAOC's agreement not to promote,
directly or indirectly, premium cigarette paper or premium cigarette paper
booklets of a competitor. Additionally, the Canada Distribution Agreement is
terminable by either NAOC or Bollore upon the termination of the U.S.
Distribution Agreement.

TRADEMARKS AND TRADE SECRETS

           NTC has numerous registered trademarks relating to its loose leaf
chewing tobacco products, including the trademarks for its BEECH-NUT, TROPHY,
HAVANA BLOSSOM and DURANGO products. These trademarks, which are significant to
NTC's business, expire periodically and are renewable for additional 20-year
terms upon expiration. Flavor and blend formulae trade secrets relating to NTC's
and NAOC's tobacco products, which are key assets of their businesses, are
maintained under strict secrecy. The ZIG-ZAG trade name and trademark for
premium cigarette papers and related products are owned by Bollore and have been
exclusively licensed in the U.S. and Canada to NAOC. The ZIG-ZAG trademark with
respect to tobacco products is owned by NAOC.

RAW MATERIALS, PRODUCT SUPPLY AND INVENTORY MANAGEMENT

Loose Leaf Chewing Tobacco

           NTC's loose leaf chewing tobacco is produced from air-cured leaf
tobacco. Each of the Company's brands has its own unique tobacco blend. NTC
utilizes tobaccos grown domestically in Pennsylvania and Wisconsin as well as
those imported from other countries, such as Argentina, Brazil, Columbia,
Germany, Indonesia, Italy, Mexico, and the Philippines. Management does not
believe that it is dependent on any single country source for tobacco. Pursuant
to an agreement with Lancaster Leaf Tobacco Company of Pennsylvania, a wholly
owned subsidiary of Universal Corporation ("Lancaster"), and under instructions
from NTC, Lancaster (i) purchases and processes tobacco on an exclusive basis,
(ii) stores tobacco inventory purchased on behalf of NTC and (iii) generally
maintains a 12- to 24-month supply of NTC's various tobacco types at its
facilities. NTC generally maintains a one- to two-month operating supply of
tobacco at its manufacturing facilities in Louisville, Kentucky.

           In addition to raw tobacco, NTC's loose leaf chewing tobacco products
include food grade flavorings, all of which have been approved by the Food and
Drug Administration and other federal agencies. NTC is not dependent upon any
single supplier for those raw materials or for the supply of its products'
packaging materials.

           NTC generally maintains a one- to two-month supply of finished loose
leaf chewing tobacco. This supply is maintained at its Louisville facility and
in four regional bonded public warehouses to facilitate distribution.

Premium Cigarette Paper and MYO Smoking Tobaccos and Related Products

           Pursuant to NAOC's Distribution Agreements with Bollore, NAOC must
purchase its premium cigarette papers, cigarette tubes and cigarette injecting
machines from Bollore, subject to Bollore fulfilling its obligations under these
agreements. If Bollore is unable or unwilling to perform its obligations or
ceases its cigarette paper manufacturing operation, in each case as set forth in
the Distribution Agreements, NAOC may seek third-party suppliers and continue
the use of the ZIG-ZAG trademark. To ensure NAOC has a steady supply of premium


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cigarette paper products and each style of cigarette tubes and injectors,
Bollore is required to maintain, at its expense, a two-month supply of inventory
in a public warehouse in the United States. See "--Distribution Agreements."

           To facilitate general distribution, in addition to the inventory
maintained by Bollore, NAOC also maintains a supply of its products at NTC's
Louisville facility and in four regional bonded public warehouses.

           NAOC obtains its MYO smoking tobaccos primarily from international
sources and is not dependent on any one type of tobacco for its blends. NAOC
purchases this smoking tobacco principally through a single purchasing agent.
The MYO related products are purchased in finished form from various suppliers
at Bollore's direction.

           Bollore has from time to time been unable to produce and supply the
Company with sufficient quantities of cigarette tubes and injectors due, in
part, to the rapid growth in NAOC's sales of those products. In addition,
Bollore is currently unable to maintain the required two-month supply of
inventory of cigarette tubes and injectors in the United States. As a result,
NAOC currently has a two-month backlog of orders for certain styles of tubes. As
part of recent contract negotiations with Bollore for the cigarette tubes and
injectors, NAOC has given Bollore additional time to build the required
two-month supply of inventory in the United States. Bollore currently
anticipates that it will resolve the supply problem by the third quarter of
2003. Bollore has not experienced any problems supplying the Company with
sufficient quantities of its premium cigarette paper products and is currently
maintaining the required two-month supply of such products in the United States.
Management currently believes that the Company's other sources for its supplies
are adequate for its projected needs.

MANUFACTURING

           NTC manufactures its loose leaf chewing tobacco products at its
manufacturing facility in Louisville, Kentucky, and NAOC contracts for the
manufacture of its premium cigarette papers, cigarette tubes, rolling and
injector machines and MYO smoking tobaccos. In the case of its MYO smoking
tobacco products, NAOC packages these products at its manufacturing facility in
Louisville. The Company believes that its production capabilities, quality
control procedures, research and development activities and overall facilities
and equipment are adequate for its projected operations as these activities are
vital to maintaining the high-quality brand image and operating efficiency of
its operations.

Production and Quality Control

           The Company uses proprietary production processes and techniques,
including strict quality controls. During the course of each day, NTC's quality
control group periodically tests the quality of the tobacco; flavorings;
application of flavorings; premium cigarette papers, tubes and injectors; and
packaging materials. The Company utilizes sophisticated quality control and
pilot plant production equipment to test and closely monitor the quality of its
products. The quality of the Company's products is largely the result of using
high grade tobacco leaf, food-grade flavorings and an ongoing analysis of
tobacco cut, flavorings and moisture content.

           Given the importance of contract manufacturing to the Company, the
Company's quality control group ensures that established standards are strictly
adhered to by each of its contract manufacturers.


                                       11
<PAGE>
Research and Development

           The Company has a Research and Development Department that
reformulates existing loose leaf and MYO tobaccos products in an effort to
maintain a high level of product consistency and to facilitate the use of less
costly raw materials without sacrificing product quality. The Company believes
that for all of its tobacco products, including MYO, it has been and will
continue to be able to develop cost effective blends of tobacco and flavorings
that will maintain or reduce overall costs without compromising high product
quality. The Research and Development Department is also responsible for new
product development.

           The Company spent approximately $464,000, $487,000 and $539,000 on
its research and development and quality control efforts for the years 2000,
2001 and 2002, respectively.

Facilities

           NTC's Louisville facility was formerly owned and used by Lorillard
for the manufacture of cigarettes, little cigars and chewing tobacco. This
approximately 600,000 square foot facility occupies a 26 acre urban site near
downtown Louisville. The facility's structures occupy approximately one-half of
the total acreage. The facilities are in good condition and have received
regular maintenance and capital improvements. The facility provides ample space
to accommodate an expansion of the Company.

COMPETITION

           NTC is the third largest manufacturer and marketer of loose leaf
chewing tobacco. The other three principal competitors in the loose leaf chewing
tobacco segment, which, together with NTC, generate approximately 95% of this
segment's sales, are Swedish Match, Conwood Corporation and Swisher
International Group Inc. Management believes that moist snuff products are used
interchangeably with loose leaf products by many consumers and, as a result, US
Smokeless Tobacco Company, the largest manufacturer of moist snuff (and of all
smokeless tobacco products when taken as a whole) is also a significant
competitor. As indicated above under "Industry and Markets," sales of moist
snuff have grown over the past decade while sales of loose leaf have declined
during that same period. In addition, NTC's three principal competitors in the
loose leaf segment also manufacture and market moist snuff.

           NAOC is the largest importer and distributor in North America of
premium cigarette papers. NAOC's two major competitors for premium cigarette
paper sales, which, together with NAOC, generate approximately 93% of such
sales, are Republic Tobacco Company and Robert Burton Associates, a wholly-owned
subsidiary of Imperial Tobacco Group plc. Although there is no source for
comprehensive industry data, the Company believes that it has approximately a
50% share of the total market for U.S. sales of premium cigarette paper and that
Republic Tobacco's share is approximately 25% and Robert Burton Associates'
share is approximately 18%.

           The Company's principal competitors in the MYO segment are Republic
Tobacco Co., in conjunction with its TOP Tobacco, L.P. subsidiary, and Lane Ltd,
an affiliate of Brown & Williamson Tobacco Company, the third largest cigarette
company in the United States. Many other companies also compete in this segment,
including Peter Stokebye International and RBJ Sales, Inc.

           Many of the Company's competitors are better capitalized than the
Company and have greater financial and other resources than those available to
the Company. The Company believes that its ability to effectively compete and
its strong market positions in its principal product lines are due to its high


                                       12
<PAGE>
brand recognition and the recognized quality of each of its products, its
manufacturing and operating efficiencies, and its sales, marketing and
distribution efforts.

EMPLOYEES

           As of March 21, 2003, the Company employed a total of 253 full-time
employees. With the exception of 90 manufacturing employees, none of the
Company's other employees are represented by unions. The manufacturing
employees, who are represented by three unions, are covered by three collective
bargaining agreements. One of these agreements, covering 85 employees will
expire in December 2004. The other two agreements, covering five employees, were
extended during 2002 and will expire in 2005.

REGULATION

           The tobacco industry, in particular cigarette manufacturers, has been
under public scrutiny for over forty years. Industry critics include special
interest groups, the U.S. Surgeon General and many legislators at the state and
federal levels. Although smokeless tobacco companies have recently come under
some scrutiny, the principal focus has been directed at the manufactured
cigarette market due to its large size relative to the smokeless tobacco market
and the MYO segment of the cigarette market.

           Producers of tobacco products are subject to regulation in the United
States at federal, state and local levels. Together with changing public
attitudes towards tobacco consumption, the constant expansion of regulations,
including increases in various taxes, requirements that tobacco products be
displayed "behind-the-counter" and smoking restrictions, has been a major cause
of the overall decline in the consumption of tobacco products since the early
1970's. Moreover, the future trend is toward increasing regulation of the
tobacco industry.

           In recent years, a variety of bills relating to tobacco issues have
been introduced in the U.S. Congress, including bills that would (i) prohibit
the advertising and promotion of all tobacco products and/or restrict or
eliminate the deductibility of such advertising expenses; (ii) increase labeling
requirements on tobacco products to include, among other things, additional
warnings and lists of additives and toxins; (iii) modify federal preemption of
state laws to allow state courts to hold tobacco manufacturers liable under
common law or state statutes; (iv) shift regulatory control of tobacco products
and advertisements from the Federal Trade Commission to the Food and Drug
Administration; (v) increase tobacco excise taxes; and (vi) require 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, none of such proposals have been enacted by
Congress. Future enactment of such proposals or similar bills, depending upon
their content, could have a material adverse effect on the results of operations
or financial condition of the Company.

           In 1996, Massachusetts enacted a statute which requires all tobacco
companies to disclose information regarding the ingredients and nicotine content
of their products sold in Massachusetts, which information would, subject to
certain conditions, be made publicly available. The ingredients of NTC's
products are considered by the Company to be proprietary and such disclosure
could result in the manufacture and sale of imitation products, which could have
a material adverse effect on its tobacco business. In December 1997, the U.S.
District Court for the District of Massachusetts entered a preliminary
injunction on behalf of five smokeless tobacco companies (including NTC) against
the Attorney General of Massachusetts and the Commissioner of Public Health,
barring the officials from taking any steps to enforce the ingredient-reporting
requirements of the Massachusetts statute pending a trial on the merits. In
September 2000, the District Court enjoined enforcement of provisions of the law


                                       13
<PAGE>
relating to ingredient reporting and issued a judgment in favor of the tobacco
companies. The United States Court of Appeals for the First Circuit upheld the
District Court's judgment on December 2, 2002.

           While there are no current regulations that materially and adversely
affect the sale of premium cigarette papers, there can be no assurance that
federal, state or local regulations will not be enacted which will seek to
regulate premium cigarette papers. In the event such regulations are enacted,
depending upon their parameters, they could have a material adverse effect on
the results of operations, financial position and cash flows of NAOC and the
Company.

STATE ATTORNEY GENERAL SETTLEMENT AGREEMENTS

           Forty-six states, certain U.S. territories and the District of
Columbia are parties to the Master Settlement Agreement ("MSA") and the
Smokeless Tobacco Master Settlement Agreement ("STMSA"). To the Company's
knowledge, the other signatories to the MSA are 34 cigarette manufacturers
and/or distributors and the only other signatory to the STMSA is US Smokeless
Tobacco Company. In the Company's opinion, the fundamental basis for each
agreement is the states' consents to withdraw all claims for monetary, equitable
and injunctive relief against certain tobacco products manufacturers and others
and, in return, the signatories have agreed to certain marketing restrictions
and regulations as well as certain payment obligations.

           Pursuant to the MSA and subsequent states' statutes, a "cigarette
manufacturer" (which is defined to also include MYO cigarette tobacco) has the
option of either becoming a signatory to the MSA or opening, funding and
maintaining an escrow account, with subaccounts on behalf of each settling
state. The MSA escrow accounts are governed by states' statutes that expressly
give the manufacturers the option of opening, funding and maintaining an escrow
account in lieu of becoming a signatory to the MSA. The statutes require
companies, who are not signatories to the MSA, to deposit into qualified banks,
on an annual basis, escrow funds based on the number of cigarettes or cigarette
equivalents, i.e., the pounds of MYO smoking tobacco, sold. The purpose of these
statutes is expressly stated to be to eliminate the cost disadvantage the
settling manufacturers have as a result of entering into the MSA. Any company
that establishes an escrow account is entitled to direct the investment of the
escrowed funds and withdraw any appreciation, but cannot withdraw the principal
for twenty-five years from the year of each annual deposit, except to withdraw
funds deposited pursuant to an individual state's escrow statute to pay a final
judgment to that state's plaintiffs in the event of such a final judgment
against that company. Either option - becoming a MSA signatory or establishing
an escrow account - is permissible under the MSA. The STMSA has no similar
provisions under the MSA.

           NAOC has chosen to open and fund an MSA escrow account as its means
of compliance. As of December 31, 2002, NAOC has funded a total of approximately
$1.1 million into its account. It is management's opinion, due to the
possibility of future federal or state regulations, though none have to date
been enacted, that entering into one or both of the settlement agreements or
establishing and maintaining an escrow account, as NAOC has chosen to do, would
not necessarily prevent future regulations from having a material adverse effect
on the results of operations, financial position and cash flows of the Company.

           Various states have enacted or proposed complementary legislation
intended to curb the activity of certain manufacturers and importers of
cigarettes that are selling into MSA states without signing the MSA or that have
failed to properly establish and fund a qualifying escrow account. To date, no
such statute has been enacted which could inadvertently and negatively impact
the Company, which has been and is currently fully compliant with all applicable


                                       14
<PAGE>
laws, regulations and statutes, but there can be no assurance that the enactment
of any such complementary legislation in the future will not have a material
adverse effect on the results of operations, financial position or cash flows of
the Company.

EXCISE TAXES

           Tobacco products and premium cigarette papers 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. Since 1986, smokeless tobacco (including dry
and moist snuff and chewing tobacco) has been subject to federal excise tax.
Smokeless tobacco is taxed by weight (in pounds or fractional parts thereof)
manufactured or imported. Effective January 1, 2002, the federal excise tax on
loose leaf chewing tobacco was increased to $0.195 per pound from $0.17 per
pound. Effective January 1, 2002, the federal excise tax on premium cigarette
paper was increased to $0.0122 from $0.0106 per fifty papers, the federal excise
tax on cigarette tubes was increased to $0.0244 from $0.0213 per fifty tubes,
and the federal excise tax on MYO tobacco was increased to $1.0969 from $0.9567
per pound. Although these more recent increases in the rate of federal excise
taxes are not expected to have an adverse effect on the Company's business,
future enactment of increases in federal excise taxes on the Company's products
could have a material adverse effect on the results of operations or financial
condition of the Company. The Company is unable to predict the likelihood of
passage of future increases in federal excise taxes.

           Tobacco products and premium cigarette papers are also subject to
certain state and local taxes. The imposition of state and local taxes in a
jurisdiction could have a detrimental impact on sales in that jurisdiction. Any
enactment of new state or local excise taxes or an increase in existing excise
taxes on the Company's products is likely to have an adverse effect on sales.

ENVIRONMENTAL REGULATIONS

           The Company believes that it is currently in substantial compliance
with all material environmental regulations and pollution control laws.

OTHER

           Additional information in response to Item 1 can be found in Note 21
(Segment Information) to the Consolidated Financial Statements.

ITEM 3.    LEGAL PROCEEDINGS
           -----------------

LITIGATION WITH REPUBLIC TOBACCO

           Kentucky and Illinois Complaints. On July 15, 1998, NAOC and NTC
filed a complaint (the "Kentucky Complaint") against Republic Tobacco, Inc. and
its affiliates ("Republic Tobacco") in Federal District Court for the Western
District of Kentucky. Republic Tobacco imports and sells Roll-Your-Own ("RYO")
premium cigarette papers under the brand names JOB and TOP as well as other
brand names. The Kentucky Complaint alleges, inter alia, that Republic Tobacco's
use of exclusivity agreements, rebates, incentive programs, buy-backs and other
activities related to the sale of premium cigarette papers in the southeastern
United States violate federal and state antitrust and unfair competition laws
and that Republic Tobacco defaced and directed others to deface NAOC's point of
purchase vendor displays for premium cigarette papers by covering up the ZIG-ZAG
brand name and advertising material with advertisements for Republic Tobacco's
RYO cigarette paper brands. The Kentucky Complaint alleges that these activities
constitute unfair competition under federal and state laws.


                                       15
<PAGE>
           On June 30, 1998, Republic Tobacco filed a complaint against the
Company, NAOC and NTC in the U.S. District Court of the Northern District of
Illinois (the "Illinois Complaint") and served it on the Company after the
institution of the Kentucky action. In the Illinois Complaint, Republic Tobacco
seeks declaratory relief with respect to the Company's claims. In addition, the
Illinois Complaint alleges that certain actions taken by the Company to inform
its customers of its claims against Republic Tobacco constitute tortuous
interference with customer relationships, false advertising, violations of
Uniform Deceptive Trade Practices and Consumer Fraud Acts, defamation and unfair
competition. In addition, although not included in its original complaint but in
its amended complaint, Republic Tobacco alleged that the Company has unlawfully
monopolized and attempted to monopolize the market on a national and regional
basis for premium cigarette papers. Republic is seeking unspecified compensatory
damages, injunctive relief and attorneys fees and costs.

           On October 20, 2000, Republic Tobacco filed a motion to dismiss,
stay, or transfer the Kentucky Complaint to the Illinois Court. On December 19,
2000, the Court denied Republic Tobacco's motion, holding that it was premature.
The Court noted also that it had communicated with the Court in Illinois and
that it had concluded that Republic Tobacco may not be entitled to any
preference on forum selection, which would ordinarily be given because it was
first to file.

           Prior to the completion of discovery, the Court dismissed Republic
Tobacco's antitrust claims against the Company. After discovery was completed in
2001, both parties moved for summary judgment on the others claims. In April
2002, the District Court for the Northern District of Illinois decided the
summary judgment motions by dismissing all claims of both the Company and
Republic Tobacco and its affiliates, except for Republic Tobacco's claim of
defamation per se against the Company, on which it granted summary judgment on
liability in favor of Republic Tobacco, and a Lanham Act false advertising
claim, based on the same facts as the defamation claim, for equitable relief.

           The Company believes it has viable defenses to the Republic claims,
however, no assurances can be given that it will prevail. If the Company were
not to prevail, management does not believe that any adverse judgment would be
material to the Company's results of operations, financial position or cash
flows.

LITIGATION RELATED TO ALLEGED PERSONAL INJURY

           West Virginia Complaints. Trial of the West Virginia complaints has
been postponed indefinitely, as described below. On October 6, 1998 NTC was
served with a summons and complaint on behalf of 65 individual plaintiffs in an
action in the Circuit Court of Kanawha County, West Virginia, entitled Kelly
Allen, et al. v. Philip Morris Incorporated, et al. (Civil Action Nos.
98-C-2401). On November 13, 1998, NTC was served with a second summons and
complaint on behalf of 18 plaintiffs in an action in the Circuit Court of
Kanawha County, West Virginia, entitled Billie J. Akers, et al. v. Philip Morris
Incorporated et al. (Civil Action Nos. 98-C-2696 to 98-C-2713). The complaints
are identical in most material respects. In the Allen case, the plaintiffs have
specified the defendant companies for each of the 65 cases. NTC is named in only
one action. One Akers plaintiff alleged use of an NTC product, alleging lung
cancer.

           On September 14, 2000, NTC was served with a summons and complaint on
behalf of 539 separate plaintiffs filed in Circuit Court of Ohio County, West
Virginia, entitled Linda Adams, et al. v. Philip Morris Inc., et al. (Civil
Action Nos. 00-C-373 to 00-C-911). Only one of these plaintiffs alleged use of a
product currently manufactured by NTC. The time period during which this
plaintiff allegedly used the product has not yet been specified. Thus, it is not
yet known whether NTC is a proper defendant in this case.


                                       16
<PAGE>
           On September 19, 2000, NTC was served with a second summons and
complaint on behalf of 561 separate plaintiffs filed in Circuit Court of Ohio
County, West Virginia, entitled Ronald Accord, et al. v. Philip Morris Inc., et
al. (Civil Action Nos. 00-C-923 to 00-C-1483). A total of five of these
plaintiffs allege use of a product currently manufactured by NTC. One of these
plaintiffs does not specify the time period during which the product was
allegedly used, and one alleges use that covers, in part, a period when NTC did
not manufacture the product. Of the remaining three, one alleges consumption of
a competitor's chewing tobacco from 1966 to 2000 and NTC's BEECH-NUT chewing
tobacco from 1998 to 2000; another alleges a twenty-four year smoking history
ending in 1995 and consumption of BEECH-NUT chewing tobacco from 1990 to 1995;
and the last alleges a thirty-five year smoking history ending in 2000, and
consumption of NTC's DURANGO ICE chewing tobacco from 1990 to 2000 (although
DURANGO ICE did not come onto the market until 1999).

           In November 2001, NTC was served with an additional four separate
summons and complaints in actions filed in the Circuit Court of Ohio County,
West Virginia. The actions are entitled Donald Nice v. Philip Morris
Incorporated, et al., (Civil Action No. 01-C-479), Korene S. Lantz v. Philip
Morris Incorporated, et al., (Civil Action No. 01-C-480), Ralph A. Prochaska, et
al. v. Philip Morris, Inc., et al., (Civil Action No. 01-C-481), and Franklin
Scott, et al. v. Philip Morris, Inc., et al., (Civil Action No. 01-C-482).

           All of the West Virginia smokeless tobacco actions have been
consolidated before the West Virginia Mass Litigation Panel for discovery and
trial of certain issues. Trial of these matters was planned in two phases. In
the initial phase, a trial was to be held to determine whether tobacco products,
including all forms of smokeless tobacco, cigarettes, cigars and pipe and
roll-your-own tobacco, can cause certain specified diseases or conditions. In
the second phase, individual plaintiffs would attempt to prove that they were in
fact injured by tobacco products. Fact and expert discovery in these cases has
closed, however, in the cigarette cases the Court has allowed additional
discovery.

           The claims against the Company in the various consolidated West
Virginia actions include negligence, strict liability, fraud in differing forms,
conspiracy, breach of warranty and violations of the West Virginia consumer
protection and antitrust acts. The complaints in the West Virginia cases request
unspecified compensatory and punitive damages.

           The trial of the smokeless tobacco cases has been postponed
indefinitely. The manufacturers of smokeless tobacco products (as well as the
manufacturers of cigarettes) moved to sever the claims against the smokeless
tobacco manufacturer defendants from the claims against the cigarette
manufacturer defendants. That motion was granted, thus, the trial date on the
smokeless tobacco claims has now been postponed indefinitely.

           Minnesota Complaint. On September 24, 1999, NTC was served with a
complaint in a case entitled Tuttle v. Lorillard Tobacco Company, et al. (Case
No. C2-99-7105), brought in Minnesota. The other manufacturing defendants are
Lorillard and The Pinkerton Tobacco Company. The Complaint alleges that
plaintiff's decedent was injured as a result of using NTC's (and, prior to the
formation of NTC, Lorillard's) BEECH-NUT brand and Pinkerton's RED MAN brand of
loose-leaf chewing tobacco. Plaintiff asserts theories of liability, breach of
warranty, fraud, and variations on fraud and misrepresentation. Plaintiff
specifically requests in its complaint an amount of damages in excess of fifty
thousand dollars ($50,000) along with costs, disbursements and attorneys' fees,
and ". . . an order prohibiting defendants from disseminating in Minnesota
further misleading advertising and making further untrue, deceptive
and/misleading statements about the health effects and/or addictive nature of
smokeless tobacco products. . . ." After discovery, summary judgment motions


                                       17
<PAGE>
were filed on behalf of all defendants. On March 3, 2003, the Court granted
defendants' motions, dismissing all claims against all defendants. The
plaintiffs have moved the Court to reconsider its decision.

           Although the Company believes that it has good defenses to the above
actions in West Virginia and Minnesota and it intends to vigorously defend each
such action, no assurances can be given that it will prevail. If any of the
plaintiffs were to prevail, the results could have a material adverse effect on
the results of operations, financial position and cash flows of the Company.

LITIGATION TO STEM COUNTERFEITING

           Texas Infringing Products Litigation. In Bollore, S.A. v. Import
Warehouse, Inc., Civ. No. 3-99-CV-1196-R (N.D. Texas), Bollore, the Company's
Licensor of ZIG-ZAG brand premium cigarette papers, obtained a sealed order
allowing it to conduct a seizure of infringing and counterfeit ZIG-ZAG products
in the United States. On June 7, 1999, seizures of products occurred in Michigan
and Texas. Subsequently, all named defendants have been enjoined from buying and
selling such infringing or counterfeit goods. Bollore and the Company have
negotiated settlements with one group of defendants, including Import Warehouse
Inc. and its owner/operator Ravi Bhatia. Those settlements included a consent
injunction against distribution of infringing or counterfeit goods. Management
believes that successful prosecution of this litigation, either by settlement or
otherwise, will have a favorable impact on its future premium cigarette paper
business.

           On May 18, 2001, the Company, in conjunction with Bollore, conducted
raids on the businesses and homes of certain defendants previously enjoined from
selling infringing or counterfeit ZIG-ZAG brand products in the Bollore S.A. v.
Import Warehouse litigation. Evidence was uncovered that showed that these
defendants and certain other individuals were key participants in importing and
distributing counterfeit ZIG-ZAG premium cigarette papers. After a two day
hearing in the U.S. District Court for the Northern District of Texas, on May
30, 2001, the Court held the previously enjoined defendants in contempt of
court.

           The Company entered into a settlement with the defendants, the
principal terms of which included a cash payment, an agreed permanent
injunction, the withdrawal of the defendants' appeal of the civil contempt
order, an agreed judgment of $11 million from the civil contempt order and an
agreement to forbear from enforcing that $11 million money judgment until such
time in the future that the defendants violate the terms of the permanent
injunction. Two of the defendants also agreed to provide complete information
concerning the counterfeiting conspiracy as well as information on other parties
engaged in the purchase and distribution of infringing ZIG-ZAG premium cigarette
papers.

           Pursuant to the U.S. Distribution Agreement and a related agreement
between Bollore and the Company, any collections on the judgments issued in the
Bollore v. Import Warehouse case are to be divided evenly between Bollore and
the Company after the payment of all expenses.

           On February 7, 2002, Bollore, NAOC and the Company filed a motion
with the District Court in the Texas action seeking to hold Ravi Bhatia and
Import Warehouse Inc. in contempt of court for violating the terms of the
consent order and injunction entered against those defendants. The Company
alleges that Mr. Bhatia and Import Warehouse sold counterfeit goods to at least
three different companies over an extended period of time. A hearing was held on
April 10, 2002. After evidence related to this matter was discovered by
plaintiffs and upon plaintiffs' application, another hearing was held on August
1, 2002. The Court allowed the defendants three weeks to supplement the record
with additional evidence. Final arguments were held on January 22, 2003 and a
decision is pending.


                                       18
<PAGE>
           California Infringing Products Litigation. On March 23, 2001, the
Company participated as co-plaintiff with NAOC and Bollore in an action entitled
Bollore, S.A. v. A&A Smart Shopping (Case No. CV 01-02766 FMC (MANx)), filed in
the U.S. District Court for the Central District of California. The plaintiffs
alleged that nine distributors in California were selling counterfeit ZIG-ZAG
brand premium cigarette papers.

           On May 22, 2001, the Company participated as co-plaintiff with NAOC
and Bollore in an action entitled Bollore, S.A. v. Buy-Rite Wholesale (Case No.
CV 01-4570 FMC (MAN)), filed in the U.S. District Court for the Central District
of California. The plaintiffs alleged that seven distributors and retailers in
California were selling counterfeit ZIG-ZAG brand premium cigarette papers.

           On June 5, 2002, the Court granted the plaintiffs application to
consolidate the A&A Smart Shopping and Buy Rite Wholesalecases for trial
purposes. In an effort to better manage this case for trial, the plaintiffs
settled against certain defendants, obtained judgments for damage against most
the defendants and obtained permanent injunctions against all of the settling
defendants.

           A trial of the plaintiffs' claims against the remaining defendants,
in the A&A Smart Shopping case, Downey Wholesale and Fadel El-Shahawi, Downey's
principal, began October 1, 2002. On October 15, 2002, after a two week jury
trial, the jury found for the plaintiffs on all counts. The plaintiffs were
awarded a total of $2,000,000 in damages, and the jury found that defendant
Downey and the defendant Fadel El-Shahawi acted willfully and with fraud,
oppression or malice. As a result, plaintiffs were entitled to and did request
the Court to award them their reasonable attorney fees and expenses. That
application is pending. The verdict also allowed the Court, in its discretion,
to apply a multiple of up to three times the verdict amount in order to
adequately compensate plaintiffs and also, to award punitive damages. The
parties settled the punitive damages and multiplier portions of the case for
$500,000, of which half was paid on November 15, 2002 and the remainder will be
paid in equal monthly installments over the next two year period, commencing on
December 1, 2002. All recoveries from this litigation will be shared equally by
NAOC and Bollore. Defendants filed a new trial motion which the Court has
denied. However, the Court reduced the plaintiff's damages award to
approximately $1.7 million. On March 13, 2003, the Court denied the defendants'
motions.

           On June 6, 2002, the plaintiffs moved for contempt sanctions against
JT Saniya Inc., asserting that JT Saniya had violated the terms of the
preliminary injunction issued against it by selling 38 cases of counterfeit
product. JT Saniya failed to dispute the allegations and a default judgment of
$420,369.09 was entered against JT Saniya on July 23, 2002. The plaintiffs have
entered into a settlement agreement with JT Saniya in respect of the default
judgment pursuant to which JT Saniya has paid $82,500 in full satisfaction of
the judgment.

           In addition to the above described legal proceedings, the Company is
subject to other litigation in the ordinary course of its business. The Company
does not believe that any of these other proceedings will have a material
adverse effect on the results of operations, financial position or cash flows of
the Company. For a description of regulatory matters and related industry
litigation to which the Company is a party, see Part I, Item 1.
"Business--Regulation."


                                       19
<PAGE>
                                    PART II


ITEM 6.    SELECTED FINANCIAL DATA
           -----------------------

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                     --------------------------------------------------------------------------
                                                        2002            2001            2000            1999           1998
                                                       --------      ---------        ----------      ---------      --------
<S>                                                  <C>           <C>               <C>             <C>            <C>
                                                                 (amounts in thousands, except per share amounts)
STATEMENT OF OPERATIONS DATA:
  Net Sales(1)............................              $94,425       $89,622           $90,365        $92,162       $91,938
  Net income (loss) (2).................                  5,485        (1,364)           (3,200)         1,595         1,007
  Net income (loss) applicable to common
      shares(2)......................................     3,904        (8,109)           (9,205)        (3,766)       (3,744)
  Basic earnings per common share:
      Income (loss).....................                  $7.39       $(15.35)          $(16.96)        $(7.13)       $(7.09)
      Cumulative effect of change in accounting
         principle..................................        --             --             (0.47)            --            --
                                                            --             --             ------            --            --
                                                       --------      ---------        ----------      ---------      --------

    Net income (loss) applicable to common shares        $ 7.39      $ (15.35)         $ (17.43)       $ (7.13)       $(7.09)
                                                       ========      =========         =========       ========      ========


  Diluted earnings per common share:
      Income (loss).....................                 $ 5.87       $(15.35)          $(16.96)        $(7.13)       $(7.09)
      Cumulative effect of change in accounting
         principle......................................    --             --             (0.47)            --            --
                                                            --             --             ------            --            --

    Net income (loss) applicable to common
      shares......................................        $5.87       ($15.35)          ($17.43)       ($ 7.13)       ($7.09)
                                                       ========      =========         =========       ========      ========

BALANCE SHEET DATA (AT END OF PERIOD):
  Total assets..........................               $213,594      $216,663          $227,757       $243,603      $260,307
                                                       ========      =========         ========       ========      ========
  Total debt, including current
     maturities.........................                160,500       167,500           180,000       195,864        215,586
                                                       ========      =========         ========       ========      ========
  Mandatorily redeemable preferred
    stock...............................                 57,805        57,443            50,698         44,693        39,332
                                                       ========      =========         ========       ========      ========

</TABLE>


(1)  During 2002, the Company adopted EITF No. 00-14, "Accounting for Certain
     Sales Incentives" and EITF 00-25, "Vendor Income Statement Characterization
     of Consideration Paid to a Reseller of the Vendor's Products". As a result
     of this adoption, certain expenses have been reclassified from selling,
     general and administrative to net sales for the years ended 2001, 2000,
     1999 and 1998. Net sales for 2001, 2000, 1999 and 1998 have been reduced by
     $4,126, $2,780, $2,299 and $1,143, respectively, from previously reported
     amounts. The adoption of EITF 00-14 and EITF 00-25 had no impact on the
     Company's net income for any of these periods.

(2)  Net income (loss) and net income (loss) attributable to common shares for
     the year ended December 31, 2000 includes a cumulative effect of change in
     accounting principle of $251 (net of income tax benefit of $153) as a
     result of the adoption of Staff Accounting Bulletin No. 101, "Revenue
     Recognition in Financial Statements". Pursuant to the adoption of Statement
     of Financial Accounting Standards No. 145, "Rescission of FASB Statements
     No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
     Corrections," the Company reclassified the write-off of $1.4 million of
     deferred financing costs incurred upon refinancing the Company's term loan
     on December 29, 2000 to other expense from extraordinary loss.


                                       20
<PAGE>
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           ---------------------------------------------------------------
           RESULTS OF OPERATIONS
           ---------------------

GENERAL

           The Company is the third largest manufacturer and marketer of loose
leaf chewing tobacco in the United States and the largest importer and
distributor in the United States of premium cigarette papers and related
products. The Company also contracts for the manufacture of and distributes
Make-Your-Own ("MYO") smoking tobaccos and related products. The Company has two
significant wholly owned subsidiaries through which it operates: NTC, which
operates the Company's smokeless tobacco business and NAOC, which operates the
Company's premium cigarette paper and MYO cigarette business.

           The Company generates revenues from the sale of its products
primarily to wholesale distributors who in turn resell them to retail
operations. The Company's net sales, which include federal exercise taxes,
consists of gross sales, net of cash discounts, returns, and selling and
marketing allowances.

           The Company's principal operating expenses include cost of sales,
which includes the cost of raw materials used to manufacture its products; the
cost of finished products, which are purchased goods; direct labor; federal
excise taxes; manufacturing overhead; and selling, general and administrative
expenses, which includes sales and marketing related expenses, legal expenses
and compensation expenses, including benefits costs of salaried personnel. In
2002, the Company ceased the amortization of goodwill in accordance with FASB
Statement 142, Goodwill and Other Intangible Assets ("Statement 142") and
consequently, beginning in 2002, amortization of goodwill no longer constitutes
one of the Company's principal operating expenses. The Company's other principal
expenses include interest expense and deferred financing costs and other
expenses, the last of which has arisen during the last several years and has
during the last two years primarily represented the legal, investigative and
related costs associated with the Texas and California Infringing Products
Litigations instituted by the Company against alleged counterfeiters of ZIG-ZAG
premium cigarette papers.

           The following factors have affected the Company's results over the
past three years.

          o    The existence of counterfeit cigarette papers bearing the ZIG-ZAG
               trademark. From 1999-2002, management believes the Company lost
               in excess of $10 million of net sales and incurred approximately
               $7 million in expenses relating to the litigation and
               investigation of counterfeiting claims and to brand promotions
               intended to offset damage done to the legitimate distribution
               channels. Management believes that the inflow and sale of
               counterfeit products has been substantially reduced as a result
               of the actions taken by the Company during this period.

          o    The impact of increased manufactured cigarette prices. Management
               believes such price increases have resulted in higher MYO
               cigarette sales. In 2002, a number of states increased their
               excise taxes on cigarettes. Management expects this trend to
               continue in 2003 and beyond as more states seek additional
               sources of revenue to combat significant budget deficits.

          o    The continuing downward trend of loose leaf chewing tobacco. This
               is a result of an aging consumer base coupled with an increasing
               trend of consumers switching to moist snuff due to changing
               demographics. Management believes that the switch to moist snuff
               has been caused, in part, by the recent availability of discount


                                       21
<PAGE>
               moist snuff products being priced at the same levels or lower
               than loose leaf products. However, management believes that the
               current rate of switching has slowed significantly as those
               consumers who found the moist snuff product more attractive have
               already switched, leaving a loyal base of higher use consumers in
               the loose leaf category. Historically, increased prices for loose
               leaf products have largely offset this downward trend in
               consumption. Management expects this pricing trend to continue
               and, as a result, the Company expects that this segment's
               contribution to the Company's earnings will remain relatively
               constant and stable for the foreseeable future.

           The Company changed its incentive distribution program for ZIG-ZAG
premium cigarette papers, effective January 1, 2003, from a triannual promotion
to an everyday low price. This change is expected to cause buying patterns to
shift from peaks during the three promotional periods to a more even pattern
throughout the entire year, which ultimately will have a positive impact premium
cigarette paper margins due to less promotional spending. However, the Company
expects that it will take its distribution channels time to adjust to the new
program. This may result in slower sales activity for the first six to nine
months of 2003. Management believes given, the maturity of this market, the
balancing of supply and demand, the continuing recovery from the counterfeiting
activity described above, and the expected results to be achieved by expanding
and reorganizing its sales force, the Company's 2003 results in the premium
cigarette paper area will exceed those of 2002.

RESULTS OF OPERATIONS

SUMMARY

           The table and discussion set forth below relates to the consolidated
results of operations and financial condition of the Company for the years ended
December 31, 2002, 2001 and 2000.

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                                     -------------------------------------------------------------------------------
                                                               2002                     2001                            2000
                                                     --------------------       ----------------------        ----------------------
                                                                                (amounts in thousands)

<S>                                             <C>             <C>          <C>            <C>            <C>           <C>
Net sales...............................             $ 94,425       100.0%       $89,622         100.0%        $90,365       100.0%
Cost of sales...........................               40,973        43.4         37,697          42.1          37,797        41.8
                                                       ------       -----         ------         ------         ------       ------
Gross profit............................               53,452        56.6         51,925          57.9          52,568        58.2
Selling, general and
   administrative expenses..............               24,065        25.5         23,372          26.1          23,586        26.3
Amortization of goodwill................                   --          --          5,490           6.1           5,490         6.1
                                                       ------       -----         ------         ------         ------       ------
Operating income........................               29,387        31.1         23,063          25.7          23,492        26.2
Interest expense, net, and deferred financing costs    18,744        19.9         19,742          22.0          22,261        24.8
Other expense...........................                1,944         2.1          2,642           2.9           3,172         3.5
                                                       ------       -----         ------         ------         ------       ------
Income (loss) from continuing operations
   before income tax expense............                8,699         9.2            679           0.8          (1,941)       (2.1)
Income tax expense......................                3,214         3.4          2,043           2.3           1,008         1.1
                                                       ------       -----         ------         ------         -------      -------
Income (loss) before cumulative effect of
 change in accounting principle..........               5,485         5.8         (1,364)         (1.5)         (2,949)       (3.3)
Cumulative effect of change in accounting
  principle                                                --          --            --             --            (251)       (0.3)
                                                       ------       -----         ------         -------        -------       ------
Net income (loss).......................              $ 5,485        5.8%        $(1,364)         (1.5%)       $(3,200)       (3.6%)
                                                       ======       =====         =======        =======        =======       ======
</TABLE>


                                       22
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 2002 TO YEAR ENDED DECEMBER 31, 2001

           Net Sales. For 2002, net sales were $94.4 million, an increase of
$4.8 million or 5.4% from the prior year. Net sales of the smokeless tobacco
segment decreased from $38.6 million to $35.7 million or 7.5% from the prior
year reflecting, in part, a 9.4% volume decrease. This was partially offset by
an approximate 5.0% price increase during 2002. Net sales continued to be
adversely impacted by competitive pressures, including increased discounting
from other loose leaf competitors, growth of the moist snuff value brands and
increased discounting activity by moist snuff manufacturers.

           Net sales of the MYO segment increased from $51.0 million to $58.7
million or 15.1% from the prior year. This was due to increases of $5.7 million
in sales of the expanded MYO smoking tobacco and related products line, which in
management's opinion resulted from increases in prices and taxes of manufactured
cigarettes; $3.1 million in premium cigarette papers, due to a continuing
recovery from the counterfeiting activity; and $0.9 million in sales to Canada,
due to increased sales of premium cigarette papers. All of these positive
factors were partially offset by an increase in customer incentives, both to
expand the distribution in the MYO area and to enhance recovery from
counterfeiting activity. The Company attributes its continuing recovery from
counterfeiting activity to the litigation instituted by the Company against
alleged counterfeiters as discussed under Part I, Item 3. "Legal Proceedings"
above.

           Gross Profits. For 2002, gross profit increased 2.9% to $53.5 million
from $51.9 million for the prior year while the gross profit percentage
decreased to 56.6% from 57.9%. Gross profit of the smokeless tobacco segment
decreased to $16.5 million in 2002 from $17.1 million for the prior year, or
3.4%, due to the net sales reduction; however, the gross profit percentage
increased to 46.1% of net sales in 2002 from 44.1% of net sales for the prior
year. The primary reason for this was the reduction of the non-cash LIFO
inventory adjustment to $2.1 million in 2002 from $2.9 million for the prior
year. Disregarding this adjustment, the gross profit percentage still increased
by 0.3% to 51.9% of net sales in 2002 from 51.6% for the prior year. Gross
profit of the MYO segment increased 6.1% to $37.0 million from $34.9 million due
to the continued growth in the smoking tobacco and related products area of this
segment as a result of the net sales increase described above. The gross profit
percentage decreased from 68.4% of net sales to 63.0% of net sales due primarily
to product mix (greater growth in lower margin products) and to the increase in
the non-cash LIFO inventory adjustment of $2.0 million. Disregarding this
adjustment, the gross profit percentage decreased to 66.1% of net sales from
68.4% for the prior year, again, as the MYO smoking tobacco and related products
margin is less than that of premium cigarette papers.

           Currency. Currency movements and suppliers' price increases relating
to premium cigarette papers, cigarette tubes and cigarette injector machines are
the primary factors affecting cost of sales. Those products are purchased from
Bollore on terms of net 45 days and are payable in Euros. Thus, NAOC bears
certain foreign exchange risks for its inventory purchases. To minimize this
risk, NAOC may choose to utilize short-term forward currency contracts, through
which NAOC secures Euros in order to provide payment for its monthly purchases
of inventory. For 2002, though currency rates were generally not favorable to
the U.S. dollar in comparison to the Euro, the Company's inventory position
benefited economically by utilizing prior short-term forward currency contracts.
For 2003, as the Euro has remained strong against the U.S. dollar, the Company
projects that its currency strategy will result in an increase in cost of goods
sold; however, this increase will be exceeded by a reduction in promotional
spending associated with the new everyday low price program. Given management's
view of the currency market, no contracts are presently being utilized.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2002 increased 3.0% to $24.1 million from the prior
year's $23.4 million. This increase was due primarily to compensation expenses


                                       23
<PAGE>
related to hiring additional staff in connection with the re-organization of the
Company's sales force.

           Amortization of Goodwill. Amortization of goodwill was eliminated for
2002 compared to an expense of $5.5 million for the corresponding period of the
prior year. Effective January 1, 2002, the Company ceased amortizing goodwill in
accordance with FASB Statement 142.

           Net Interest Expense and Deferred Financing Costs. Interest expense
and deferred financing costs decreased to $18.7 million in 2002 from $19.7
million for the prior year. This decrease was the result of a lower average term
loan balance coupled with a low average interest rate environment.

           Other Expense. Other expense decreased to $1.9 million in 2002 from
$2.6 million for the prior year. Other expense consists primarily of legal,
investigative and related expenses with respect to the Texas and California
Infringing Products Litigations involving ZIG-ZAG premium cigarette papers which
are described above under "Legal Proceedings."

           Income Tax Expense. Income tax expense increased to $3.2 million in
2002 from $2.0 million for the prior year as a result of the increase in taxable
income from the prior year.

           Net Income (Loss). Due to the factors described above, the Company
earned net income of $5.5 million for 2002 compared to the prior year's net loss
of $1.4 million.

COMPARISON OF YEAR ENDED DECEMBER 31, 2001 TO YEAR ENDED DECEMBER 31, 2000

           Net Sales. For 2001, net sales were $89.6 million, a decrease of $0.7
million or 0.8% from the prior year. Sales of the smokeless tobacco segment
decreased to $38.6 million from $39.4 million or 1.9% from the prior year
reflecting, in part, a 4.8% volume decrease, which was significantly offset by
price increases during 2001. Net sales continued to be adversely impacted by
competitive pressures, including increased discounting from other loose leaf
competitors, growth of the moist snuff value brands and increased discounting
activity from moist snuff manufacturers.

           Sales of the MYO segment were relatively flat to the prior year. Even
though there was an increase of $2.2 million in sales of the expanded MYO
smoking tobacco and related products line, this was partially offset by a
planned decrease of $1.0 million in sales to Canada in an effort to balance
inventory positions to projected sales levels. This was achieved, although
ZIG-ZAG's Canadian volume for the year at the consumer level increased 6.0%. In
addition, the Company believes that its U.S. sales of ZIG-ZAG premium cigarette
papers in the MYO segment were materially and adversely affected by the
counterfeiting activity that is the subject of the Texas and California
Infringing Products Litigations, described above under "Legal Proceedings". The
Company believes, based on information submitted as part of the legal process,
that net sales of its ZIG-ZAG premium cigarette papers were reduced by a minimum
of $6.5 million. In management's opinion, this had a material and adverse effect
on the Company's sales.

           Gross Profits. For 2001, gross profit decreased $0.7 million or 1.3%
to $51.9 million from the prior year and the gross profit percentage decreased
to 57.9% from 58.2%. Gross profit and gross profit percentage of the smokeless
tobacco segment decreased to $17.1 million or 44.1% of net sales in 2001 from
$18.1 million or 45.8% of net sales for the prior year. The increase in the
non-cash LIFO inventory adjustment accounted for $0.8 million or 88.9% of the
decline. Gross profit of the MYO segment increased 1.0% to $34.9 million from
$34.5 million due to the continued growth in the smoking tobacco and related
products area of this segment, despite the adverse impact of the counterfeiting


                                       24
<PAGE>
activity described above. Gross profit percentage increased from 67.7% of net
sales to 68.4% of net sales due to the benefit of a favorable currency strategy
and to a decrease in the non-cash LIFO inventory adjustment of $0.6 million.

           Currency. Currency movements and suppliers' price increases are the
primary adjustment factors for changes in costs of goods sold. Cigarette papers
are purchased from Bollore on terms of net 45 days and are payable in Euros.
Thus, NAOC bears certain foreign exchange risks for its inventory purchases. To
minimize this risk, NAOC may utilize short-term forward currency contracts,
through which NAOC secures Euros in order to provide payment for its monthly
purchases of inventory. For 2001, currency rates were generally less favorable
to the U.S. dollar in comparison to the Euro. However, the Company was able to
benefit thorough its prior use of short-term forward currency contracts. As a
component of its risk management process, the Company continually reassess its
currency strategy. At year end, the Company had no outstanding contracts.

           Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 2001 decreased 0.9% to $23.4 million from the prior
year's $23.6 million. This decrease was due primarily to a reduction in
legal/litigation expense.

           Amortization of Goodwill. Amortization of goodwill was unchanged at
$5.5 million from the prior year.

           Net Interest Expense and Deferred Financing Costs. Interest expense
and financing costs decreased to $19.7 million in 2001 from $22.3 million for
the prior year. This decrease was the result of a lower average term loan
balance coupled with a lower average interest rate environment.

           Other Expense (Income). Other expense decreased to $2.6 million in
2001 from $3.2 million for the prior year. Other expense in 2001 represents
legal, investigative and related expenses with respect to the Texas and
California Infringing Products Litigations involving ZIG-ZAG premium cigarette
papers which are described above under "Legal Proceedings." Other expense in
2000 represented, in part, legal fees and other costs associated with a proposed
sale of the smokeless tobacco segment which was terminated in December 2000.
Pursuant to the adoption of Statement of Financial Accounting Standards No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections," the Company reclassified the write-off of
$1.4 million of deferred financing costs incurred upon refinancing the Company's
term loan on December 29, 2000 to other expense from extraordinary loss.

           Income Tax Expense. Income tax expense increased to $2.0 million in
2001 from $1.0 million for the prior year as a result of the increase in taxable
income from the prior year.

           Cumulative Effect of Change in Accounting Principle. The Company
recorded a cumulative effect of change in accounting principle of $0.3 million
(net of income tax benefit of $0.1 million) for 2000, as a result of the
adoption of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements".

           Net Loss. Due to the factors described above, the Company reduced its
net loss to $1.4 million for 2001 compared to the prior year's net loss of $3.2
million.


                                       25
<PAGE>
LIQUIDITY AND CAPITAL REQUIREMENTS

           The Company's principal uses for cash are for working capital,
capital expenditures, debt service and its annual escrow account deposit. The
Company's principal sources of cash are from operating cash flows and from
borrowings under its senior secured credit facility. In addition, the Company
will require additional cash to complete the pending acquisition of the Star
Cigarette Assets which it expects to fund from debt and equity financing
sources.

           Working capital was $32.3 million at December 31, 2002 compared to
$23.1 million at December 31, 2001. This increase was primarily the result of a
reduction of $12.5 million in the current portion of long term debt, an increase
of $2.0 million in accounts receivables and an increase of $1.8 million in other
current assets which were offset by an increase of $5.5 million in the revolving
credit portion of the senior secured credit facility, a decrease of $3.2 million
in inventory and a decrease of $1.0 million in accrued liabilities. The Company
funds its working capital requirements through its operating cash flows and, if
needed, bank borrowings. As of December 31, 2002, the Company had an undrawn
availability of $13.5 million under the revolving credit portion of its senior
secured credit facility.

           On February 18, 2003, the Company entered into an asset purchase
agreement to purchase substantially all of the assets of Star Scientific, Inc.
relating to the manufacturing, marketing and distribution of four discount
cigarette brands in the United States for approximately $80 million in cash. The
Company intends to finance this acquisition by offering debt and/or equity
securities. The ability to do so will depend, among other things, on the
financial performance of the Company and the availability of funds from debt and
equity financing sources. Although the Company believes it will be able to
effect such a financing, there can be no assurance that such a financing will be
obtained.

           During 2002, the Company spent $625,000 in capital expenditures.
Given its current operation, the Company believes that its annual capital
expenditure requirements for 2003 will be approximately $2.0 million, primarily
for testing equipment for its research and development activities, to expand the
Company's distribution activity in Louisville which is expected to reduce
operating expenses, and for equipment to enhance and expand its information
technology capabilities. Management believes that it will be able to fund its
capital expenditure requirements.

           The senior secured credit facility was initially made available under
a Loan Agreement (the "Loan Agreement"), dated December 31, 2000, with Bank One,
Kentucky, N.A. as Agent (the "Agent"), and the banks named therein. The Loan
Agreement initially provided for a $25 million term loan and a $10 million
revolving credit facility. Both the term loan and the revolving credit facility
matured on December 31, 2002, at which time the term loan was paid in full. On
December 31, 2002, the Company entered into an Amended Loan Agreement (the
"Amended Loan Agreement") with Bank One pursuant to which the revolving credit
facility was increased to $20 million and extended to December 31, 2003. All
terms of the original Loan Agreement remain in place except for the replacement
of a fixed charge coverage covenant with an interest coverage covenant. The
Company's obligations under the Amended Loan Agreement are guaranteed by NTC,
NAOC and National Tobacco Finance Corporation. In addition, the Company's
obligations are secured by all of the Company's assets and the Company's equity
in its subsidiaries. The interest rate on borrowings under the Amended Loan
Agreement may be either based on LIBOR or the prime rate as announced by the
Agent from time to time. As of December 31, 2002, the interest rate on
borrowings under the Amended Loan Agreement was 3.77%. In addition, the Company
must pay a quarterly commitment fee of 0.5% per annum of the unused portion of
the revolving credit facility. The Company intends to replace the existing
senior secured credit facility with a new senior secured credit facility in
connection with the pending acquisition of the Star Cigarette Assets which is
expected to close during the second quarter of 2003.


                                       26
<PAGE>
           On June 25, 1997, the Company issued $155.0 million of 11% Senior
Notes 2004 (the "Senior Notes"). The Senior Notes mature and are payable on June
15, 2004. The Senior Notes bear interest at 11% per annum, payable semiannually
on June 15 and December 15. At the present time, the Company projects that it
will not have sufficient funds to effect such repayment in the absence of a
refinancing. The Company intends to refinance this debt in connection with the
pending acquisition of the Star Cigarette Assets which is expected to close
during the second quarter of 2003 and, in any event, in advance of the maturity
of the Senior Notes. The ability to do so will depend, among other things, on
the financial performance of the Company and the availability of funds from debt
and equity financing sources. Although the Company believes it will be able to
effect such a refinancing, there can be no assurance that such a refinancing
will be obtained.

           The Amended Loan Agreement and the Senior Notes limit the incurrence
of additional indebtedness, dividends, transactions with affiliates, asset
sales, mergers, prepayments of indebtedness and liens and encumbrances. At
December 31, 2002, the Company was in compliance with all provisions of the Loan
Agreement and the indenture governing the Senior Notes.

           On July 29, 2002, the Company successfully completed a consent
solicitation (the "Consent Solicitation") from registered holders of its 12%
Senior Exchange Payment-in-Kind Preferred Stock, par value $0.01 per share
("Preferred Stock"), for certain amendments to the certificate of incorporation
of the Company relating to the terms of the Preferred Stock. As a result of
amendments to the Company's certificate of incorporation resulting from the
Consent Solicitation, among other things, dividends on the Company's Preferred
Stock are payable either in cash or through the issuance of additional shares of
Preferred Stock. The Company's future ability to make dividend payments in cash
will depend upon the availability of funds and whether the Company has satisfied
the "restricted payments" provision under the indenture governing the Senior
Notes. That provision has been and is currently satisfied. Additionally, the
Company has sufficient authorized and unissued shares of Preferred Stock to make
its dividend payments through the issuance of additional shares. For the
dividend payments on September 15, 2002, and December 15, 2002, the Company
chose to make this payment in kind. The Company intends to redeem the Preferred
Stock in connection with the pending acquisition of the Star Cigarette Assets
which is expected to close during the second quarter of 2003. The ability to do
so will depend, among other things, upon the financial performance of the
Company and the availability of funds from debt and equity financing sources.
Although the Company believes it will be able to effect such a redemption, there
can be no assurance that such a redemption will occur.

           Pursuant to the U.S. Distribution Agreement (one of the Distribution
Agreements, as more fully discussed in Item 1. Business), the Company is
committed to purchase a minimum number of booklets of premium cigarette papers
annually to avoid the termination of that agreement. This level of purchases has
been significantly exceeded since the 1997 Acquisition and management believes
that the Company will be able to significantly exceed this requirement for the
foreseeable future. The agreement has also established the purchase price for
ZIG-ZAG premium cigarette papers through 2004, subject to certain adjustments to
reflect increases in the U.S. consumer price index and to account for material
currency fluctuations. The Distribution Agreements provide that, in order to
assure each of the parties commercially reasonable profits in light of
inflationary trends and currency translation factors, prior to December 31, 2004
and each fifth-year anniversary of such date, the parties will enter into good
faith negotiations to agree on an index and currency adjustment formula to
replace the index and formula currently in effect. If the parties are unable to
agree, the dispute is to be submitted to binding arbitration.


                                       27
<PAGE>
           The following schedule summarizes the Company's contractual cash
obligations excluding interest at December 31, 2002:

<TABLE>
<CAPTION>
                                                                      Payments Due By Period
                                                                       ----------------------
                                                                           (in thousands)
  Contractual Cash Obligations           Total           Less than 1 year    1-3 years          4-5 years       After 5 years
  -----------------------------          -----           ----------------    ---------          ---------       -------------
     (excluding interest)
<S>                                 <C>               <C>                  <C>                 <C>             <C>

Senior Notes - Principal                $155,000              $    --          $155,000           $   --                --
Loan Agreement - Principal                 5,500                5,500                --               --                --
Operating Leases                           1,711                  757               951               3                 --
Total Contractual Cash
 Obligations                            $162,211             $  6,257          $155,951           $    3             $   -
                                        ========             ========  =       ========           ======             =====

</TABLE>

           As discussed in "Item. 1 Business - State Attorney General Settlement
Agreements," in order to be in compliance with the MSA and subsequent states'
statutes, the Company is required to fund an escrow account with each of the
settling states based on the number of cigarettes or cigarette equivalents,
i.e., the pounds of MYO smoking tobacco, sold in such state. Funding of the
escrow deposit by the Company in 2002 was $0.6 million in respect of sales of
MYO smoking products in 2001. The Company estimates the total payments will be
$1 million in 2003 due to an increase of sales of MYO smoking products in 2002.

           The Company has incurred legal expenses in connection with defending
product liability claims in the amounts of $391,991, $557,596 and $793,568 for
each of the fiscal years ended December 31, 2002, 2001 and 2000 respectively.
These expenses have been driven by forces outside of the Company's control such
as complaints brought by third parties, changes in the type or scope of the
litigation brought and by being a member of the tobacco industry. Accordingly,
because these factors are constantly changing, such figures are largely
irrelevant to an analysis of the financial impact of product liability expense
on the Company in future years. No amounts have been accrued by the Company as
reasonable estimates of losses or a range of losses cannot be determined with
respect to such contingencies as the Company has never settled a product
liability litigation nor paid any amount to settle product liability litigation.

           Based on the above trend, the Company does not expect that product
liability claims and the accompanying litigation expenses will increase going
forward, because neither it, specifically, nor its industry segments (smokeless
tobacco and make-your-own) have been significant targets for product liability
plaintiffs. The Company believes it has not been a significant target because it
has sold its tobacco products with appropriate federal warnings concerning
consumption of tobacco products and health risks and because the Company does
not have a history of tobacco industry involvements and activities which have
led to litigation with respect to the large cigarette manufacturers. However,
there can be no assurance that the Company will not sustain losses in connection
with such lawsuits and that such losses will not have a material adverse effect
on the Company's financial position, results of operations or cash flows.

           The Company believes that its operating cash flows, together with its
revolving credit facility, should be adequate to satisfy its reasonably
foreseeable operating capital requirements. Additionally, the financing of the
acquisition of the Star Cigarette Assets and the refinancing of the Senior Notes
and Preferred Stock, will depend upon the Company's ability to access funds from
debt and equity sources.


                                       28
<PAGE>
INFLATION

           The Company believes that any effect of inflation at current levels
will be minimal. Historically, the Company has been able to increase prices at a
rate equal to or greater than that of inflation and believes that it will
continue to be able to do so for the foreseeable future. In addition, the
Company has been able to maintain a relatively stable variable cost structure
for its products due, in part, to its successful procurement and reformulation
activities with regard to its tobacco products and, in part, to its existing
contractual agreement for the purchase of its premium cigarette papers.

CRITICAL ACCOUNTING POLICIES

           The Company believes the accounting policies below represent its
critical accounting policies due to the estimation process involved in each. See
Note 2, in the Consolidated Financial Statements, for a detailed discussion of
the Company's accounting policies.

           Revenue Recognition - The Company recognizes revenues and the related
costs upon the transfer of title and risk of loss to the customer.

           Goodwill - Upon adopting Statement 142 on January 1, 2002, the
Company ceased amortizing goodwill. Statement 142 required completion of the
first step of the transitional impairment test by June 30, 2002. In completing
the transitional impairment test for fiscal 2002, the Company reported that it
had incurred no impairment.

           Taxes - The Company has not provided a valuation allowance to reduce
its net deferred income tax assets since it is "more likely than not" to be able
to realize these benefits before they expire. If the Company should determine
that it would not be able to realize all or part of its net deferred income tax
assets in the future, an adjustment to the deferred income tax assets would be
charged to earnings in the period such determination was made.

           Contingencies - Note 19 of the Consolidated Financial Statements
discusses various litigation matters that impact the Company. No loss or gain
contingencies have been recorded for these matters because Management believes
that it is not probable that a loss has been incurred or an asset realized.
Future events may result in different conclusions, which could have a material
impact, either positively or negatively, on the results of operations or
financial condition of the Company.

           Inventory/LIFO Adjustment - Inventories are stated at the lower of
cost or market. Cost is determined on the last-in, first-out (LIFO) method. Leaf
tobacco is presented in current assets in accordance with standard industry
practice, notwithstanding the fact that such tobaccos are carried longer than
one year for the purpose of curing.

           Stock Options - The Company measures stock compensation costs related
to stock options on the fair value method which is the preferred method under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation". The fair value based method requires
compensation cost for stock options to be recognized based on the fair value of
stock options granted.

           Pension and Postretirement Benefits Obligations - Pension and
postretirement benefits obligations accounting is intended to reflect the
recognition of future benefit costs over covered employees' approximate service
periods based on the terms of the plans and the investment and funding decisions
made by the Company. The Company is required to make assumptions regarding such


                                       29
<PAGE>
variables as the expected long-term rate of return on plan assets and the
discount rate applied to determine service costs and interest cost to arrive at
pension income or expense for the year. As of December 31, 2002 and 2001, the
Company used expected long-term rates of return on pension plan assets of 8.5%.
The postretirement plan has no assets. The Company analyzed the rates of returns
on assets used and determined that this rate is reasonable based upon the plans'
historical performance relative to the overall markets and mix of assets. The
Company will continue to assess the expected long-term rate of return on plan
assets assumptions for each plan based on relevant market conditions and will
make adjustments to the assumptions as appropriate.

           As of December 31, 2002 and 2001, the Company used discount rates of
6.75% and 7.25%, respectively, for both the pension and postretirement plans.
The decrease in the discount rate used in the current year correlates with a
decline in interest rates on noncallable, high quality bonds over the past year.
The Company bases its discount rate used on Moody's Aa bond index plus an
adjustment upward to the next quarter percentage point. See Note 12 to the
Consolidated Financial Statements for the full list of assumptions for the
pension and postretirement plans.

RECENT ACCOUNTING PRONOUNCEMENTS

           During 2001, the Emerging Issues Task Force issued: (1) EITF No.
00-14, "Accounting for Certain Sales Incentives", addressing the recognition,
measurement and statement of earnings classification of certain sales incentives
and (2) EITF No. 00-25, "Vendor Income Statement Characterization of
Consideration Paid to a Reseller of the Vendor's Products", addressing the
statement of earnings classification of consideration from a vendor to an entity
that purchases the vendor's products for resale. The Company adopted EITF 00-14
and EITF 00-25 in the first quarter of 2002. As a result of this adoption,
certain expenses have been reclassified from selling, general and administrative
expenses to allowances in determining net sales and to cost of goods sold for
each of the years ended December 31, 2001 and 2000. Due to adopting EITF 00-14
and EITF 00-25, for each of the years ended December 31, 2001 and 2000, net
sales decreased by $4.126 million and $2.780 million, respectively, cost of
goods sold increased by $3.963 million and $4.108 million, respectively, and
selling, general and administrative expenses were reduced by $8.089 million and
$6.888 million, respectively, from the previously reported figures. The adoption
of EITF 00-14 and EITF 00-25 had no impact on the Company's net income for
either of these periods.

           In June 2001, FASB issued Statement No. 141, "Business Combinations"
("Statement 141") and Statement 142. Statement 141 requires that all business
combinations initiated after June 30, 2001 be accounted for using the purchase
method as use of the pooling-of interest method is no longer permitted.
Statement 142 requires that goodwill no longer be amortized to earnings, but
instead be reviewed at least annually for impairment using a two-step process.
The first step is a test for potential impairment, and the second measures the
amount of impairment, if any. Impairment losses that arise from completing a
transitional impairment test during 2002 are to be reported as the cumulative
effect of a change in accounting principle as of the beginning of the year.
Subsequent impairments, if any, will be classified as an operating expense. In
addition, Statement 142 specifies the types of acquired intangible assets that
are required to be recognized and reported separately from goodwill.

           Upon adopting Statement 142 on January 1, 2002, the Company ceased
amortizing goodwill. Statement 142 required completion of the first step of the
transitional impairment test by June 30, 2002. In completing the transitional
impairment test for fiscal 2002, the Company reported that it had incurred no
impairment.


                                       30
<PAGE>
           In August 2001, the FASB issued Statement No. 143, "Accounting for
Asset Retirement Obligations" ("SFAS 143"). SFAS 143 requires that obligations
associated with the retirement of a tangible long-lived asset be recorded as a
liability when those obligations are incurred, with the amount of the liability
initially measured at fair value. Upon initially recognizing a liability for an
asset-retirement obligation ("ARO"), an entity must capitalize the cost by
recognizing an increase in the carrying amount of the related long lived asset.
Over time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, an entity either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 will be
effective for financial statements for fiscal years beginning after June 15,
2002. The Company will adopt the provisions of SFAS 143 in fiscal 2003. SFAS 143
will not have an impact on the Company's financial statements.

           On January 1, 2002, the Company adopted FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("Statement
144"). Statement 144 develops a single accounting model for long-lived assets to
be disposed of by sale, and addresses significant implementation issues related
to previous guidance. Statement 144 requires that long-lived assets to be
disposed of by sale be measured at the lower of their carrying amount or fair
value less cost to sell, whether reported in continuing operations or in
discontinued operations. Statement 144 also broadens the reporting of
discontinued operations by potentially qualifying more disposal transactions for
discontinued operations reporting. The adoption of Statement 144 did not have an
impact on the Company's financial statements.

           In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." This Statement eliminates the automatic classification of gain or
loss on extinguishment of debt as an extraordinary item of income and requires
that such gain or loss be evaluated for extraordinary classification under the
criteria of Accounting Principles Board No. 30, "Reporting Results of
Operations." This Statement also requires sales-leaseback accounting for certain
lease modifications that have economic effects that are similar to
sales-leaseback transactions, and makes various other technical corrections to
existing pronouncements. This Statement will be effective for the Company for
the year ending December 31, 2003. The Company has adopted the provisions of
this Statement effective January 1, 2003 and, as a result, has reclassified the
write-off of $1.4 million of deferred financing costs incurred upon the
refinancing of the Company's term loan on December 29, 2000 from extraordinary
loss to other expense in the December 31, 2000 Consolidated Statements of
Operation presented in the Company's Consolidated Financial Statements.

           In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 sets forth
various modifications to existing accounting guidance which prescribes the
conditions which must be met in order for costs associated with contract
terminations, facility consolidations, employee relocations and terminations to
be accrued and recorded as liabilities in financial statements. The provisions
of SFAS 146, as related to exit or disposal activities will be effective for
fiscal 2003. SFAS 146 does not at present have an impact on the Company's
financial statements.

           In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148
amends SFAS 123 providing alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. SFAS 148 also amends the disclosure requirements of SFAS 123 and
requires additional disclosures in annual and interim financial statements
regarding the method of accounting for stock-based employee compensation and the
effect of the method used on financial results. The Company accounts for


                                       31
<PAGE>
stock-based compensation in accordance with SFAS No. 123. Therefore, SFAS 148
does not have an impact on the Company's financial statements.

           In January 2003, the Financial Accounting Standards Board issued
Financial Accounting Standards Board Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first interim
or annual period beginning after June 15, 2003. FIN 46 does not have an impact
on the Company's financial statements.

FORWARD-LOOKING STATEMENTS

           The Company cautions the reader that certain statements contained in
the Management's Discussion and Analysis of Financial Condition and Results of
Operations section as well as elsewhere in this Form 10-K/A are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are not guarantees of future performance.
They involve risks, uncertainties and other important factors, including the
risks discussed below. The Company's actual future results, performance or
achievement of results may differ materially from any such results, performance
or achievement implied by these statements. Among the factors that could affect
the Company's actual results and could cause results to differ from those
anticipated in the forward-looking statements contained herein is the Company's
ability to implement its business strategy successfully, which may be dependent
on business, financial, and other factors beyond the Company's control,
including, among others, federal, state and/or local regulations and taxes,
competitive pressures, prevailing changes in consumer preferences, consumer
acceptance of new product introductions and other marketing initiatives, market
acceptance of the Company's current distribution program for ZIG-ZAG premium
cigarette papers, access to sufficient quantities of raw material or inventory
to meet any sudden increase in demand, disruption to historical wholesale
ordering patterns, product liability litigation, the inability to raise
financing for the acquisition of the Star Cigarette Assets and any disruption in
access to capital necessary to achieve the Company's business strategy.

           The Company cautions the reader not to put undue reliance on any
forward-looking statements. In addition, the Company does not have any intention
or obligation to update the forward-looking statements in this document. The
Company claims the protection of the safe harbor for forward-looking statements
contained in Section 21E of the Securities Exchange Act of 1934.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
           -------------------------------------------

           The Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of PricewaterhouseCoopers LLP,
independent accountants, with respect thereto, referred to in the Index to
Financial Statements and the Financial Statement Schedules of the Company
contained in Item 15(a), appear on pages F-1 through F-38 of this Form 10-K/A
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.


                                       32
<PAGE>
                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
           ----------------------------------------------------------------

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

           The following consolidated financial statements of North Atlantic
Trading Company, Inc. and subsidiaries are filed as part of this Form 10-K/A and
are incorporated by reference in Item 8:

                                                                            PAGE
                                                                            ----

Report of Independent Accountants........................................... F-1

Consolidated Balance Sheets as of December 31, 2002 and 2001................ F-2
Consolidated Statements of Operations and Other Comprehensive Income (Loss)

   for the years ended December 31, 2002, 2001, and 2000.................... F-3
Consolidated Statements of Cash Flows for the
      years ended December 31, 2002, 2001, and 2000......................... F-5

Consolidated Statements of Changes in Stockholders' Deficit for the
      years ended December 31, 2002, 2001, and 2000......................... F-6

Notes to Consolidated Financial Statements.................................. F-7

           (a)(2) Financial Statement Schedules:

           The required information is given in the consolidated financial
statements or notes thereto.

           (a)(3) See the list of exhibits set forth under Item 15(c) below.

           (b) Reports on Form 8-K

           None.

           (c) Exhibits



                                       33
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

2                 --    Asset Purchase Agreement, dated as of February 18, 2003,
                        among North Atlantic Trading Company, Inc., Star
                        Scientific, Inc. and Star Tobacco, Inc. (incorporated
                        herein by reference to Exhibit 2.1 to the Registrant's
                        Current Report on Form 8-K filed on February 19, 2003).

3.1(a)            --    Restated Certificate of Incorporation of North Atlantic
                        Trading Company, Inc., filed February 19, 1998
                        (incorporated herein by reference to Exhibit 3.1(a) the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

3.1(b)*           --    Certificate of Correction to the Restated Certificate of
                        Incorporation of North Atlantic Trading Company, Inc.,
                        dated as of June 28, 2002.

3.1(c)            --    Certificate of Amendment to the Certificate of
                        Incorporation of North Atlantic Trading Company, Inc.,
                        dated July 30, 2002 (incorporated herein by reference to
                        Exhibit 3.1 to the Registrant's Current Report on Form
                        8-K filed on July 31, 2002).

3.1(d)            --    Certificate of Incorporation of North Atlantic Operating
                        Company, Inc., filed June 9 1997 (incorporated herein by
                        reference to Exhibit 3.1(b)(i) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

3.1(e)            --    Certificate of Amendment of Certificate of Incorporation
                        of North Atlantic Operating Company, Inc., filed June
                        17, 1997 (incorporated herein by reference to Exhibit
                        3.1(b)(ii) to Amendment No. 1 to Registration Statement
                        (Reg. No. 333-31931) on Form S-4 filed with the
                        Commission on September 3, 1997).

3.1(f)            --    Second Amended and Restated Certificate of Incorporation
                        of National Tobacco Finance Corporation, filed April 24,
                        1996 (incorporated herein by reference to Exhibit 3.1(c)
                        to Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

3.1(g)            --    Amended and Restated Certificate of Limited Partnership
                        of National Tobacco Company, L.P., filed May 17, 1996
                        (incorporated herein by reference to Exhibit 3.1(d) to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

3.1(h)            --    Certificate of Incorporation of International Flavors
                        and Technology, Inc., filed August 7, 1997 (incorporated
                        herein by reference to Exhibit 3.1(e)(i) to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

3.1(i)            --    Certificate of Amendment of Certificate of Incorporation
                        of International Flavors and Technology, Inc., filed
                        February 19, 1998 (incorporated herein by reference to
                        Exhibit 3.1(e)(ii) to the Registrant's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1997).


                                       34
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

3.2(a)            --    Amended and Restated Bylaws of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 3.2(a) to the Registrant's Quarterly Report on
                        Form 10-Q for the fiscal quarter ended March 31, 1998).

3.2(b)            --    Bylaws of North Atlantic Operating Company, Inc.
                        (incorporated herein by reference to Exhibit 3.2(b) to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on July 23, 1997).

3.2(c)            --    Bylaws of National Tobacco Finance Corporation
                        (incorporated herein by reference to Exhibit 3.2(c) to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on July 23, 1997).

3.2(d)            --    Third Amended and Restated Agreement of Limited
                        Partnership of National Tobacco Company, L.P., effective
                        May 17, 1996 (incorporated herein by reference to
                        Exhibit 3.2(d)(i) to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

3.2 (e)           --    Amendment No. 1 to Third Amended and Restated Agreement
                        of Limited Partnership of National Tobacco Company,
                        L.P., effective June 25, 1997 (incorporated herein by
                        reference to Exhibit 3.2(d)(ii) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

3.2(f)            --    Bylaws of International Flavors and Technology, Inc.
                        (incorporated herein by reference to Exhibit 3.2(e) to
                        the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1997).

3.2(g)            --    Amendment No. 2 to the Third Amended and Restated
                        Agreement of Limited Partnership of National Tobacco
                        Company, L.P., effective February 10, 2000 (incorporated
                        by reference to Exhibit 3.2 (g) to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1999).

4.1               --    Indenture, dated as of June 25, 1997, among North
                        Atlantic Trading Company, Inc., as issuer, National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc. and National Tobacco Finance Corporation, as
                        guarantors, and United States Trust Company of New York,
                        as trustee (incorporated herein by reference to Exhibit
                        4.1 to Amendment No. 1 to Registration Statement (Reg.
                        No. 333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

4.2               --    First Supplemental Indenture, dated as of February 26,
                        1998, among North Atlantic Trading Company, Inc.,
                        National Tobacco Company, L.P., National Tobacco Finance
                        Corporation, International Flavors and Technology, Inc.
                        and United States Trust Company of New York
                        (incorporated herein by reference to Exhibit 4.3 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).


                                       35
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

4.3*              --    Warrant to Purchase Common Stock, granted in favor of
                        Guggenheim Investment Management, LLC by North Atlantic
                        Trading Company, Inc., dated September 30, 2002.

4.4*              --    Warrant to Purchase Common Stock, granted in favor of
                        Peter J. Solomon Company Limited by North Atlantic

                        Trading Company, Inc., dated as of June 4, 2001.


9.1               --    Exchange and Stockholders' Agreement, dated as of June
                        25, 1997, by and between North Atlantic Trading Company,
                        Inc. and those stockholders signatory thereto
                        (incorporated herein by reference to Exhibit 9 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

9.2               --    Voting Trust Agreement, dated as of December 17, 1997,
                        among Thomas F. Helms, Jr., David I. Brunson and Jeffrey
                        S. Hay, as voting trustees, and Helms Management Corp.
                        (incorporated herein by reference to Exhibit 9.2 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

9.3*              --    Amendment No. 1 to Voting Trust Agreement, dated as of
                        August 18, 1999, among Thomas F. Helms, Jr. and David I.
                        Brunson, as voting trustees, and Helms Management Corp.

9.4*              --    Amendment No. 2 to Voting Trust Agreement, dated as of
                        September 22, 1999, among Thomas F. Helms, Jr. and David
                        I. Brunson, as voting trustees, and Helms Management
                        Corp.

9.5*              --    Amendment No. 3 to Voting Trust Agreement, dated as of
                        July 7, 2000, among Thomas F. Helms, Jr. and David I.
                        Brunson, as voting trustees, and Helms Management Corp.

10.1              --    Third Amended and Restated Purchasing and Processing
                        Agreement, dated as of June 25, 1997, between National
                        Tobacco Company, L.P. and Lancaster Leaf Tobacco Company
                        of Pennsylvania (incorporated herein by reference to
                        Exhibit 10.1 to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.2+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [United States]
                        (incorporated herein by reference to Exhibit 10.2 to
                        Amendment No. 2 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 17, 1997).


                                       36
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.3+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [Asia] (incorporated
                        herein by reference to Exhibit 10.3 to Amendment No. 2
                        to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 17, 1997).

10.4+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [Canada] (incorporated
                        herein by reference to Exhibit 10.4 to Amendment No. 2
                        to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 17, 1997).

10.5+             --    Restated Amendment, dated as of June 25, 1997, between
                        Bollore Technologies, S.A. and North Atlantic Operating
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.5 to Amendment No. 2 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 17, 1997).

10.6              --    Warrant Agreement, dated as of June 25, 1997, between
                        North Atlantic Trading Company, Inc. and United States
                        Trust Company of New York, as warrant agent
                        (incorporated herein by reference to Exhibit 10.12 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.7++            --    1997 Share Incentive Plan of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.16 to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.8++            --    Employment Agreement, dated May 17, 1996, between North
                        Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.
                        (incorporated herein by reference to Exhibit 10.17 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.9 ++           --    Employment Agreement, dated April 14, 1997, between
                        National Tobacco Company, Inc. and David I. Brunson
                        (incorporated herein by reference to Exhibit 10.18(a) to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.10++           --    Employment Agreement, dated April 23, 1997, between
                        Thomas F. Helms, Jr. and David I. Brunson (incorporated
                        herein by reference to Exhibit 10.18(b) to Amendment No.
                        1 to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 3, 1997).


                                       37
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.11++           --    Nonqualified Stock Option Agreement, dated as of June
                        25, 1997, between North Atlantic Trading Company, Inc.
                        and David I. Brunson (incorporated herein by reference
                        to Exhibit 10.18(c) to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.12++           --    Amendment No. 1, dated and effective September 2, 1997,
                        to the Nonqualified Stock Option Agreement, dated as of
                        June 25, 1997, between North Atlantic Trading Company,
                        Inc. and David I. Brunson (incorporated herein by
                        reference to Exhibit 10.18(d) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

10.13++           --    Amendment No. 2, dated as of December 31, 1997, to the
                        Nonqualified Stock Option Agreement, dated as of June
                        25, 1997, between North Atlantic Trading Company, Inc.
                        and David I. Brunson (incorporated herein by reference
                        to Exhibit 10.18(e) to the Registrant's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1997).

10.14++           --    Consulting Agreement, dated as of June 25, 1997, between
                        North Atlantic Trading Company, Inc. and Jack Africk
                        (incorporated herein by reference to Exhibit 10.20 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.15++           --    National Tobacco Company Management Bonus Program
                        (incorporated herein by reference to Exhibit 10.25 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.16++           --    Amended and Restated Nonqualified Stock Option Agreement
                        dated as of January 12, 1998, between North Atlantic
                        Trading Company, Inc. And Jack Africk (incorporated
                        herein by reference to Exhibit 10.28 to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1997).

10.17++           --    Assignment and Assumption, dated as of January 1, 1998,
                        between National Tobacco Company, L.P. and North
                        Atlantic Trading Company, Inc. (incorporated herein by
                        reference to Exhibit 10.30 to the Registrant's Annual
                        Report on Form 10-K for the fiscal year ended December
                        31, 1997).

10.18+            --    Amendment, dated October 22, 1997, to Amended and
                        Restated Distribution and License Agreements, between
                        Bollore and North Atlantic Operating Company, Inc.
                        (incorporated herein by reference to Exhibit 10.31 to
                        the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1997).

10.19             --    Sales Representative Agreement, effective as of January
                        1, 1998, between National Tobacco Company, L.P. and
                        North Atlantic Operating Company, Inc. (incorporated
                        herein by reference to Exhibit 10.32 to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1997).


                                       38
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.20++           --    Amended and Restated Employment Agreement dated as of
                        April 30, 1998, between North Atlantic Trading Company,
                        Inc. and David I. Brunson (incorporated herein by
                        reference to Exhibit 10.2 to the Registrant's Report on
                        10-Q for the fiscal quarter ended June 30, 1998).

10.21             --    Option Grant Letter, dated April 30, 1998, from Helms
                        Management Corp. to David I. Brunson (incorporated
                        herein by reference to Exhibit 10.5 to the Registrant's
                        Quarterly Report on 10-Q for the fiscal quarter ended
                        June 30, 1998).

10.22             --    Subscription Agreement, dated as of March 24, 1998,
                        between North Atlantic Trading Company, Inc. and David
                        I. Brunson (incorporated herein by reference to Exhibit
                        10.42 to the Registrant's Quarterly Report on 10-Q for
                        the fiscal quarter ended March 31, 1998).

10.23++           --    Letter Agreement, dated September 24, 1999, between
                        North Atlantic Trading Company, Inc. and Jack Africk
                        (incorporated by reference to Exhibit 10.34 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1999).

10.24++           --    North Atlantic Trading Company, Inc. 1999 Executive
                        Incentive Plan (incorporated by reference to Exhibit
                        10.35 to the Registrant's Annual Report on Form 10-K for
                        the fiscal year ended December 31, 1999).

10.25++           --    North Atlantic Trading Company, Inc. 1999 Management
                        Bonus Plan (incorporated by reference to Exhibit 10.36
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1999).

10.26             --    Loan Agreement, dated as of December 29, 2000, by and
                        among North Atlantic Trading Company, Inc., National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc., National Tobacco Finance Corporation and Bank One,
                        Kentucky N.A., as agent bank and the various lending
                        institutions named therein (incorporated by reference to
                        Exhibit 10.32 to the Registrant's Annual Report on Form
                        10-K for the fiscal year ended December 31, 2000).

10.27*            --    Amendment, dated as of December 31, 2002, to Loan
                        Agreement, by and among North Atlantic Trading Company,
                        Inc., National Tobacco Company, L.P., North Atlantic
                        Operating Company, Inc., National Tobacco Finance
                        Corporation and Bank One, Kentucky N.A., as agent bank
                        and the various lending institutions named therein.

                                       39
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.28             --    Security Agreement, dated as of December 29, 2000, among
                        North Atlantic Trading Company, Inc., National Tobacco
                        Company, L.P., North Atlantic Operating Company, Inc.,
                        National Tobacco Finance Corporation and Bank One
                        Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.33
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.29             --    Guaranty Agreement, dated as of December 29, 2000, among
                        National Tobacco Company, L.P., North Atlantic Operating
                        Company, Inc., National Tobacco Finance Corporation and
                        Bank One, Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.34
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.30             --    Pledge Agreement, dated as of December 29, 2000 among
                        and North Atlantic Trading Company, Inc., National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc., National Tobacco Finance Corporation and Bank One
                        Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.35
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.31++           --    2001 Share Incentive Plan of North Atlantic Trading
                        Company, Inc. (incorporated by reference to Exhibit
                        10.36 to the Registrant's Annual Report on Form 10-K for
                        the fiscal year ended December 31, 2001).

10.32++           --    Offer of Employment, dated March 28, 2002, between the
                        Company and Robert A. Milliken, Jr. (incorporated herein
                        by reference to Exhibit 1 to the Registrant's Quarterly
                        Report on 10-Q for the fiscal quarter ended March 31,
                        2002).

10.33             --    Promissory Note, dated March 31, 2002, issued by David
                        I. Brunson in favor of North Atlantic Trading Company,
                        Inc. (incorporated herein by reference to Exhibit 10.1
                        to the Registrant's Quarterly Report on 10-Q for the
                        fiscal quarter ended June 30, 2002).

10.34             --    Promissory Note, dated March 31, 2002, issued by Chris
                        Kounnas in favor of North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 10.2 to the
                        Registrant's Quarterly Report on 10-Q for the fiscal
                        quarter ended June 30, 2002).

10.35             --    Secured Promissory Note, dated March 31, 2002, issued by
                        Helms Management Corp. in favor of North Atlantic
                        Trading Company, Inc. (incorporated herein by reference
                        to Exhibit 10.3 to the Registrant's Quarterly Report on
                        10-Q for the fiscal quarter ended June 30, 2002).

10.36             --    Secured Promissory Note, dated March 31, 2002, issued by
                        Thomas F. Helms, Jr. in favor of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.4 to the Registrant's Quarterly Report on
                        10-Q for the fiscal quarter ended June 30, 2002).


                                       40
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.37             --    Pledge and Security Agreement, dated as of March 31,
                        2002, between Thomas F. Helms, Jr., Helms Management
                        Corp. and North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 10.5 to the
                        Registrant's Quarterly Report on 10-Q for the fiscal
                        quarter ended June 30, 2002).

10.38++*          --    Amendment, dated November 25, 2002, to the Amended and
                        Restated Employment Agreement dated as of April 30,
                        1998, between North Atlantic Trading Company, Inc. and
                        David I. Brunson.

10.39++*          --    Employment Agreement dated as of November 21, 2002,
                        between North Atlantic Trading Company, Inc. and James
                        W. Dobbins.

10.40*            --    Transfer Agreement, dated as of December 30, 2002, by
                        and among Arnold Sheiffer, The Cleveland Clinic
                        Foundation, North Atlantic Trading Company, Inc., and
                        Thomas F. Helms, Jr.

10.41*            --    Transfer Agreement, dated as of December 30, 2002, by
                        and among Arnold Sheiffer, Robert Maurice Grunder
                        Memorial Fund, North Atlantic Trading Company, Inc., and
                        Thomas F. Helms, Jr.

10.42++*                2002 Share Incentive Plan

10.43++*                Letter Agreement, dated November 8, 2002, between North
                        Atlantic Trading Company, Inc. and Marketing Solutions
                        USA.

10.44++*                Letter Agreement, dated September 30, 2002, between
                        North Atlantic Trading Company, Inc. and Jack Africk.

21                --    Subsidiaries of North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 21 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1998).

99.1**            --    Certification by the Chief Executive Officer pursuant to
                        18 U.S.C.ss. 1350, as adopted by Section 906 of the
                        Sarbanes-Oxley Act of 2002.

99.2**            --    Certification by the Chief Financial Officer pursuant to
                        18 U.S.C.ss. 1350, as adopted by Section 906 of the
                        Sarbanes-Oxley Act of 2002.


*    Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the fiscal year ended December 31, 2002 filed with the Securities and
     Exchange Commission on March 31, 2003.

**   Filed herewith.

+    Portions of this agreement have been omitted pursuant to Rule 406 under the
     Securities Act of 1933, as amended, and have been filed confidentially with
     the Securities and Exchange Commission.

++   Management contracts or compensatory plan or arrangement.


                                       41
<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.

Date:  June 12, 2003

                                      NORTH ATLANTIC TRADING COMPANY, INC.


                                      By:  /s/ Thomas F. Helms, Jr.
                                          --------------------------------------
                                          Thomas F. Helms, Jr.
                                          Chairman and Chief Executive Officer



<PAGE>
                                  CERTIFICATION

                 PURSUANT TO RULE 13A-14 AS ADOPTED PURSUANT TO

                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas F. Helms, Jr., certify that:

1.   I have reviewed this annual report on Form 10-K/A of North Atlantic Trading
     Company, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          the registrant's internal controls; and

     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  June 12, 2003
                                              /s/ Thomas F. Helms, Jr.
                                            ------------------------------------
                                            Thomas F. Helms, Jr.
                                            Chief Executive Officer

<PAGE>
                                 CERTIFICATIONS
                 PURSUANT TO RULE 13A-14 AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, David I. Brunson, certify that:

1.   I have reviewed this annual report on Form 10-K/A of North Atlantic Trading
     Company, Inc.;

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   Designed such disclosure controls and procedures to ensure that
          material information relating to the registrant, including its
          consolidated subsidiaries, is made known to us by others within those
          entities, particularly during the period in which this annual report
          is being prepared;

     b)   Evaluated the effectiveness of the registrant's disclosure controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   Presented in this annual report our conclusions about the
          effectiveness of the disclosure controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)   All significant deficiencies in the design or operation of internal
          controls which could adversely affect the registrant's ability to
          record, process, summarize and report financial data and have
          identified for the registrant's auditors any material weaknesses in
          the registrant's internal controls; and

     b)   Any fraud, whether or not material, that involves management or other
          employees who have a significant role in the registrant's internal
          controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  June 12, 2003
                                                      /s/ David I. Brunson
                                                     ---------------------------
                                                     David I. Brunson
                                                     Chief Financial Officer


<PAGE>
<TABLE>
<CAPTION>

                                 C O N T E N T S

                                                                                 PAGES
<S>                                                                            <C>
Report of Independent Accountants                                                 F-1


Financial Statements:

   Consolidated Balance Sheets as of December 31,
         2002 and 2001                                                            F-2

   Consolidated Statements of Operations and Other Comprehensive Income (Loss)
         for the years ended December 31, 2002, 2001 and 2000                     F-3

   Consolidated Statements of Cash Flows for the years ended
         December 31, 2002, 2001 and 2000                                         F-5

   Consolidated Statements of Changes in Stockholders' Deficit for
         the years ended December 31, 2002, 2001 and 2000                         F-6

   Notes to Consolidated  Financial Statements                                    F-7

</TABLE>

<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors
North Atlantic Trading Company, Inc.


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, other comprehensive income (loss), cash
flows, and changes in stockholders' deficit present fairly, in all material
respects, the financial position of North Atlantic Trading Company, Inc. and
Subsidiaries (the Company) at December 31, 2002 and 2001 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002 the Company adopted the provisions of the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" and effective January 1, 2000 changed its method of
accounting for revenue recognition as a result of the adoption of Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements".

/s/ PricewaterhouseCoopers LLP

March 28, 2003, except for Note 3,
as to which the date is June 10, 2003


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-1
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
(dollars in thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                            ASSETS                                      2002                    2001
                                                                                  ------------------      ------------------
<S>                                                                             <C>                      <C>
Current assets:
      Cash                                                                           $        805            $      1,234
      Accounts receivable, net of allowances of $446 and
       $350 in 2002 and 2001, respectively                                                  7,651                   5,672
      Inventories                                                                          40,818                  43,967
      Income taxes receivable                                                                 887                     233
      Other current assets                                                                  3,457                   1,702
                                                                                  ------------------      ------------------
                          Total current assets                                             53,618                  52,808
Property, plant and equipment, net                                                          5,158                   5,233
Deferred income taxes                                                                      24,916                  28,319
Deferred financing costs                                                                    2,642                   4,028
Goodwill                                                                                  123,557                 123,557
Other assets                                                                                3,703                   2,718
                                                                                  ------------------      ------------------
                          Total assets                                               $    213,594            $    216,663
                                                                                  ==================      ==================

                             LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
      Accounts payable                                                               $      2,868            $      2,718
      Accrued expenses                                                                      2,429                   3,434
      Deferred income taxes                                                                10,552                  11,085
      Revolving Credit Facility                                                             5,500                      --
      Current portion of notes payable and long-term debt                                      --                  12,500
                                                                                  ------------------      ------------------
                               Total current liabilities                                   21,349                  29,737
Notes payable and long-term debt                                                          155,000                 155,000
Other long-term liabilities                                                                12,793                  10,963
                                                                                  ------------------      ------------------
                               Total liabilities                                          189,142                 195,700
                                                                                  ------------------      ------------------
Commitments and contingencies

Preferredstock, net of unamortized discount of $0 in 2002 and $918 in 2001;
         mandatory redemption value of $57,805 in 2002 and $58,051
         in 2001                                                                           57,805                  57,443
                                                                                  ------------------      ------------------
Stockholders' deficit:
      Common stock, voting, $.01 par value; authorized shares, 750,000;
              issued and outstanding shares, 528,241                                            5                       5
      Common stock, nonvoting, $.01 par value; authorized shares, 750,000;
              issued and outstanding shares, -0-
      Additional paid-in capital                                                            9,246                   9,144
      Loans to stockholders for stock purchases                                              (157)                   (187)
      Accumulated other comprehensive loss                                                 (1,125)                   (216)
      Accumulated deficit                                                                 (41,322)                (45,226)
                                                                                  ------------------      ------------------
                               Total stockholders' deficit                                (33,353)                (36,480)
                                                                                  ------------------      ------------------
                               Total liabilities and stockholders' deficit           $    213,594            $    216,663
                                                                                  ==================      ==================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-2
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 2002, 2001 and 2000
(dollars in thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>


                                                                              2002                 2001                2000
                                                                        -----------------     ----------------    ----------------
<S>                                                                 <C>                    <C>                  <C>
Net sales                                                                 $     94,425          $     89,622        $     90,365
Cost of sales                                                                   40,973                37,697              37,797
                                                                        -----------------     ----------------    ----------------
         Gross profit                                                           53,452                51,925              52,568
Selling, general and administrative expenses                                    24,065                23,372              23,586
Amortization of Goodwill                                                             -                 5,490               5,490
                                                                        -----------------     ----------------    ----------------
         Operating income                                                       29,387                23,063              23,492
Interest expense and financing costs                                            18,744                19,742              22,261
Other expense                                                                    1,944                 2,642               3,172
                                                                        -----------------     ----------------    ----------------
         Income (loss) from continuing operations before income tax              8,699                   679              (1,941)
Income tax expense                                                               3,214                 2,043               1,008
                                                                        -----------------     ----------------    ----------------
         Income (loss) before cumulative effect
         of change in accounting principle                                       5,485                (1,364)             (2,949)
Cumulative effect of change in accounting principle,
           net of income tax benefit of $153                                         -                     -                (251)
                                                                        -----------------     ----------------    ----------------
           Net income (loss)                                                     5,485                (1,364)             (3,200)
Preferred stock dividends                                                       (6,976)               (6,745)             (6,005)
Net gain on restructuring of preferred stock                                     5,395                     -                   -
                                                                        -----------------     ----------------    ----------------
           Net income (loss) applicable to common shares                         3,904                (8,109)             (9,205)
           Add back:  goodwill amortization expense, net of tax                      -                 4,088               4,088
                                                                        -----------------     ----------------    ----------------
           Adjusted net income (loss) applicable to common shares         $      3,904          $     (4,021)       $     (5,117)
                                                                        =================     ================    ================


               The accompanying notes are an integral part of the
                       consolidated financial statements.

</TABLE>

                                      F-3
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED
for the years ended December 31, 2002, 2001 and 2000
(dollars in thousands except share data)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               2002                 2001                2000
                                                                         -----------------     ----------------    ----------------
<S>                                                                   <C>                    <C>                  <C>
Basic earnings per common share:
      Income (loss) before
        cumulative effect of change in accounting principle                $      10.38          $      (2.58)     $         (5.59)
      Cumulative effect of change in accounting principle,
        net of income tax benefit                                                  -                     -                  (0.47)
      Preferred stock dividends                                                  (13.20)               (12.77)             (11.37)
      Net gain on restructuring of preferred stock                                10.21                     -                   -
                                                                         -----------------     ----------------    ----------------
      Net income (loss)                                                            7.39                (15.35)             (17.43)
      Add back:  goodwill amortization expense, net of tax                            -                  7.74                7.74
                                                                         -----------------     ----------------    ----------------
      Adjusted net income (loss)                                           $       7.39          $      (7.61)       $      (9.69)
                                                                         =================     ================    ================
Diluted earnings per common share:
  Income (loss) before
      cumulative effect of change in accounting principle                  $       8.25          $      (2.58)       $      (5.59)
      Cumulative effect of change in accounting principle,
        net of income tax benefit                                                     -                     -               (0.47)
      Preferred stock dividends                                                  (10.49)               (12.77)             (11.37)
      Net gain on restructuring of preferred stock                                 8.11                     -                   -
                                                                         -----------------     ----------------    ----------------
      Net income (loss)                                                            5.87                (15.35)             (17.43)
      Add back:  goodwill amortization expense, net of tax                            -                  7.74                7.74
                                                                         -----------------     ----------------    ----------------
      Adjusted net income (loss)                                         $         5.87          $      (7.61)       $      (9.69)
                                                                         =================     ================    ================

Weighted average common shares outstanding:
  Basic                                                                         528,241               528,241             528,241
  Diluted                                                                       664,939               528,241             528,241



             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (in thousands)


------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
Net income (loss)                                                           $   5,485            $  (1,364)           $  (3,200)
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------

------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
Other comprehensive income, net of tax benefit:
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
Net change related to cash flow hedges:
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
  Cumulative effect of accounting change                                            -                   28                    -
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
  Reclassification to net income                                                    -                  (28)                   -
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
Minimum pension liability, net of tax                                            (909)                (216)                   -
------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------

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

------------------------------------------------------------------------- ----------------- -- ---------------- --- ----------------
Comprehensive income (loss)                                                 $   4,576            $  (1,580)           $  (3,200)
------------------------------------------------------------------------- ================= -- ================ --- ================

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-4
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 2002, 2001 and 2000
(dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                           2002                 2001                 2000
                                                                      ----------------     ----------------     ---------------
<S>                                                                 <C>                   <C>                  <C>
Cash flows from operating activities:
      Net income (loss)                                                 $   5,485            $  (1,364)           $  (3,200)
      Adjustments to reconcile net income (loss) to net
                cash provided by operating activities:
           Write-off of deferred financing costs                                -                    -                1,371
           Depreciation                                                       700                  637                1,067
           Amortization of goodwill                                             -                5,490                5,490
           Amortization of deferred financing costs                         1,386                1,332                2,275
           Deferred income taxes                                            2,738                2,043                  855
           Change in accrued pension liabilities                              495                  513                  201
           Change in accrued postretirement liabilities                       558                  615                  465
           Compensation expense                                               576                   33                   33
           Changes in operating assets and liabilities:
                Accounts receivable                                        (1,979)              (1,490)                 802
                Inventories                                                 3,149                5,205                4,327
                Income tax receivable                                        (654)                   -                  (58)
                Other current assets                                       (1,755)                 368                 (382)
                Other assets                                                 (985)              (1,039)                (396)
                Accounts payable                                              150                  264                2,140
                Accrued expenses and other                                 (1,479)                 280                 (102)
                                                                      ----------------     ----------------     ---------------
                          Net cash provided by operating activities         8,385               12,887               14,888
                                                                      ----------------     ----------------     ---------------
Cash flows from investing activities:
      Capital expenditures                                                   (625)                (603)                (456)
                                                                      ----------------     ----------------     ---------------
                          Net cash used in investing activities              (625)                (603)                (456)
                                                                      ----------------     ----------------     ---------------
Cash flows from financing activities:
      Payments on senior term loans                                       (12,500)             (12,500)             (15,864)
      Proceeds from revolving credit facility                               5,500                    -                    -
      Consent Solicitation expenses                                        (1,219)                   -                    -
      Net loans to stockholders for stock purchases                            30                   (3)                   -
                                                                      ----------------     ----------------     ---------------
                          Net cash used in financing activities            (8,189)             (12,503)             (15,864)
                                                                      ----------------     ----------------     ---------------
Net increase (decrease) in cash                                              (429)                (219)              (1,432)
Cash, beginning of period                                                   1,234                1,453                2,885
                                                                      ----------------     ----------------     ---------------
Cash, end of period                                                     $     805            $   1,234            $   1,453
                                                                      ================     ================     ===============
Supplemental disclosures of cash flow information:
      Cash paid during the period for interest                          $  17,560            $  18,466            $  20,737
                                                                      ================     ================     ===============
      Cash paid during the period for income taxes                      $     283                    -                    -
                                                                      ================     ================     ===============

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-5
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
for the years ended December 31, 2002, 2001 and 2000
(dollars in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                                             LOANS TO    ACCUMULATED
                                                 COMMON      ADDITIONAL     STOCKHOLDERS    OTHER                          TOTAL
                                                 STOCK,       PAID-IN        FOR STOCK  COMPREHENSIVE   ACCUMULATED    STOCKHOLDERS'
                                                 VOTING       CAPITAL        PURCHASES      LOSS          DEFICIT         DEFICIT
                                               ------------ ------------- ------------ -------------  ---------------- -------------

<S>                                          <C>            <C>          <C>           <C>           <C>              <C>
Beginning balance, January 1, 2000              $      5      $  9,078     $   (184)     $       -      $  (27,912)     $  (19,013)

Compensation expense                                   -            33            -              -               -              33
Preferred stock dividend                               -             -            -              -          (6,005)         (5,361)
Net loss                                               -             -            -              -          (3,200)         (3,200)
                                               ------------ ------------- ------------ -------------  ---------------- -------------

Ending balance, December 31, 2000                      5         9,111         (184)             -         (37,117)        (28,185)

Compensation expense                                   -            33            -              -               -              33
Net loans to stockholders for stock purchases          -             -           (3)             -               -              (3)
Amount related to minimum pension liability,
     net of tax of $132                                -             -            -           (216)              -            (216)
Preferred stock dividend                               -             -            -              -          (6,745)         (6,745)
Net loss                                               -             -            -              -          (1,364)         (1,364)
                                               ------------ ------------- ------------ -------------  ---------------- -------------

Ending balance, December 31, 2001                      5         9,144         (187)          (216)        (45,226)        (36,480)

Compensation expense                                   -           102            -              -               -             102
Net loans to stockholders for stock purchases          -             -           30              -               -              30
Amount related to minimum pension liability,
     net of tax of $344                                -             -            -           (909)              -            (909)
Preferred stock dividend                               -             -            -              -          (6,976)         (6,976)
Net gain on restructuring of preferred stock           -             -            -              -           5,395           5,395
Net income                                             -             -            -              -           5,485           5,485
                                               ------------ ------------- ------------ -------------  ---------------- -------------

Ending balance, December 31, 2002               $      5      $  9,246     $   (157)     $  (1,125)     $  (41,322)     $  (33,353)
                                               ============ ============= ============ =============  ==============   =============


</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-6
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     ORGANIZATION:

       North Atlantic Trading Company, Inc. and Subsidiaries (the "Company")
       manufactures and distributes tobacco and related products through its
       smokeless tobacco and make-your-own operating segments. The smokeless
       tobacco segment manufactures and distributes smokeless tobacco products
       under the Beech-Nut, Durango, Trophy and Havana Blossom brand names. The
       make-your-own segment imports and distributes premium cigarette papers,
       smoking tobaccos and related products under the Zig-Zag brand name.

       National Tobacco Company, L.P. (a limited partnership) was formed and
       acquired the smokeless tobacco division of Lorillard, Inc. in 1988. On
       April 14, 1992, the general partner and majority owner and certain
       limited partners sold their partnership interest to a new general
       partner. Accordingly, the April 1992 transaction was accounted for as the
       formation of a new entity, National Tobacco Company, L.P. (the
       "Partnership"). Certain members of management of the Partnership formed
       NTC Holding, LLC (the "Holding Company"), a limited liability company
       with a finite life expiring December 31, 2100, and caused the Holding
       Company to form National Tobacco Finance Corporation (the "Finance
       Corporation"), a wholly-owned subsidiary of the Holding Company.

       On May 17, 1996, the Partnership was recapitalized and the Holding
       Company acquired a 99% limited partnership interest in the Partnership
       and the Finance Corporation became the sole general partner and owner of
       the remaining 1% interest of the Partnership. Accordingly, this
       transaction was accounted for as the formation of a new entity under the
       purchase method of accounting.

       On May 19, 1997, certain members of management and holders of membership
       interests in the Holding Company formed a corporation named North
       Atlantic Trading Company, Inc. (the "Corporation"). On June 25, 1997, the
       Corporation acquired the membership interests in the Holding Company and
       the Holding Company transferred all of its assets to the Corporation,
       including its limited partnership interest in the Partnership, all of the
       capital stock of the Finance Corporation, and its rights to acquire NATC
       Holdings USA, Inc. ("NATC"). The Corporation then formed North Atlantic
       Operating Company, Inc. ("NAOC"), a Delaware corporation and wholly-owned
       subsidiary of the Corporation. NAOC then exercised its rights to acquire
       all of the outstanding capital stock of NATC. NATC and its wholly-owned
       subsidiary were then merged into NAOC.

       On February 11, 2000, the Company entered into a definitive Asset
       Purchase Agreement with Swedish Match North American, Inc. ("Swedish
       Match"), under which the Company agreed to sell certain smokeless tobacco
       assets, including its chewing tobacco brands and related formulation,
       technology and inventory. The transaction was challenged by the Federal
       Trade Commission (the "FTC") as anti-competitive under the antitrust
       laws. As a result of actions taken by the FTC, on December 22, 2000, the
       Company and Swedish Match mutually agreed to terminate the Asset Purchase
       Agreement. Costs of $1.8 million related to the sale, which had
       previously been deferred, have been recognized in other expenses for the
       year ended December 31, 2000.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-7
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       CONSOLIDATION: The consolidated financial statements include the
       consolidated accounts of the Corporation, the Finance Corporation, the
       Partnership and NAOC. All inter-company accounts have been eliminated.

       REVENUE RECOGNITION: The Company recognizes revenues and the related
       costs upon transfer of title and risk of loss to the customer.

       In December 1999, the Securities and Exchange Commission (the "SEC")
       issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
       Financial Statements" ("SAB 101"). The Company adopted SAB 101 effective
       January 1, 2000, resulting in a cumulative effect adjustment of $251,000
       (net of tax benefit of $153,000) as of the date of adoption and a
       decrease in December 31, 2000 net income of $91,000 (net of tax benefit
       of $57,000). The change in accounting method would not have had a
       material effect on the statement of operations for the year ended 1999 if
       adopted in that year.

       SHIPPING COSTS: The Company records shipping costs incurred as a
       component of selling, general and administrative expenses. Shipping costs
       incurred were $2,583,000, $2,560,000 and $2,443,000 in 2002, 2001, and
       2000, respectively.

       INVENTORIES: Inventories are stated at the lower of cost or market. Cost
       is determined on the last-in, first-out (LIFO) method. Leaf tobacco is
       presented in current assets in accordance with standard industry
       practice, notwithstanding the fact that such tobaccos are carried longer
       than one year for the purpose of curing.

       FIXED ASSETS: Fixed assets are stated at cost less accumulated
       depreciation. Depreciation is provided using the straight-line method
       over the estimated useful lives of the related assets (4 to 7 years for
       machinery, equipment and furniture, and 25 years for buildings).
       Expenditures for repairs and maintenance are charged to expense as
       incurred. The costs of major renewals and betterments are capitalized and
       depreciated over their estimated useful lives. Upon disposition of fixed
       assets, the costs and related accumulated depreciation amounts are
       relieved and any resulting gain or loss is reflected in operations during
       the period of disposition.

       GOODWILL: Upon adopting Statement 142 on January 1, 2002, the Company
       ceased amortizing goodwill. Statement 142 required completion of the
       first step of the transitional impairment test by June 30, 2002. In
       completing the transitional impairment test for fiscal 2002, the Company
       reported that it had incurred no impairment.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       DEFERRED FINANCING COSTS: Deferred financing costs are amortized over the
       terms of the related debt obligations using the interest method.


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-8
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       INCOME TAXES: The Company records the effects of income taxes under the
       liability method in which deferred income tax assets and liabilities are
       recognized based on the difference between the financial and tax basis of
       assets and liabilities using the enacted tax rates in effect for the
       years in which the differences are expected to reverse.

       ADVERTISING AND PROMOTION: Advertising and promotion costs, including
       point of sale materials, are expensed as incurred and amounted to
       $911,281, $1,030,281, and $848,129 for the years ended December 31, 2002,
       2001 and 2000, respectively.

       FINANCIAL INSTRUMENTS: The Company enters into foreign currency forward
       contracts to hedge its exposure to changes in foreign currency exchange
       rates primarily on inventory purchase commitments. The Company adopted
       Statement of Financial Accounting Standards No. 133 (SFAS 133),
       "Accounting for Derivative Instruments and Hedging Activities" on January
       1, 2001, resulting in a cumulative effect adjustment to increase other
       comprehensive income by $28,000. Forward contracts that qualify as hedges
       are adjusted to their fair value through other comprehensive income as
       determined by market prices on the measurement date. Gains and losses on
       these contracts are transferred from other comprehensive income into net
       income as the related inventories are sold.

       STOCK-BASED COMPENSATION: The Company measures stock compensation costs
       related to the stock options described in Note 15 on the fair value based
       method which is the preferred method under the provisions of Statement of
       Financial Accounting Standards (SFAS) No. 123, "Accounting for
       Stock-Based Compensation." The fair value based method requires
       compensation cost for stock options to be recognized based on the fair
       value of stock options granted.

       COMPUTATION OF EARNINGS PER COMMON SHARE: Basic earnings per common share
       is computed by dividing the net income (loss) applicable to common shares
       by the weighted average number of common shares outstanding during the
       period.

       Diluted earnings per share is computed by dividing the net income (loss)
       applicable to common shares by the weighted average number of common and
       common equivalent shares (warrants and stock options), where dilutive,
       outstanding during the period.

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-9
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       RISKS AND UNCERTAINTIES: Smokeless and make-your-own tobacco companies,
       like other manufacturers and sellers of tobacco products, are subject to
       regulation at the federal, state and local levels. Such regulations
       include, among others, labeling requirements, limitations on advertising,
       and prohibition of sales to minors. The trend in recent years has been
       toward increased regulation of the tobacco industry. There can be no
       assurance as to the ultimate content, timing or effect of any regulation
       of tobacco products by any federal, state or local legislative or
       regulatory body, nor can there be any assurance that any such legislation
       or regulation would not have a material adverse effect on the Company's
       financial position, results of operations or cash flows.

       The tobacco industry has experienced and is experiencing significant
       product liability litigation. Most tobacco liability lawsuits have been
       brought against manufacturers and sellers of cigarettes for injuries
       allegedly caused by smoking or by exposure to smoke. However, several
       lawsuits have been brought against manufacturers and sellers of smokeless
       tobacco for injuries to health allegedly caused by use of smokeless
       tobacco. Typically, such claims assert that use of smokeless tobacco is
       addictive and causes oral cancer. As discussed in Note 19, the Company
       was named as a defendant in such a lawsuit. There can be no assurance
       that the Company will not sustain losses in connection with such lawsuits
       and that such losses will not have a material adverse effect on the
       Company's financial position, results of operations or cash flows or that
       additional lawsuits will not be brought against the Company.

       Forty-six states, certain U.S. territories and the District of Columbia
       are parties to the Master Settlement Agreement (the "MSA") and the
       Smokeless Tobacco Master Settlement Agreement (the "STMSA"). To the
       Company's knowledge, the other signatories to the MSA are 34 cigarette
       manufacturers and/or distributors and the only other signatory to the
       STMSA is US Smokeless Tobacco Company. In the Company's opinion, the
       fundamental basis for each agreement is the states' consents to withdraw
       all claims for monetary, equitable and injunctive relief against certain
       tobacco products manufacturers and others and, in return, the signatories
       have agreed to certain marketing restrictions and regulations as well as
       certain payment obligations.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-10
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       RISKS AND UNCERTAINTIES, CONTINUED: Pursuant to the MSA and subsequent
       states' statutes, a "cigarette manufacturer" (which is defined to also
       include make-your-own cigarette tobacco) has the option of either
       becoming a signatory to the MSA or opening, funding and maintaining an
       escrow account, with subaccounts on behalf of each settling state. The
       STMSA has no similar provisions. The MSA escrow accounts are governed by
       states' statutes that expressly give the manufacturers the option of
       opening, funding and maintaining an escrow account in lieu of becoming a
       signatory to the MSA. The statutes require companies, who are not
       signatories to the MSA, to deposit, on an annual basis, into qualified
       banks escrow funds based on the number of cigarettes or cigarette
       equivalents, i.e., the pounds of MYO tobacco, sold. The purpose of these
       statutes is expressly stated to be to eliminate the cost disadvantage the
       settling manufacturers have as a result of entering into the MSA. Such
       companies are entitled to direct the investment of the escrowed funds and
       withdraw any appreciation, but cannot withdraw the principal for
       twenty-five years from the year of each annual deposit, except to
       withdraw funds deposited pursuant to an individual state's escrow statute
       to pay a final judgment to that state's plaintiffs in the event of such a
       final judgment against the Company. Either option - becoming a MSA
       signatory or establishing an escrow account - is permissible. NAOC has
       chosen to open and fund an escrow account.

       NAOC has chosen to open and fund an MSA escrow account as its means of
       compliance. As of December 31, 2002, NAOC has funded a total of
       approximately $1.1 million into its account. It is management's opinion,
       due to the possibility of future federal or state regulations, though
       none have to date been enacted, that entering into one or both of the
       settlement agreements or establishing and maintaining an escrow account,
       as NAOC has chosen to do, would not necessarily prevent future
       regulations from having a material adverse effect on the results of
       operations, financial position and cash flows of the Company.

       Various states have enacted or proposed complementary legislation
       intended to curb the activity of certain manufacturers and importers of
       cigarettes that are selling into MSA states without signing the MSA or
       that have failed to properly establish and fund a qualifying escrow
       account. To date, no such statute has been enacted which could
       inadvertently and negatively impact the Company, which has been and is
       currently fully compliant with all applicable laws, regulations and
       statutes, but there can be no assurance that the enactment of any such
       complementary legislation in the future will not have a material adverse
       effect on the results of operations, financial position or cash flows of
       the Company.

       Pursuant to the MSA escrow account statutes, in order to be compliant
       with the MSA escrow requirements, the Company is required to deposit such
       funds for each calendar year into a qualifying escrow account by April 15
       of the following year. As of December 31, 2002, the Company has recorded
       approximately $2,092,000 as an other non-current asset. During 2002,
       $605,577 was deposited into a qualifying escrow account. As of December
       31, 2002 the escrow balance is $1,083,982, which represents the total
       deposit balance plus $29,593 interest earned thereon. The remaining
       amount of

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-11
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       approximately $1,008,000 relates to 2002 and will be deposited by April
       15, 2003. The Company is entitled to direct the investment of the escrow
       funds and is allowed to withdraw any appreciation, but cannot withdraw
       the principal for twenty-five years from the year of each annual deposit,
       except to withdraw funds deposited pursuant to an individual state's
       escrow statute to pay a final judgment to that state's plaintiffs in the
       event of such a judgment against the Company.

       USE OF ESTIMATES: The preparation of financial statements in conformity
       with generally accepted accounting principles requires management to make
       estimates and assumptions that affect the reported amounts of assets and
       liabilities, disclosure of contingent assets and liabilities as of the
       dates of the financial statements and the reported amounts of revenues
       and expenses during the reporting periods. Actual results could differ
       from those estimates. The Company's significant estimates include those
       affecting the valuation and useful lives of property, plant and equipment
       and goodwill, assumptions used in determining pension and postretirement
       benefit obligations, accrued and deferred income taxes and litigation
       contingencies.

       CONCENTRATION OF CREDIT RISK: At December 31, 2002 and 2001, the Company
       had bank deposits in excess of federally insured limits of approximately
       $1.2 million and $2.6 million, respectively.

       The Company sells its products to distributors and retail establishments
       throughout the United States. A single customer accounted for 13.1%,
       10.1% and 10.2% of the Company's revenues in 2002, 2001 and 2000,
       respectively. The Company performs periodic credit evaluations of its
       customers and generally does not require collateral on trade receivables.
       Historically, the Company has not experienced significant credit losses.

       ACCOUNTS RECEIVABLE: Accounts receivable are recognized at their net
       realizable value. The activity of allowance for doubtful accounts during
       2002 and 2001 is as follows (in thousands):

                                                      2002               2001
                                              ------------------ ---------------

           Balance at beginning of period        $       350        $      201
           Provision for doubtful accounts                96               175
           Charge offs                                    (2)              (26)
                                              ------------------ ---------------
           Balance at end of period              $       446        $      350
                                              ================== ===============



2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

       OTHER EXPENSE: Other expense of $1.9 and $2.6 million in 2002 and 2001,
       respectively, consists primarily of legal, investigative and related
       expenses with respect to the infringement activities involving Zig-Zag
       premium cigarette papers. Other expense of $3.2 million in 2000
       represents, in part, legal fees and other costs associated with the
       proposed sale of the smokeless tobacco segment, which was terminated in

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-12
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       December 2000. Pursuant to the adoption of FASB Statement No. 145,
       "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
       Statement No. 13, and Technical Corrections," the Company reclassified
       the write-off of $1.4 million of deferred financing costs incurred upon
       refinancing the Company's term loan on December 29, 2000 to other
       expense.

       RECLASSIFICATION:  Certain prior year amounts have been reclassified to
       conform with the current year presentation.

 3.    ADOPTION OF FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENT NO. 145:

       The Company has adopted the provisions of FASB Statement No. 145
       "Recession of Statements No. 4, 44 and 64, Amendment of FASB Statement
       No. 13, and Technical Corrections" effective January 1, 2003. As a
       result, the Company has reclassified the write-off of $1.4 million
       (pre-tax) of deferred financing costs incurred upon the refinancing of
       the Company's term loan on December 29, 2000, from Extraordinary loss to
       Other expense and Income tax expense of $521,000 that was previously
       reported as Extraordinary loss has also been reclassified to Income tax
       expense. This reclassification had no effect on Net income (loss) in the
       accompanying December 31, 2000 Consolidated Statements of Operations.
       The Company's earnings per share information has also been revised to
       give effect to the reclassification of the Extraordinary loss.

 4.    FAIR VALUE OF FINANCIAL INSTRUMENTS:

      The following disclosure of the estimated fair value of financial
      instruments is made in accordance with the requirements of SFAS No. 107,
      "Disclosure About Fair Value of Financial Instruments," as amended by
      SFAS No. 126. The estimated fair value amounts have been determined by
      the Company using the methods and assumptions described below. However,
      considerable judgment is required to interpret market data to develop
      estimates of fair value. Accordingly, the estimates presented herein are
      not necessarily indicative of the amounts the Company could realize in a
      current market exchange. The use of different market assumptions and/or
      estimation methodologies may have a material effect on the estimated fair
      value amounts.

      CASH AND CASH EQUIVALENTS: Cash and cash equivalents are by definition
      short-term and the carrying amount is a reasonable estimate of fair value.

      ACCOUNTS RECEIVABLE: The fair value of accounts receivable approximates
      their carrying value.

      NOTES PAYABLE AND LONG-TERM DEBT: The fair value of the notes payable and
      long-term debt approximates their carrying value.


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-13
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 5.    INVENTORIES:

       The components of inventories at December 31 are as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                                         2002                 2001
                                                                                 --------------------- --------------------
<S>                                                                         <C>                        <C>
           Raw materials and work in process                                        $        3,111        $         2,125
           Leaf tobacco                                                                     10,328                 12,404
           Finished goods - loose leaf tobacco                                               4,174                  2,431
           Finished goods - MYO products                                                     4,722                  4,694
           Other                                                                               728                    681
                                                                                 --------------------- --------------------
                                                                                            23,063                 22,335
           LIFO reserve                                                                     17,755                 21,632
                                                                                 --------------------- --------------------
                                                                                    $       40,818        $        43,967
                                                                                 ===================== ====================

</TABLE>

       The reduction of LIFO inventory quantities decreased net income of the
       Company by approximately $2.4 million and $1.7 million for the years
       ended December 31, 2002 and 2001, respectively.

       The LIFO inventory value is in excess of its current estimated
replacement cost by the amount of the LIFO reserve.


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-14
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 6.    PROPERTY, PLANT AND EQUIPMENT:

       Property, plant and equipment at December 31 consists of (in thousands):

<TABLE>
<CAPTION>


                                                                                        2002                 2001
                                                                                --------------------- --------------------

<S>                                                                         <C>                     <C>
           Land                                                                    $          654     $            654
           Buildings and improvements                                                       3,888                3,745
           Machinery and equipment                                                          6,864                6,652
           Furniture and fixtures                                                           2,419                2,149
                                                                                --------------------- --------------------
                                                                                           13,825               13,200
           Accumulated depreciation                                                        (8,667)              (7,967)
                                                                                --------------------- --------------------
                                                                                   $        5,158        $       5,233
                                                                                ===================== ====================



7.     GOODWILL:

       Goodwill at December 31 consists of (in thousands):

                                                                                             2002                   2001
                                                                                      -------------------     ------------------

            NTC goodwill, net of accumulated amortization of $4,500
                       at December 31, 2002 and 2001                                    $      27,450           $     27,450

            NAOC goodwill, net of accumulated amortization of $21,175
                       at December 31, 2002 and 2001                                           96,107                 96,107
                                                                                      -------------------     ------------------

                                                                                        $     123,557           $    123,557
                                                                                      ===================     ==================

</TABLE>


8.     OTHER ASSETS:

       Other assets at December 31, 2002 and 2001 includes loans and accrued
       interest to the principal shareholder of $1,488 and $1,413, respectively,
       and amounts related to the MSA escrow account of $2,092 and $1,219,
       respectively. The latter is described in Note 2.


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-15
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 9.    DEFERRED FINANCING COSTS:

       Deferred financing costs at December 31 consist of (in thousands):

<TABLE>
<CAPTION>
                                                                                          2002                   2001
                                                                                -------------------     -------------------
<S>                                                                            <C>                     <C>
            Deferred financing costs, net of accumulated amortization of
               $7,532 and $6,146 at December 31, 2002 and 2001,
               respectively                                                      $       2,642           $       4,028
                                                                                 ===================    ===================


10.    NOTES PAYABLE AND LONG-TERM DEBT:

       Notes payable and long-term debt at December 31 consists of (in
thousands):

                                                                                         2002                  2001
                                                                                 ---------------------  -------------------

          Senior notes                                                           $            155,000   $           155,000
          Term borrowings under loan agreement                                                      -                12,500
                                                                                 ---------------------  --------------------

                                                                                              155,000               167,500
          Less current portion                                                                      -                12,500
                                                                                 ---------------------  --------------------

                                                                                 $             155,000  $           155,000
                                                                                 =====================  ====================
</TABLE>

       On June 25, 1997, the Company issued $155.0 million of 11% Senior Notes
       due 2004 (the Notes). The Notes are unsecured senior obligations of the
       Company which mature on June 15, 2004. The Notes bear interest at 11% per
       annum, payable semiannually on June 15 and December 15, to holders of
       record at the close of business on the June 1 or December 1 immediately
       preceding the interest payment date.

       The Notes have no mandatory redemption requirements; however, they are
       redeemable at the option of the Company at a redemption price of 102.75%,
       plus accrued interest, on or after June 15, 2002 or 100.0%, plus accrued
       interest, on or after June 15, 2003 and thereafter. In addition, in the
       event of a change in control of the Company, as defined, the holders have
       the right to require the Company to repurchase the Notes at a purchase
       price of 101.0% plus accrued interest.

       The Company is currently operating under a Loan Agreement (the "Loan
       Agreement"), dated December 31, 2000, with Bank One, Kentucky, N.A. as
       Agent (the "Agent"), and the banks named therein, which provided for a
       $25 million term loan and a $10 million revolving credit facility. The
       Term Loan was payable in eight (8) quarterly installments of $3,125,000
       each plus accrued interest, which commenced on March 31, 2001. Both the
       term loan and the revolving credit facility matured on December 31, 2002,

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-16
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    NOTES PAYABLE AND LONG-TERM DEBT, CONTINUED:

       at which time the term loan was paid in full. On December 31, 2002, the
       Company entered into an Amended Loan Agreement (the "Amended Loan
       Agreement") with Bank One in which the revolving credit facility was
       increased to $20 million and extended to December 31, 2003. All terms of
       the original Loan Agreement remain in place except for the replacement of
       a Fixed Charge Coverage Covenant with an Interest Coverage Covenant. The
       Company's obligations under the Loan Agreement are guaranteed by the
       Partnership, NAOC and NTFC. In addition, the Company's obligations are
       collateralized by all of the Company's assets and the Company's equity in
       its subsidiaries. The interest rate on borrowings under the Amended Loan
       Agreement may be either based on LIBOR or the prime rate as announced by
       the Agent from time to time. As of December 31, 2002, the interest rate
       on borrowings under the Amended Loan Agreement was 3.77%. In addition,
       the Company must pay a quarterly commitment fee of 0.5% per annum of the
       unused portion of the revolving credit facility.

       The Loan Agreement and the Senior Notes limit the incurrence of
       additional indebtedness, dividends, transactions with affiliates, asset
       sales, acquisitions, mergers, prepayments of indebtedness, liens and
       encumbrances, and other matters. At December 31, 2002, the Company was in
       compliance with all provisions of the Amended Loan Agreement and Senior
       Notes.

       Scheduled maturities (exclusive of future mandatory prepayments, if any)
       of the Company's notes payable and long-term debt are as follows (in
       thousands):


             Through December 31, 2003                 $                  -
             Through December 31, 2004                               155,000
             Through December 31, 2005                                    -
                                                       ---------------------

                                                       $             155,000
                                                       =====================



 11.   INCOME TAXES:

       The income tax provision for the years ended December 31, 2002, 2001 and
2000 consists of the following components (in thousands):

<TABLE>
<CAPTION>

                                           2002                   2001                   2000
                                   ---------------------- ---------------------- ---------------------
<S>                               <C>                     <C>                   <C>
           Deferred:
              Federal                        $     2,876            $     1,828            $      839
              State and local                        338                    215                    16
                                   ---------------------- ---------------------- ---------------------

                                             $     3,214            $     2,043            $      855
                                   ====================== ====================== =====================
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-17
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    INCOME TAXES, CONTINUED:

       Deferred tax assets and liabilities at December 31, 2002 and 2001 consist
of (in thousands):

<TABLE>
<CAPTION>
                                                                                2002                               2001
                                                                   --------------------------------  -------------------------------
                                                                        ASSETS        LIABILITIES          ASSETS       LIABILITIES
                                                                   ---------------- ---------------  ----------------- -------------

<S>                                                              <C>               <C>                <C>              <C>
           Inventory                                                                 $        7,855                     $      9,542
           Property, plant and equipment                                   $    319                           $    821
           Goodwill                                                                           2,697                            1,543
           Intangible assets                                                 12,676                             15,535
           Accrued pension and postretirement costs                           3,739                              3,839
           Minimum pension liability                                            476                                132
           NOL carryforward                                                   6,406                              6,802
           Other                                                              1,300                              1,190
                                                                   ---------------- -----------------  ---------------- ------------

           Deferred income taxes                                          $  24,916       $       10,552     $  28,319  $     11,085
                                                                   ================ =================  ================ ============


       At December 31, 2002, the Company had NOL carryforwards for income tax
       purposes of $16.9 million which expire in the years beginning in 2012.

       The Company has determined that at December 31, 2002 its ability to
       realize future benefits of net deferred tax assets meets the "more likely
       than not" criteria in SFAS No. 109, "Accounting for Income Taxes";
       therefore, no valuation allowance has been recorded.

       Reconciliation of the federal statutory rate and the effective income
       tax rate for the years ended December 31, 2002, 2001 and 2000 is as
       follows:

                                                          2002                      2001                   2000
                                                    ---------------------- ---------------------- ----------------------

          Federal statutory rate                                 35.0%                  35.0%                (35.0)%
          State taxes                                             3.0                   24.3                    3.2
          Goodwill amortization                                     -                  241.8                   70.0
          Other                                                 (1.1)                  (0.7)                  (1.8)
                                                    ---------------------- ---------------------- ----------------------

          Effective income tax rate                              36.9%                 300.4%                  36.4%
                                                    ====================== ====================== ======================


</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-18
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.    PENSION AND POSTRETIREMENT BENEFIT PLANS:

       The Company has two defined benefit pension plans covering substantially
       all of its employees. Benefits for the hourly employees' plan are based
       on a stated benefit per year of service, reduced by amounts earned in a
       previous plan. Benefits for salaried employees are based on years of
       service and the employees' final compensation.

       The Company sponsors two defined benefit postretirement plans that cover
       both salaried and hourly employees. One plan provides medical and dental
       benefits, and the other provides life insurance benefits. The
       post-retirement health care plan is contributory, with retiree
       contributions adjusted annually; the life insurance plan is
       noncontributory.

       The following tables provide a reconciliation of the changes in the
       plans' benefit obligations and fair value of assets over the two-year
       period ended December 31, 2002, and a statement of the funded status as
       of December 31 (in thousands):


<TABLE>
<CAPTION>
                                                                        PENSION BENEFITS                 POSTRETIREMENT BENEFITS
                                                               -----------------------------------  --------------------------------
                                                                     2002              2001               2002             2001
                                                               ----------------- ------------------  ----------------- -------------
<S>                                                          <C>                 <C>                 <C>              <C>
            Reconciliation of benefit obligation:

               Benefit obligation at January 1                  $         11,280  $        10,163  $           6,695   $      5,887
               Service cost                                                  550              558                421            379
               Interest cost                                                 803              738                473            435
               Actuarial loss                                                619              257              2,098            175
               Benefit  paid                                                (515)            (436)              (336)          (181)
                                                               ------------------ ----------------  ------------------ -------------
            Benefit obligation at December 31                   $         12,737  $         11,280  $          9,351   $      6,695
                                                               ================== ================  ================== =============

            Reconciliation of fair value of plan assets:
               Fair value of plan assets at January 1           $          7,729   $        8,640
               Actual return on plan assets                                 (937)            (510)
               Employer contributions                                        679               35   $            336    $       181
               Benefit  paid                                                (515)            (436)              (336)          (181)
                                                               ------------------ ----------------  ------------------ -------------

            Fair value of plan assets at December 31            $          6,956   $         7,729  $               -   $         -
                                                               ================== ================  ================== =============

            Funded status:
               Funded status at December 31                    $          (5,781)          (3,551)            (9,351)       $(6,695)
               Unrecognized prior service cost                                 7                8
               Unrecognized net loss                                       2,408              194              1,527           (571)
                                                               ------------------ ----------------  ------------------ -------------

            Net amount recognized                              $          (3,366)          (3,349)           (7,824)      $  (7,266)
                                                               ================== ================  ================== =============

</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-19
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.    PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

       The following table provides the amounts recognized in the balance sheets
as of December 31 (in thousands):

<TABLE>
<CAPTION>
                                                                PENSION BENEFITS                POSTRETIREMENT BENEFITS
                                                          ---------------------------       -----------------------------
                                                              2002              2001            2002             2001
                                                          -------------  -------------      ------------    -------------

<S>                                                  <C>               <C>               <C>              <C>
             Accrued benefit cost                        $      (3,366) $      (3,349)      $    (7,824)    $     (7,266)
             Minimum pension liability                          (1,601)          (348)            -                -
             Deferred tax asset                                    476            132             -                -
             Accumulated other comprehensive income              1,125            216             -                -
                                                          -------------  -------------      ------------    -------------

             Net amount recognized                       $      (3,366) $      (3,349)      $    (7,824)   $      (7,266)
                                                          =============  =============      ============    =============

       The following table provides the components of net periodic pension and
       postretirement benefit costs for the plans for the years ended December
       31 (in thousands):

                                                           PENSION BENEFITS                      POSTRETIREMENT BENEFITS
                                                   --------------------------------          -------------------------------
                                                   2002          2001         2000           2002          2001         2000
                                                   ----          ----         ----           ----          ----         ----

             Service cost                        $  550       $  558        $  515         $  421       $  379        $  320
             Interest cost                          803          738           682            473          435           396
             Expected return on plan assets        (658)        (716)         (738)             -            -             -
             Amortization of gains and losses         -          (31)         (149)             -          (18)          (64)
                                                 -------      -------      --------        -------      -------      --------

             Net periodic benefit cost           $  695       $  549        $  310         $  894       $  796        $  652
                                                 =======      =======      ========        =======      =======       =======


       The weighted average assumptions used in the measurement of the Company's
benefit obligation are as follows:

                                                           PENSION BENEFITS                         POSTRETIREMENT BENEFITS
                                                    --------------------------------          --------------------------------
                                                    2002          2001          2000          2002          2001          2000
                                                    ----          ----          ----          ----          ----          ----

               Discount rate                        6.75%        7.25%         7.50%          6.75%        7.25%         7.50%
               Expected return on plan assets       8.50%        8.50%         8.50%              -            -             -
               Rate of compensation increase        4.00%        4.00%         4.00%              -            -             -


</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-20
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.    PENSION AND POSTRETIREMENT BENEFIT PLANS, CONTINUED:

       For measurement purposes, the assumed health care cost trend rate for
       participants under age 65 as of December 31, 2002 and 2001 was 12.0% and
       7.5%, respectively, and for participants age 65 and over the rate was
       12.0% and 6.5%, respectively. The health care cost trend rate was assumed
       to decline gradually to 5% for pre-age 65 and for post-age 65 costs over
       27 years.

       Assumed health care cost trend rates could have a significant effect on
       the amounts reported for the postretirement benefit plans. A 1% change in
       assumed health care cost trend rates would have the following effects (in
       thousands):

<TABLE>
<CAPTION>
                                                                                  2002               2001                2000
                                                                            ------------------ ------------------  -----------------
<S>                                                                      <C>                  <C>                <C>
           Effect on total of service and interest cost
                 components of net periodic postretirement
                 Cost                                                           $   3              $   3              $   2

           Effect on the health care component of
                 the accumulated postretirement benefit
                 Obligation                                                        49                 35                 32

</TABLE>

       The Company also sponsors a voluntary retirement savings plan (401(k)).
       Eligible employees may elect to contribute up to 15% of their annual
       earnings subject to certain limitations. Through December 31, 1998, the
       Company matched 50% of each eligible participant's contribution up to 5%
       of the participant's compensation for the plan year. Beginning January 1,
       2002, the Company changed its matching contribution policy. The Company
       match for the Hourly employees was increased to 100.0% of each eligible
       participant's contribution up to 6% of compensation for the plan year.
       The Company's matching for Hourly employees is subject to a 3 year
       vesting schedule. The Company match for the Salaried employees was
       increased to 100.0% of each eligible participant's contribution up to 6%
       of compensation for the plan year. Company matching is immediate for
       Salaried employees. Additional discretionary matching contributions by
       the Company are determined annually by the Board of Directors. Company
       matching contributions to this plan were approximately $0.4 million, $0.3
       million and $0.3 million for each of the years ended December 31, 2002,
       2001 and 2000.

13.    LEASE COMMITMENT:

       The Company leases certain office space and vehicles for varying periods.


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-21
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.    LEASE COMMITMENT, CONTINUED:

       The following is a schedule of future minimum lease payments for
       operating leases that had initial or remaining non-cancelable lease terms
       in excess of one year as of December 31, 2002:


                                                                Operating
  (In thousands)                                                 Leases
  --------------------------------------------------------- ------------------

  2003                                                                  $ 757
  2004                                                                    512
  2005                                                                    368
  2006                                                                     71
  2007                                                                      3
  2008 and beyond                                                           -
  --------------------------------------------------------- ------------------
  Total minimum lease payments                                         $1,711
  ========================================================= ==================

       Lease expense for the years ended December 31, 2002, 2001 and 2000 was
$786, $790 and $873, respectively.


14.    MANDATORILY REDEEMABLE PREFERRED STOCK:

       On July 1, 2002 the Company commenced a consent solicitation (the
       "Consent Solicitation") from registered holders of its 12% Senior
       Exchange Payment-in-Kind Preferred Stock, par value $0.01 per share
       ("Preferred Stock"), for certain amendments to the certificate of
       incorporation of the Company which would amend the terms of the Preferred
       Stock. The proposed amendments required the consent of the holders of a
       majority of the issued and outstanding shares of common stock of the
       Company and the consent of the holders of a majority of the issued and
       outstanding shares of Preferred Stock. A consent by the holders of a
       majority of the Company's outstanding common stock was executed on June
       28, 2002. On July 29, 2002, the Consent Solicitation was successfully
       completed, with the Company receiving consents from the holders of more
       than 99% of the outstanding shares of Preferred Stock.


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-22
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


14.    MANDATORILY REDEEMABLE PREFERRED STOCK, CONTINUED:

       The amendments to the Preferred Stock, among other things: (i)
       accelerated the mandatory redemption date of the Preferred Stock from
       June 15, 2007 to June 15, 2005, which will require the Company to redeem
       the Preferred Stock at an earlier date, (ii) reduced the liquidation
       preference from $25.00 to $22.00 per share, which will lower the
       Company's cost of redeeming the Preferred Stock and will lower the amount
       of dividends payable thereon (which dividends are equal to 12% of the
       liquidation preference per annum), (iii) eliminated any redemption
       premium, which will lower the Company's potential cost of redeeming the
       Preferred Stock prior to June 15, 2005, (iv) reduced the repurchase price
       that the Company must offer the holders of Preferred Stock upon a change
       of control from 101% to 100% of the liquidation preference, which will
       lower the Company's potential cost of any such repurchase obligation, (v)
       permitted future dividends to be paid through the issuance of additional
       shares of preferred stock, which will provide the Company with greater
       flexibility in financing its operations, and (vi) included a definition
       for the term "Permitted Investments", which definition was inadvertently
       omitted from the Certificate of Designation pursuant to which the
       Preferred Stock was created.

       As consideration for these amendments, the Company paid each registered
       holder of Preferred Stock that consented thereto $0.40 per share in cash.
       A total of $984,642 in consent fees was paid. The Company paid an
       additional $235,724 in legal and other fees related to the Consent
       Solicitation.

       The Company has recorded the Preferred Stock at its current value in the
       accompanying Balance Sheet. The resulting gain, net of the consent and
       other fees described above, has been recognized in the accompanying
       Statements of Operations.

       The Company's future ability to make dividend payments in cash will
       depend upon the availability of funds and whether the Company has
       satisfied the "restricted payments" provision under the Indenture
       pursuant to which the Senior Notes were issued. Currently, the Company
       can satisfy that provision. Additionally, the Company has sufficient
       authorized and un-issued shares of Preferred Stock to make its dividend
       payments through the issuance of additional shares. For the dividend
       payments on September 15, 2002, and December 15, 2002, the Company chose
       to make this payment in kind.

       Persons affiliated with the initial purchases of the Preferred Stock were
       also issued warrants, with an original fair value of $0.7 million, to
       purchase 19,050 shares of common stock of the Company for $0.01 per
       share, exercisable immediately. The original fair value of these warrants
       has been recorded in equity, with a corresponding amount capitalized and
       included in deferred financing costs.

15.    SHARE INCENTIVE PLAN:

       The Company has two share incentive plans covering certain key employees
       which provide for the granting of options to purchase common stock of the
       Company and other stock related benefits. As of December 31, 2002, no
       benefits other than the stock options described below


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-23
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15.    SHARE INCENTIVE PLAN, CONTINUED:

       had been granted. The total number of shares available for granting under
the plans is 111,856. Stock option activity is summarized below:

<TABLE>
<CAPTION>
                                                                                                   WEIGHTED            WEIGHTED
                                                                                                    AVERAGE            AVERAGE
                                                                                INCENTIVE          EXERCISE           GRANT DATE
                                                                                 SHARES              PRICE            FAIR VALUE
                                                                            ------------------ ------------------  -----------------
<S>                                                                        <C>                 <C>                 <C>
            Outstanding, December 31, 2000                                             61,760          $   18.19          $   26.51


            Granted                                                                         -                  -                  -
            Exercised                                                                       -                  -                  -
            Forfeited                                                                       -                  -                  -
                                                                            ------------------
            Outstanding, December 31, 2001                                             61,760              18.19              26.51
                                                                            ------------------

            Granted                                                                    35,511              85.76              22.97
            Exercised                                                                       -                  -                  -
            Forfeited                                                                 (2,000)            (18.19)             (26.51)
                                                                            ------------------
            Outstanding, December 31, 2002                                             95,271              43.38              25.19
                                                                            ==================

</TABLE>

       Of the stock options outstanding on December 31, 2002, 60,981 were
       exercisable, with an additional 34,290 becoming exercisable in 2003
       through 2006. All stock options expire 10 years from the grant date. The
       Company estimates that all of the stock options granted will be exercised
       and that the expected life of all stock options is five years from the
       date of grant. The weighted average fair value of the options was
       determined as the difference between the fair value of the common stock
       on the grant date and the present value of the exercise price over the
       expected life of five years at a risk free interest rate of 6%, with no
       assumed dividend yield.

       Of the stock options described above, 47,986 include a provision under
       which the Company will reimburse the employee for the difference between
       their ordinary income tax liability and the liability computed using the
       capital gains rate in effect upon exercise of the options. The effect of
       this provision is accounted for as a variable portion of the option plan.

       The Company has recorded compensation expense related to the options
       based on the provisions of SFAS No. 123 under which the fixed portion of
       such expense is determined as the fair value of the options on the date
       of grant and amortized over the vesting period. The variable portion of
       the compensation expense is remeasured on each reporting date with the
       expense amount adjusted for changes in the fair value of the Company's
       stock on that date. Compensation expense of $576,000,$33,000 and $33,000


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-24
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 5.    SHARE INCENTIVE PLAN, CONTINUED:

          ($357,000, $20,000 and $20,000 net of deferred income tax benefit) has
          been recognized in the Statements of Operations for the years ended
          December 31, 2002, 2001 and 2000, respectively.

16. INCOME (LOSS) PER COMMON SHARE RECONCILIATION (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                                                                          FOR THE YEAR ENDED DECEMBER 31, 2002
                                                                              ------------------------------------------------------
                                                                                    INCOME               SHARES          PER SHARE
                                                                                  (NUMERATOR)         (DENOMIMATOR)       AMOUNT
                                                                              ------------------------------------------------------


<S>                                                                           <C>                     <C>               <C>
            Net income                                                          $     5,485
            Less: Preferred stock dividends                                          (6,976)
            Plus: Net gain on restructuring of preferred stock                        5,395
                                                                              --------------------
            Basic:
               Net income available to common stockholders                       $     3,904               528,241             7.39
                                                                              ======================================================
            Diluted:
                  Net income available to common stockholders                          3,904               664,939             5.87
                                                                              ======================================================


                                                                                            FOR THE YEAR ENDED DECEMBER 31, 2001
                                                                              ------------------------------------------------------
                                                                                    INCOME               SHARES          PER SHARE
                                                                                  (NUMERATOR)         (DENOMIMATOR)       AMOUNT
                                                                              ------------------------------------------------------


            Net loss                                                            $        (1,364)
            Less: Preferred stock dividends                                              (6,745)
                                                                              --------------------

            Basic and diluted:
               Net loss available to common stockholders                                 (8,109)             528,241         (15.35)
                                                                              ======================================================

                                                                                          FOR THE YEAR ENDED DECEMBER 31, 2000
                                                                              -----------------------------------------------------
                                                                                    INCOME               SHARES          PER SHARE
                                                                                  (NUMERATOR)         (DENOMIMATOR)        AMOUNT
                                                                              ------------------------------------------------------

            Net loss before cumulative
               effect of change in accounting principle                         $
                                                                                         (2,949)
            Cumulative effect of change in accounting
               principle, net of income tax benefit
                                                                                           (251)
            Less: Preferred stock dividends                                              (6,005)
                                                                                --------------------

            Basic and diluted:
               Net loss available to common stockholders
                                                                                         (9,205)             528,241         (17.43)
                                                                              ======================================================

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-25
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16. INCOME (LOSS) PER COMMON SHARE RECONCILIATION (DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS), CONTINUED:

       The calculations above are based on the weighted average number of shares
       of common stock outstanding during the year. For the years ended December
       31, 2001 and December 31, 2000, common equivalent shares from stock
       options of 61,760 and warrants of 63,490 are excluded from the
       computations as their effect is antidilutive.

17.    FOURTH QUARTER ADJUSTMENT:

       The fourth quarters of 2002, 2001 and 2000 include adjustments to
       increase the income tax provision by approximately $1,300,000, $1,490,000
       and $1,140,000, respectively, as a result of the year-end income tax
       computations. The fourth quarters of 2002 and 2000 also included
       adjustments to increase the LIFO expense by approximately $1.7 million
       and $1.5 million, net of income tax of approximately $1.0 million and
       $0.9 million, respectively.

18.  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

       All amounts are in thousands except net income (loss) per share.

<TABLE>
<CAPTION>

                                                                                                   QUARTER
                                                               --------------------------------------------------------------
                                                                  1ST             2ND            3RD             4TH
                                                                  ---             ---            ---             ---
<S>                                                         <C>              <C>             <C>             <C>
       2002
       Net sales                                                  21,952         18,218         26,014           28,241
       Gross profit                                               13,283          9,688         15,477           15,004
       Net income (loss)                                           (305)        (2,575)          6,185              599
       Basic net income (loss) per share                          (0.58)         (4.88)          11.71             1.13
       Diluted net income (loss) per share                        (0.58)         (4.88)           9.46             0.90

       2001
       Net sales                                                  22,442         16,570         23,302           27,308
       Gross profit                                               12,935          8,575         13,386           17,029
       Net income (loss)                                           (122)        (2,219)            111          (1,791)
       Basic net income (loss) per share                          (0.58)         (4.20)           0.21           (3.39)
       Diluted net income (loss) per share                        (0.58)         (4.20)           0.21           (3.39)

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-26
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.    CONTINGENCIES:

       Kentucky and Illinois Complaints. On July 15, 1998, NAOC and NTC filed a
       complaint (the "Kentucky Complaint") against Republic Tobacco, Inc. and
       its affiliates ("Republic Tobacco") in Federal District Court for the
       Western District of Kentucky. Republic Tobacco imports and sells
       Roll-Your-Own ("RYO") premium cigarette papers under the brand names JOB
       and TOP as well as other brand names. The Kentucky Complaint alleges,
       inter alia, that Republic Tobacco's use of exclusivity agreements,
       rebates, incentive programs, buy-backs and other activities related to
       the sale of premium cigarette papers in the southeastern United States
       violate federal and state antitrust and unfair competition laws and that
       Republic Tobacco defaced and directed others to deface NAOC's point of
       purchase vendor displays for premium cigarette papers by covering up the
       ZIG-ZAG brand name and advertising material with advertisements for
       Republic Tobacco's RYO cigarette paper brands. The Kentucky Complaint
       alleges that these activities constitute unfair competition under federal
       and state laws.

       On June 30, 1998, Republic Tobacco filed a complaint against the Company,
       NAOC and NTC in the U.S. District Court of the Northern District of
       Illinois (the "Illinois Complaint") and served it on the Company after
       the institution of the Kentucky action. In the Illinois Complaint,
       Republic Tobacco seeks declaratory relief with respect to the Company's
       claims. In addition, the Illinois Complaint alleges that certain actions
       taken by the Company to inform its customers of its claims against
       Republic Tobacco constitute tortuous interference with customer
       relationships, false advertising, violations of Uniform Deceptive Trade
       Practices and Consumer Fraud Acts, defamation and unfair competition. In
       addition, although not included in its original complaint but in its
       amended complaint, Republic Tobacco alleged that the Company has
       unlawfully monopolized and attempted to monopolize the market on a
       national and regional basis for premium cigarette papers. Republic is
       seeking unspecified compensatory damages, injunctive relief and attorneys
       fees and costs.

       On October 20, 2000, Republic Tobacco filed a motion to dismiss, stay, or
       transfer the Kentucky Complaint to the Illinois Court. On December 19,
       2000, the Court denied Republic Tobacco's motion, holding that it was
       premature. The Court noted also that it had communicated with the Court
       in Illinois and that it had concluded that Republic Tobacco may not be
       entitled to any preference on forum selection, which would ordinarily be
       given because it was first to file.

       Prior to the completion of discovery, the Court dismissed Republic
       Tobacco's antitrust claims against the Company. After discovery was
       completed in 2001, both parties moved for summary judgment on the others
       claims. In April 2002, the District Court for the Northern District of
       Illinois decided the summary judgment motions by dismissing all claims of
       both the Company and Republic Tobacco and its affiliates, except for
       Republic Tobacco's claim of defamation per se against the Company, on
       which it granted summary judgment on liability in favor of Republic
       Tobacco, and a Lanham Act false advertising claim, based on the same
       facts as the defamation claim, for equitable relief.

       The Company believes it has viable defenses to the Republic claims,
       however, no assurances can be given that it will prevail. If the
       Company were not to prevail, management does not believe that any
       adverse judgment would be material to the Company's results of
       operations, financial position or cash flows.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-27
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.    CONTINGENCIES, CONTINUED:

       West Virginia Complaints. Trial of the West Virginia complaints has been
       postponed indefinitely, as described below. On October 6, 1998 NTC was
       served with a summons and complaint on behalf of 65 individual plaintiffs
       in an action in the Circuit Court of Kanawha County, West Virginia,
       entitled Kelly Allen, et al. v. Philip Morris Incorporated, et al. (Civil
       Action Nos. 98-C-2401). On November 13, 1998, NTC was served with a
       second summons and complaint on behalf of 18 plaintiffs in an action in
       the Circuit Court of Kanawha County, West Virginia, entitled Billie J.
       Akers, et al. v. Philip Morris Incorporated et al. (Civil Action Nos.
       98-C-2696 to 98-C-2713). The complaints are identical in most material
       respects. In the Allen case, the plaintiffs have specified the defendant
       companies for each of the 65 cases. NTC is named in only one action. One
       Akers plaintiff alleged use of an NTC product, alleging lung cancer.

       On September 14, 2000, NTC was served with a summons and complaint on
       behalf of 539 separate plaintiffs filed in Circuit Court of Ohio County,
       West Virginia, entitled Linda Adams, et al. v. Philip Morris Inc., et al.
       (Civil Action Nos. 00-C-373 to 00-C-911). Only one of these plaintiffs
       alleged use of a product currently manufactured by NTC. The time period
       during which this plaintiff allegedly used the product has not yet been
       specified. Thus, it is not yet known whether NTC is a proper defendant in
       this case.

       On September 19, 2000, NTC was served with a second summons and complaint
       on behalf of 561 separate plaintiffs filed in Circuit Court of Ohio
       County, West Virginia, entitled Ronald Accord, et al. v. Philip Morris
       Inc., et al. (Civil Action Nos. 00-C-923 to 00-C-1483). A total of five
       of these plaintiffs allege use of a product currently manufactured by
       NTC. One of these plaintiffs does not specify the time period during
       which the product was allegedly used, and one alleges use that covers, in
       part, a period when NTC did not manufacture the product. Of the remaining
       three, one alleges consumption of a competitor's chewing tobacco from
       1966 to 2000 and NTC's BEECH-NUT chewing tobacco from 1998 to 2000;
       another alleges a twenty-four year smoking history ending in 1995 and
       consumption of BEECH-NUT chewing tobacco from 1990 to 1995; and the last
       alleges a thirty-five year smoking history ending in 2000, and
       consumption of NTC's DURANGO ICE chewing tobacco from 1990 to 2000
       (although DURANGO ICE did not come onto the market until 1999).

       In November 2001, NTC was served with an additional four separate
       summons and complaints in actions filed in the Circuit Court of Ohio
       County, West Virginia. The actions are entitled Donald Nice v. Philip
       Morris Incorporated, et al., (Civil Action No. 01-C-479), Korene S.
       Lantz v. Philip Morris Incorporated, et al., (Civil Action No.
       01-C-480), Ralph A. Prochaska, et al. v. Philip Morris, Inc., et al.,
       (Civil Action No. 01-C-481), and Franklin Scott, et al. v. Philip
       Morris, Inc., et al., (Civil Action No. 01-C-482).

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-28
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.    CONTINGENCIES, CONTINUED:

       All of the West Virginia smokeless tobacco actions have been consolidated
       before the West Virginia Mass Litigation Panel for discovery and trial of
       certain issues. Trial of these matters was planned in two phases. In the
       initial phase, a trial was to be held to determine whether tobacco
       products, including all forms of smokeless tobacco, cigarettes, cigars
       and pipe and roll-your-own tobacco, can cause certain specified diseases
       or conditions. In the second phase, individual plaintiffs would attempt
       to prove that they were in fact injured by tobacco products. Fact and
       expert discovery in these cases has closed, however, in the cigarette
       cases the Court has allowed additional discovery.

       The claims against the Company in the various consolidated West Virginia
       actions include negligence, strict liability, fraud in differing forms,
       conspiracy, breach of warranty and violations of the West Virginia
       consumer protection and antitrust acts. The complaints in the West
       Virginia cases request unspecified compensatory and punitive damages.

       The trial of the smokeless tobacco cases has been postponed indefinitely.
       The manufacturers of smokeless tobacco products (as well as the
       manufacturers of cigarettes) moved to sever the claims against the
       smokeless tobacco manufacturer defendants from the claims against the
       cigarette manufacturer defendants. That motion was granted, thus, the
       trial date on the smokeless tobacco claims has now been postponed
       indefinitely.

       Minnesota Complaint. On September 24, 1999, NTC was served with a
       complaint in a case entitled Tuttle v. Lorillard Tobacco Company, et al.
       (Case No. C2-99-7105), brought in Minnesota. The other manufacturing
       defendants are Lorillard and The Pinkerton Tobacco Company. The Complaint
       alleges that plaintiff's decedent was injured as a result of using NTC's
       (and, prior to the formation of NTC, Lorillard's) BEECH-NUT brand and
       Pinkerton's RED MAN brand of loose-leaf chewing tobacco. Plaintiff
       asserts theories of liability, breach of warranty, fraud, and variations
       on fraud and misrepresentation. Plaintiff specifically requests in its
       complaint an amount of damages in excess of fifty thousand dollars
       ($50,000) along with costs, disbursements and attorneys' fees, and ". . .
       an order prohibiting defendants from disseminating in Minnesota further
       misleading advertising and making further untrue, deceptive
       and/misleading statements about the health effects and/or addictive
       nature of smokeless tobacco products. . .". After discovery, summary
       judgment motions were filed on behalf of all defendants. On March 3,
       2003, the Court granted defendants' motions, dismissing all claims
       against all defendants. The plaintiffs have moved the Court to reconsider
       its decision.

       Although the Company believes that it has good defenses to the above
       actions in West Virginia and Minnesota and it intends to vigorously
       defend each such action, no assurances can be given that it will prevail.
       If any of the plaintiffs were to prevail, the results could have a
       material adverse effect on the results of operations, financial position
       and cash flows of the Company.

       Texas Infringing Products Litigation. In Bollore, S.A. v. Import
       Warehouse, Inc., Civ. No. 3-99-CV-1196-R (N.D. Texas), Bollore, the
       Company's Licensor of ZIG-ZAG brand premium cigarette papers, obtained a
       sealed order allowing it to conduct a seizure of infringing and
       counterfeit ZIG-ZAG products in the United States. On June 7, 1999,
       seizures of products occurred in Michigan and Texas.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-29
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.    CONTINGENCIES, CONTINUED:

       Subsequently, all named defendants have been enjoined from buying and
       selling such infringing or counterfeit goods. Bollore and the Company
       have negotiated settlements with one group of defendants, including
       Import Warehouse Inc. and its owner/operator Ravi Bhatia. Those
       settlements included a consent injunction against distribution of
       infringing or counterfeit goods. Management believes that successful
       prosecution of this litigation, either by settlement or otherwise, will
       have a favorable impact on its future premium cigarette paper business.

       On May 18, 2001, the Company, in conjunction with Bollore, conducted
       raids on the businesses and homes of certain defendants previously
       enjoined from selling infringing or counterfeit ZIG-ZAG brand products in
       the Bollore S.A. v. Import Warehouse litigation. Evidence was uncovered
       that showed that these defendants and certain other individuals were key
       participants in importing and distributing counterfeit ZIG-ZAG premium
       cigarette papers. After a two day hearing in the U.S. District Court for
       the Northern District of Texas, on May 30, 2001, the Court held the
       previously enjoined defendants in contempt of court.

       The Company entered into a settlement with the defendants, the principal
       terms of which included a cash payment, an agreed permanent injunction,
       the withdrawal of the defendants' appeal of the civil contempt order, an
       agreed judgment of $11 million from the civil contempt order and an
       agreement to forbear from enforcing that $11 million money judgment until
       such time in the future that the defendants violate the terms of the
       permanent injunction. Two of the defendants also agreed to provide
       complete information concerning the counterfeiting conspiracy as well as
       information on other parties engaged in the purchase and distribution of
       infringing ZIG-ZAG premium cigarette papers.

       Pursuant to the U.S. Distribution Agreement and a related agreement
       between Bollore and the Company, any collections on the judgments issued
       in the Bollore v. Import Warehouse case are to be divided evenly between
       Bollore and the Company after the payment of all expenses.

       On February 7, 2002, Bollore, NAOC and the Company filed a motion with
       the District Court in the Texas action seeking to hold Ravi Bhatia and
       Import Warehouse Inc. in contempt of court for violating the terms of the
       consent order and injunction entered against those defendants. The
       Company alleges that Mr. Bhatia and Import Warehouse sold counterfeit
       goods to at least three different companies over an extended period of
       time. A hearing was held on April 10, 2002. After evidence related to
       this matter was discovered by plaintiffs and upon plaintiffs'
       application, another hearing was held on August 1, 2002. The Court
       allowed the defendants three weeks to supplement the record with
       additional evidence. Final arguments were held on January 22, 2003 and a
       decision is pending.

       California Infringing Products Litigation. On March 23, 2001, the Company
       participated as co-plaintiff with NAOC and Bollore in an action entitled
       Bollore, S.A. v. A&A Smart Shopping (Case No. CV 01-02766 FMC (MANx)),
       filed in the U.S. District Court for the Central District of California.
       The plaintiffs alleged that nine distributors in California were selling
       counterfeit ZIG-ZAG brand premium cigarette papers.

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-30
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19.    CONTINGENCIES, CONTINUED:

       On May 22, 2001, the Company participated as co-plaintiff with NAOC and
       Bollore in an action entitled Bollore, S.A. v. Buy-Rite Wholesale (Case
       No. CV 01-4570 FMC (MAN)), filed in the U.S. District Court for the
       Central District of California. The plaintiffs alleged that seven
       distributors and retailers in California were selling counterfeit ZIG-ZAG
       brand premium cigarette papers.

       On June 5, 2002, the Court granted the plaintiffs application to
       consolidate the A&A Smart Shopping and Buy Rite Wholesale cases for trial
       purposes. In an effort to better manage this case for trial, the
       plaintiffs settled against certain defendants, obtained judgments for
       damage against most the defendants and obtained permanent injunctions
       against all of the settling defendants.

       A trial of the plaintiffs' claims against the remaining defendants, in
       the A&A Smart Shopping case, Downey Wholesale and Fadel El-Shahawi,
       Downey's principal, began October 1, 2002. On October 15, 2002, after a
       two week jury trial, the jury found for the plaintiffs on all counts. The
       plaintiffs were awarded a total of $2,000,000 in damages, and the jury
       found that defendant Downey and the defendant Fadel El-Shahawi acted
       willfully and with fraud, oppression or malice. As a result, plaintiffs
       were entitled to and did request the Court to award them their reasonable
       attorney fees and expenses. That application is pending. The verdict also
       allowed the Court, in its discretion, to apply a multiple of up to three
       times the verdict amount in order to adequately compensate plaintiffs and
       also, to award punitive damages. The parties settled the punitive damages
       and multiplier portions of the case for $500,000, of which half was paid
       on November 15, 2002 and the remainder will be paid in equal monthly
       installments over the next two year period, commencing on December 1,
       2002. All recoveries from this litigation will be shared equally by NAOC
       and Bollore. Defendants filed a new trial motion which the Court has
       denied. However, the Court reduced the plaintiff's damages award to
       approximately $1.7 million. On March 13, 2003, the Court denied the
       defendants' motions.

       On June 6, 2002, the plaintiffs moved for contempt sanctions against JT
       Saniya Inc., asserting that JT Saniya had violated the terms of the
       preliminary injunction issued against it by selling 38 cases of
       counterfeit product. JT Saniya failed to dispute the allegations and a
       default judgment of $420,369.09 was entered against JT Saniya on July 23,
       2002. The plaintiffs have entered into a settlement agreement with JT
       Saniya in respect of the default judgment pursuant to which JT Saniya has
       paid $82,500 in full satisfaction of the judgment.

       In addition to the above described legal proceedings, the Company is
       subject to other litigation in the ordinary course of its business. The
       Company does not believe the outcome of such litigation will have a
       material adverse effect on the results of operations, financial position
       or cash flows of the Company.

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-31
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20.    PARENT-ONLY FINANCIAL INFORMATION:

       The Corporation is a holding company with no operations and no assets
       other than its investments in its subsidiaries, income tax receivables,
       deferred income tax assets related to the differences between the book
       and tax basis of its investment in the Partnership, and deferred
       financing costs related to its debt.

       All of the Corporation's subsidiaries are wholly-owned and guarantee the
       debt of the Corporation on a full, unconditional, and joint and several
       basis. Separate financial statements of the subsidiaries are not required
       and have not been included in these financial statements.

       Following is unaudited parent-only summarized financial information of
       the Corporation (in thousands):

<TABLE>
<CAPTION>
                                                                                        2002                 2001
                                                                                --------------------- --------------------

<S>                                                                            <C>                      <C>
          Noncurrent assets                                                                  189,129              195,462
          Current liabilities                                                                 10,732               20,164
          Noncurrent liabilities                                                             155,000              155,000
          Redeemable preferred stock                                                          57,497               57,443


                                                                                         YEAR ENDED DECEMBER 31,
                                                                                ------------------------------------------
                                                                                        2002                 2001
                                                                                --------------------- --------------------

          Equity in earnings of subsidiaries                                                  24,126               18,746
          Income loss before gain on restructuring and preferred stock dividends               5,544               (1,308)

</TABLE>


21.    SEGMENT INFORMATION:

       In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of
       an Enterprise and Related Information." The Company has been historically
       organized on the basis of product lines which are comprised of two
       reportable segments. The smokeless tobacco segment manufactures smokeless
       tobacco products which are distributed primarily through wholesale and
       food distributors in the United States. The make-your-own segment imports
       and distributes cigarette papers, tobaccos and related products primarily
       through wholesale distributors in the United States.

       The accounting policies of the segments are the same as those described
       in the "Summary of Significant Accounting Policies." Segment data
       includes a charge allocating all corporate costs to each operating
       segment. Elimination and Other includes the assets of the Company not
       assigned to segments and the elimination of intercompany accounts between

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-32
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21.    SEGMENT INFORMATION, CONTINUED:

       segments. The Company evaluates the performance of its segments and
       allocates resources to them based on earnings before interest, taxes,
       depreciation, amortization, certain non-cash charges and other income
       and expenses (Adjusted EBITDA).

       The table below presents financial information about reported segments
       for 2002, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>

                                                SMOKELESS                                   ELIMINATIONS
                              2002               TOBACCO             MAKE-YOUR-OWN           AND OTHER              TOTAL
            --------------------------------------------------- ------------------------ ------------------- --------------------

<S>                                         <C>                   <C>                      <C>                 <C>
            Net sales                               $   35,732             $     58,693           $       -         $     94,425
            Operating income                             5,966                   23,421                                   29,387
            Adjusted EBITDA                              9,904                   25,214                                   35,118
            Assets                                      67,951                  256,756           (111,113)              213,594

                              2001
            -------------------------------

            Net sales                                   38,647                   50,975                   -               89,622
            Operating income                             5,610                   17,453                                   23,063
            Adjusted EBITDA                             10,542                   22,491                                   33,033
            Assets                                      69,781                  237,008            (90,126)              216,663

                              2000
            -------------------------------

            Net sales                                   39,387                   50,978                   -               90,365
            Operating income                             6,362                   17,130                                   23,492
            Adjusted EBITDA                             10,684                   22,498                                   33,182
            Assets                                      73,845                  223,732            (69,820)              227,757


</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-33
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


        The table set forth below is a reconciliation of the Company's Net
        income (loss) to Adjusted EBITDA for each of the years ended December
        31, 2002, 2001 and 2000, respectively (in thousands):

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                --------------------------------------------------------------------
                                                                       2002                   2001                     2000
                                                                -------------------    --------------------     --------------------

<S>                                                           <C>                      <C>
       Net income (loss)                                        $            5,485     $           (1,364)      $           (3,200)
        Interest expense, net and amortization
           of deferred financing fees                                       18,744                  19,742                   22,261

        Income tax expense                                                   3,214                   2,043                    1,008

        Depreciation                                                           701                     637                    1,067

        Amortization of Goodwill                                                 -                   5,490                    5,490

        Other expense                                                        1,944                   2,642                    3,172

        LIFO adjustment                                                      3,877                   2,682                    2,434

        Stock option compensation expense                                      576                      33                       33

        Postretirement/Pension expense                                         577                   1,128                      666
        Cumulative effect of accounting
           change                                                                -                       -                      251
                                                                -------------------    --------------------     --------------------
        Adjusted EBITDA                                          $          35,118     $            33,033      $            33,182
                                                                ===================    ====================     ====================

</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-34
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.    NEW ACCOUNTING STANDARDS:

       During 2001, the Emerging Issues Task Force issued: 1) EITF No. 00-14,
       "Accounting for Certain Sales Incentives", addressing the recognition,
       measurement and statement of earnings classification of certain sales
       incentives and 2) EITF No. 00-25, "Vendor Income Statement
       Characterization of Consideration Paid to a Reseller of the Vendor's
       Products", addressing the statement of earnings classification of
       consideration from a vendor to an entity that purchases the vendor's
       products for resale. The Company adopted EITF 00-14 and EITF 00-25 in the
       first quarter of 2002. As a result of this adoption, certain expenses
       have been reclassified from selling, general and administrative expenses
       to allowances in determining net sales and to cost of goods sold for each
       of the years ended December 31, 2001 and 2000. Due to adopting EITF 00-14
       and EITF 00-25, for each of the years ended December 31, 2001 and 2000,
       net sales decreased by $4.126 million and $2.780 million, respectively,
       cost of goods sold increased by $3.963 million and $4.108 million,
       respectively, and selling, general and administrative expenses were
       reduced by $8.089 million and $6.888 million, respectively, from the
       previously reported figures. The adoption of EITF 00-14 and EITF 00-25
       had no impact on the Company's net income for either of these periods.

       In June 2001, the Financial Accounting Standards Board ("FASB"), issued
       Statement No. 141, Business Combinations ("Statement 141") and Statement
       No. 142, Goodwill and Other Intangible Assets" ("Statement 142").
       Statement 141 requires that all business combinations initiated after
       June 30, 2001 be accounted for using the purchase method as use of the
       pooling-of-interest method is no longer permitted. Statement 142 requires
       that goodwill no longer be amortized to earnings, but instead be reviewed
       at least annually for impairment using a two-step process. The first step
       is a test for potential impairment, and the second measures the amount of
       impairment, if any. Impairment losses that arise from completing a
       transitional impairment test during 2002 are to be reported as the
       cumulative effect of a change in accounting principle as of the beginning
       of the year. Subsequent impairments, if any, will be classified as an
       operating expense. In addition, Statement 142 specifies the types of
       acquired intangible assets that are required to be recognized and
       reported separately from goodwill.

       Upon adopting Statement 142 on January 1, 2002, the Company ceased
       amortizing goodwill. Statement 142 required completion of the first step
       of the transitional impairment test by June 30, 2002. In completing the
       transitional impairment test for fiscal 2002, the Company reported that
       it had incurred no impairment.

       In August 2001, the FASB issued Statement No. 143, "Accounting for Asset
       Retirement Obligation" ("SFAS 143"). SFAS 143 requires that obligations
       associated with the retirement of a tangible long-lived asset be recorded
       as a liability when those obligations are incurred, with the amount of
       the liability initially measured at fair value. Upon initially
       recognizing a liability for an asset-retirement obligation ("ARO"), an
       entity must capitalize the cost by recognizing an increase in the
       carrying amount of the related long-lived asset. Over time, the liability


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-35
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.    NEW ACCOUNTING STANDARDS, CONTINUED:

       is accreted to its present value each period, and the
       capitalized cost is depreciated over the useful life of the related
       asset. Upon settlement of the liability, an entity either settles the
       obligation for its recorded amount or incurs a gain or loss upon
       settlement. SFAS 143 was effective for financial statements for fiscal
       years beginning after June 15, 2002. The Company will adopt the
       provisions of SFAS 143 in fiscal 2003. SFAS 143 will not have an impact
       on the Company's financial statements.

       On January 1, 2002, the Company adopted FASB Statement No. 144,
       "Accounting for the Impairment or Disposal of Long-Lived Assets"
       ("Statement 144"). Statement 144 develops a single accounting model for
       long-lived assets to be disposed of by sale, and addresses significant
       implementation issues related to previous guidance. Statement 144
       requires that long-lived assets to be disposed of by sale be measured at
       the lower of their carrying amount or fair value less cost to sell,
       whether reported in continuing operations or in discontinued operations.
       Statement 144 also broadens the reporting of discontinued operations by
       potentially qualifying more disposal transactions for discontinued
       operations reporting. The adoption of Statement 144 did not have an
       impact on the Company's financial statements.

       In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
       Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
       Technical Corrections". This Statement eliminates the automatic
       classification of gain or loss on extinguishment of debt as an
       extraordinary item of income and requires that such gain or loss be
       evaluated for extraordinary classification under the criteria of
       Accounting Principles Board No. 30, "Reporting Results of Operations."
       This Statement also requires sales-leaseback accounting for certain
       lease modifications that have economic effects that are similar to
       sales-leaseback transactions, and makes various other technical
       corrections to existing pronouncements. This Statement will be effective
       for the Company for the year ending 2003. The Company has adopted the
       provisions of this Statement effective January 1, 2003 and, as a result,
       has reclassified the write-off of $1.4 million of deferred financing
       costs incurred upon the refinancing of the Company's term loan on
       December 29, 2000 from extraordinary loss to other expense in the
       accompanying December 31, 2000 Consolidated Statements of Operations.

       In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
       Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 sets
       forth various modifications to existing accounting guidance which
       prescribes the conditions which must be met in order for costs associated
       with contract terminations, facility consolidations, employee relocations
       and terminations to be accrued and recorded as liabilities in financial
       statements. The provisions of SFAS 146, as related to exit or disposal
       activities will be effective for transactions after December 31, 2002.
       SFAS 146 does not at present have an impact on the Company's financial
       statements.

       In December 2002, the FASB issued SFAS No. 148, "Accounting for
       Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS
       148 amends SFAS 123 providing alternative methods of transition for a
       voluntary change to the fair value based method of accounting for
       stock-based employee compensation. SFAS 148 also amends the disclosure
       requirements of SFAS 123 and requires additional disclosures in annual
       and interim financial statements regarding the method of accounting for
       stock-based employee compensation and the effect of the method used on
       financial results. The Company accounts for stock-based compensation in
       accordance with SFAS No. 123. Therefore, SFAS 148 does not have an
       impact on the Company's financial statements.


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-36
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


22.    NEW ACCOUNTING STANDARDS, CONTINUED:

       In January 2003, the Financial Accounting Standards Board issued
       Financial Accounting Standards Board Interpretation No. 46, Consolidation
       of Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46).
       FIN 46 requires certain variable interest entities to be consolidated by
       the primary beneficiary of the entity if the equity investors in the
       entity do not have the characteristics of a controlling financial
       interest or do not have sufficient equity at risk for the entity to
       finance its activities without additional subordinated financial support
       from other parties. FIN 46 is effective immediately for all new variable
       interest entities created or acquired after January 31, 2003. For
       variable interest entities created or acquired prior to February 1, 2003,
       the provisions of FIN 46 must be applied for the first interim or annual
       period beginning after June 15, 2003. FIN 46 does not have an impact on
       the Company's financial statements.

23.    SUBSEQUENT EVENT:

       On February 18, 2003, the Company entered into an asset purchase
       agreement (the "Star Cigarette Asset Purchase Agreement") with Star
       Scientific, Inc. ("Star Scientific"), and Star Tobacco, Inc., a
       wholly-owned subsidiary of Star Scientific ("Star Tobacco" and, together
       with Star Scientific, "Star"). Pursuant to the Star Cigarette Asset
       Purchase Agreement, the Company has agreed to purchase substantially all
       of the assets of Star relating to the manufacturing, marketing and
       distribution of four discount cigarette brands in the United States (the
       "Star Cigarette Assets"). The purchase price for the Star Cigarette
       Assets is $80 million in cash, subject to certain closing adjustments and
       the assumption of certain liabilities related to the Star Cigarette
       Assets.

       All requisite corporate approvals for this transaction have been
       obtained, including the approvals of the Star Cigarette Asset Purchase
       Agreement by the respective Boards of Directors of the Company and Star,
       by the holders of a majority of the outstanding shares of common stock of
       Star Scientific and by Star Scientific as the sole stockholder of Star
       Tobacco.

       The transaction is expected to close in the second quarter of 2003. The
       closing is subject to the Company's receipt of financing and to
       customary closing conditions. Contemporaneously with the signing of the
       Star Cigarette Asset Purchase Agreement, the Company placed a $2 million
       earnest money deposit into escrow. In the event that, on or after July
       15, 2003, the Star Cigarette Asset Purchase Agreement is terminated by


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                      F-37
<PAGE>
NORTH ATLANTIC TRADING COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23.    SUBSEQUENT EVENT, CONTINUED:

       either the Company or Star and, at that time, the Company has been
       unable to obtain the requisite financing for the transaction and all
       other conditions to closing have been satisfied or are capable of being
       satisfied, then such deposit will be paid to Star. In all other events,
       the deposit will either be used to satisfy a portion of the purchase
       price or repaid to the Company, as applicable. Although the Company is
       currently in the process of seeking financing for the acquisition and a
       related recapitalization of the Company, there can be no assurance that
       such financing will be obtained.

        Through December 31, 2002, the Company has incurred approximately $1.9
        million of costs relating to this acquisition. Such costs have been
        deferred and are included in Other current assets in the accompanying
        Consolidated Balance Sheets.


               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                      F-38
<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

2                 --    Asset Purchase Agreement, dated as of February 18, 2003,
                        among North Atlantic Trading Company, Inc., Star
                        Scientific, Inc. and Star Tobacco, Inc. (incorporated
                        herein by reference to Exhibit 2.1 to the Registrant's
                        Current Report on Form 8-K filed on February 19, 2003).

3.1(a)            --    Restated Certificate of Incorporation of North Atlantic
                        Trading Company, Inc., filed February 19, 1998
                        (incorporated herein by reference to Exhibit 3.1(a) the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

3.1(b)*           --    Certificate of Correction to the Restated Certificate of
                        Incorporation of North Atlantic Trading Company, Inc.,
                        dated as of June 28, 2002.

3.1(c)            --    Certificate of Amendment to the Certificate of
                        Incorporation of North Atlantic Trading Company, Inc.,
                        dated July 30, 2002 (incorporated herein by reference to
                        Exhibit 3.1 to the Registrant's Current Report on Form
                        8-K filed on July 31, 2002).

3.1(d)            --    Certificate of Incorporation of North Atlantic Operating
                        Company, Inc., filed June 9 1997 (incorporated herein by
                        reference to Exhibit 3.1(b)(i) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

3.1(e)            --    Certificate of Amendment of Certificate of Incorporation
                        of North Atlantic Operating Company, Inc., filed June
                        17, 1997 (incorporated herein by reference to Exhibit
                        3.1(b)(ii) to Amendment No. 1 to Registration Statement
                        (Reg. No. 333-31931) on Form S-4 filed with the
                        Commission on September 3, 1997).

3.1(f)            --    Second Amended and Restated Certificate of Incorporation
                        of National Tobacco Finance Corporation, filed April 24,
                        1996 (incorporated herein by reference to Exhibit 3.1(c)
                        to Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

3.1(g)            --    Amended and Restated Certificate of Limited Partnership
                        of National Tobacco Company, L.P., filed May 17, 1996
                        (incorporated herein by reference to Exhibit 3.1(d) to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

3.1(h)            --    Certificate of Incorporation of International Flavors
                        and Technology, Inc., filed August 7, 1997 (incorporated
                        herein by reference to Exhibit 3.1(e)(i) to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

3.1(i)            --    Certificate of Amendment of Certificate of Incorporation
                        of International Flavors and Technology, Inc., filed
                        February 19, 1998 (incorporated herein by reference to
                        Exhibit 3.1(e)(ii) to the Registrant's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1997).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

3.2(a)            --    Amended and Restated Bylaws of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 3.2(a) to the Registrant's Quarterly Report on
                        Form 10-Q for the fiscal quarter ended March 31, 1998).

3.2(b)            --    Bylaws of North Atlantic Operating Company, Inc.
                        (incorporated herein by reference to Exhibit 3.2(b) to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on July 23, 1997).

3.2(c)            --    Bylaws of National Tobacco Finance Corporation
                        (incorporated herein by reference to Exhibit 3.2(c) to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on July 23, 1997).

3.2(d)            --    Third Amended and Restated Agreement of Limited
                        Partnership of National Tobacco Company, L.P., effective
                        May 17, 1996 (incorporated herein by reference to
                        Exhibit 3.2(d)(i) to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

3.2 (e)           --    Amendment No. 1 to Third Amended and Restated Agreement
                        of Limited Partnership of National Tobacco Company,
                        L.P., effective June 25, 1997 (incorporated herein by
                        reference to Exhibit 3.2(d)(ii) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

3.2(f)            --    Bylaws of International Flavors and Technology, Inc.
                        (incorporated herein by reference to Exhibit 3.2(e) to
                        the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1997).

3.2(g)            --    Amendment No. 2 to the Third Amended and Restated
                        Agreement of Limited Partnership of National Tobacco
                        Company, L.P., effective February 10, 2000 (incorporated
                        by reference to Exhibit 3.2 (g) to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1999).

4.1               --    Indenture, dated as of June 25, 1997, among North
                        Atlantic Trading Company, Inc., as issuer, National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc. and National Tobacco Finance Corporation, as
                        guarantors, and United States Trust Company of New York,
                        as trustee (incorporated herein by reference to Exhibit
                        4.1 to Amendment No. 1 to Registration Statement (Reg.
                        No. 333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

4.2               --    First Supplemental Indenture, dated as of February 26,
                        1998, among North Atlantic Trading Company, Inc.,
                        National Tobacco Company, L.P., National Tobacco Finance
                        Corporation, International Flavors and Technology, Inc.
                        and United States Trust Company of New York
                        (incorporated herein by reference to Exhibit 4.3 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

4.3*              --    Warrant to Purchase Common Stock, granted in favor of
                        Guggenheim Investment Management, LLC by North Atlantic
                        Trading Company, Inc., dated September 30, 2002.

4.4*              --    Warrant to Purchase Common Stock, granted in favor of
                        Peter J. Solomon Company Limited by North Atlantic

                        Trading Company, Inc., dated as of June 4, 2001.


9.1               --    Exchange and Stockholders' Agreement, dated as of June
                        25, 1997, by and between North Atlantic Trading Company,
                        Inc. and those stockholders signatory thereto
                        (incorporated herein by reference to Exhibit 9 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

9.2               --    Voting Trust Agreement, dated as of December 17, 1997,
                        among Thomas F. Helms, Jr., David I. Brunson and Jeffrey
                        S. Hay, as voting trustees, and Helms Management Corp.
                        (incorporated herein by reference to Exhibit 9.2 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1997).

9.3*              --    Amendment No. 1 to Voting Trust Agreement, dated as of
                        August 18, 1999, among Thomas F. Helms, Jr. and David I.
                        Brunson, as voting trustees, and Helms Management Corp.

9.4*              --    Amendment No. 2 to Voting Trust Agreement, dated as of
                        September 22, 1999, among Thomas F. Helms, Jr. and David
                        I. Brunson, as voting trustees, and Helms Management
                        Corp.

9.5*              --    Amendment No. 3 to Voting Trust Agreement, dated as of
                        July 7, 2000, among Thomas F. Helms, Jr. and David I.
                        Brunson, as voting trustees, and Helms Management Corp.

10.1              --    Third Amended and Restated Purchasing and Processing
                        Agreement, dated as of June 25, 1997, between National
                        Tobacco Company, L.P. and Lancaster Leaf Tobacco Company
                        of Pennsylvania (incorporated herein by reference to
                        Exhibit 10.1 to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.2+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [United States]
                        (incorporated herein by reference to Exhibit 10.2 to
                        Amendment No. 2 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 17, 1997).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.3+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [Asia] (incorporated
                        herein by reference to Exhibit 10.3 to Amendment No. 2
                        to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 17, 1997).

10.4+             --    Amended and Restated Distribution and License Agreement,
                        dated as of November 30, 1992, between Bollore
                        Technologies, S.A. and North Atlantic Trading Company,
                        Inc., a Delaware corporation and predecessor to North
                        Atlantic Operating Company, Inc. [Canada] (incorporated
                        herein by reference to Exhibit 10.4 to Amendment No. 2
                        to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 17, 1997).

10.5+             --    Restated Amendment, dated as of June 25, 1997, between
                        Bollore Technologies, S.A. and North Atlantic Operating
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.5 to Amendment No. 2 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 17, 1997).

10.6              --    Warrant Agreement, dated as of June 25, 1997, between
                        North Atlantic Trading Company, Inc. and United States
                        Trust Company of New York, as warrant agent
                        (incorporated herein by reference to Exhibit 10.12 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.7++            --    1997 Share Incentive Plan of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.16 to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.8++            --    Employment Agreement, dated May 17, 1996, between North
                        Atlantic Trading Company, Inc. and Thomas F. Helms, Jr.
                        (incorporated herein by reference to Exhibit 10.17 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.9 ++           --    Employment Agreement, dated April 14, 1997, between
                        National Tobacco Company, Inc. and David I. Brunson
                        (incorporated herein by reference to Exhibit 10.18(a) to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.10++           --    Employment Agreement, dated April 23, 1997, between
                        Thomas F. Helms, Jr. and David I. Brunson (incorporated
                        herein by reference to Exhibit 10.18(b) to Amendment No.
                        1 to Registration Statement (Reg. No. 333-31931) on Form
                        S-4 filed with the Commission on September 3, 1997).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.11++           --    Nonqualified Stock Option Agreement, dated as of June
                        25, 1997, between North Atlantic Trading Company, Inc.
                        and David I. Brunson (incorporated herein by reference
                        to Exhibit 10.18(c) to Amendment No. 1 to Registration
                        Statement (Reg. No. 333-31931) on Form S-4 filed with
                        the Commission on September 3, 1997).

10.12++           --    Amendment No. 1, dated and effective September 2, 1997,
                        to the Nonqualified Stock Option Agreement, dated as of
                        June 25, 1997, between North Atlantic Trading Company,
                        Inc. and David I. Brunson (incorporated herein by
                        reference to Exhibit 10.18(d) to Amendment No. 1 to
                        Registration Statement (Reg. No. 333-31931) on Form S-4
                        filed with the Commission on September 3, 1997).

10.13++           --    Amendment No. 2, dated as of December 31, 1997, to the
                        Nonqualified Stock Option Agreement, dated as of June
                        25, 1997, between North Atlantic Trading Company, Inc.
                        and David I. Brunson (incorporated herein by reference
                        to Exhibit 10.18(e) to the Registrant's Annual Report on
                        Form 10-K for the fiscal year ended December 31, 1997).

10.14++           --    Consulting Agreement, dated as of June 25, 1997, between
                        North Atlantic Trading Company, Inc. and Jack Africk
                        (incorporated herein by reference to Exhibit 10.20 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.15++           --    National Tobacco Company Management Bonus Program
                        (incorporated herein by reference to Exhibit 10.25 to
                        Amendment No. 1 to Registration Statement (Reg. No.
                        333-31931) on Form S-4 filed with the Commission on
                        September 3, 1997).

10.16++           --    Amended and Restated Nonqualified Stock Option Agreement
                        dated as of January 12, 1998, between North Atlantic
                        Trading Company, Inc. And Jack Africk (incorporated
                        herein by reference to Exhibit 10.28 to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1997).

10.17++           --    Assignment and Assumption, dated as of January 1, 1998,
                        between National Tobacco Company, L.P. and North
                        Atlantic Trading Company, Inc. (incorporated herein by
                        reference to Exhibit 10.30 to the Registrant's Annual
                        Report on Form 10-K for the fiscal year ended December
                        31, 1997).

10.18+            --    Amendment, dated October 22, 1997, to Amended and
                        Restated Distribution and License Agreements, between
                        Bollore and North Atlantic Operating Company, Inc.
                        (incorporated herein by reference to Exhibit 10.31 to
                        the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1997).

10.19             --    Sales Representative Agreement, effective as of January
                        1, 1998, between National Tobacco Company, L.P. and
                        North Atlantic Operating Company, Inc. (incorporated
                        herein by reference to Exhibit 10.32 to the Registrant's
                        Annual Report on Form 10-K for the fiscal year ended
                        December 31, 1997).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.20++           --    Amended and Restated Employment Agreement dated as of
                        April 30, 1998, between North Atlantic Trading Company,
                        Inc. and David I. Brunson (incorporated herein by
                        reference to Exhibit 10.2 to the Registrant's Report on
                        10-Q for the fiscal quarter ended June 30, 1998).

10.21             --    Option Grant Letter, dated April 30, 1998, from Helms
                        Management Corp. to David I. Brunson (incorporated
                        herein by reference to Exhibit 10.5 to the Registrant's
                        Quarterly Report on 10-Q for the fiscal quarter ended
                        June 30, 1998).

10.22             --    Subscription Agreement, dated as of March 24, 1998,
                        between North Atlantic Trading Company, Inc. and David
                        I. Brunson (incorporated herein by reference to Exhibit
                        10.42 to the Registrant's Quarterly Report on 10-Q for
                        the fiscal quarter ended March 31, 1998).

10.23++           --    Letter Agreement, dated September 24, 1999, between
                        North Atlantic Trading Company, Inc. and Jack Africk
                        (incorporated by reference to Exhibit 10.34 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1999).

10.24++           --    North Atlantic Trading Company, Inc. 1999 Executive
                        Incentive Plan (incorporated by reference to Exhibit
                        10.35 to the Registrant's Annual Report on Form 10-K for
                        the fiscal year ended December 31, 1999).

10.25++           --    North Atlantic Trading Company, Inc. 1999 Management
                        Bonus Plan (incorporated by reference to Exhibit 10.36
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 1999).

10.26             --    Loan Agreement, dated as of December 29, 2000, by and
                        among North Atlantic Trading Company, Inc., National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc., National Tobacco Finance Corporation and Bank One,
                        Kentucky N.A., as agent bank and the various lending
                        institutions named therein (incorporated by reference to
                        Exhibit 10.32 to the Registrant's Annual Report on Form
                        10-K for the fiscal year ended December 31, 2000).

10.27*            --    Amendment, dated as of December 31, 2002, to Loan
                        Agreement, by and among North Atlantic Trading Company,
                        Inc., National Tobacco Company, L.P., North Atlantic
                        Operating Company, Inc., National Tobacco Finance
                        Corporation and Bank One, Kentucky N.A., as agent bank
                        and the various lending institutions named therein.


<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.28             --    Security Agreement, dated as of December 29, 2000, among
                        North Atlantic Trading Company, Inc., National Tobacco
                        Company, L.P., North Atlantic Operating Company, Inc.,
                        National Tobacco Finance Corporation and Bank One
                        Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.33
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.29             --    Guaranty Agreement, dated as of December 29, 2000, among
                        National Tobacco Company, L.P., North Atlantic Operating
                        Company, Inc., National Tobacco Finance Corporation and
                        Bank One, Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.34
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.30             --    Pledge Agreement, dated as of December 29, 2000 among
                        and North Atlantic Trading Company, Inc., National
                        Tobacco Company, L.P., North Atlantic Operating Company,
                        Inc., National Tobacco Finance Corporation and Bank One
                        Kentucky, N.A., as agent for certain lending
                        institutions (incorporated by reference to Exhibit 10.35
                        to the Registrant's Annual Report on Form 10-K for the
                        fiscal year ended December 31, 2000).

10.31++           --    2001 Share Incentive Plan of North Atlantic Trading
                        Company, Inc. (incorporated by reference to Exhibit
                        10.36 to the Registrant's Annual Report on Form 10-K for
                        the fiscal year ended December 31, 2001).

10.32++           --    Offer of Employment, dated March 28, 2002, between the
                        Company and Robert A. Milliken, Jr. (incorporated herein
                        by reference to Exhibit 1 to the Registrant's Quarterly
                        Report on 10-Q for the fiscal quarter ended March 31,
                        2002).

10.33             --    Promissory Note, dated March 31, 2002, issued by David
                        I. Brunson in favor of North Atlantic Trading Company,
                        Inc. (incorporated herein by reference to Exhibit 10.1
                        to the Registrant's Quarterly Report on 10-Q for the
                        fiscal quarter ended June 30, 2002).

10.34             --    Promissory Note, dated March 31, 2002, issued by Chris
                        Kounnas in favor of North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 10.2 to the
                        Registrant's Quarterly Report on 10-Q for the fiscal
                        quarter ended June 30, 2002).

10.35             --    Secured Promissory Note, dated March 31, 2002, issued by
                        Helms Management Corp. in favor of North Atlantic
                        Trading Company, Inc. (incorporated herein by reference
                        to Exhibit 10.3 to the Registrant's Quarterly Report on
                        10-Q for the fiscal quarter ended June 30, 2002).

10.36             --    Secured Promissory Note, dated March 31, 2002, issued by
                        Thomas F. Helms, Jr. in favor of North Atlantic Trading
                        Company, Inc. (incorporated herein by reference to
                        Exhibit 10.4 to the Registrant's Quarterly Report on
                        10-Q for the fiscal quarter ended June 30, 2002).



<PAGE>
EXHIBIT
NUMBER                    DESCRIPTION
------                    -----------

10.37             --    Pledge and Security Agreement, dated as of March 31,
                        2002, between Thomas F. Helms, Jr., Helms Management
                        Corp. and North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 10.5 to the
                        Registrant's Quarterly Report on 10-Q for the fiscal
                        quarter ended June 30, 2002).

10.38++*          --    Amendment, dated November 25, 2002, to the Amended and
                        Restated Employment Agreement dated as of April 30,
                        1998, between North Atlantic Trading Company, Inc. and
                        David I. Brunson.

10.39++*          --    Employment Agreement dated as of November 21, 2002,
                        between North Atlantic Trading Company, Inc. and James
                        W. Dobbins.

10.40*            --    Transfer Agreement, dated as of December 30, 2002, by
                        and among Arnold Sheiffer, The Cleveland Clinic
                        Foundation, North Atlantic Trading Company, Inc., and
                        Thomas F. Helms, Jr.

10.41*            --    Transfer Agreement, dated as of December 30, 2002, by
                        and among Arnold Sheiffer, Robert Maurice Grunder
                        Memorial Fund, North Atlantic Trading Company, Inc., and
                        Thomas F. Helms, Jr.

10.42++*                2002 Share Incentive Plan

10.43++*                Letter Agreement, dated November 8, 2002, between North
                        Atlantic Trading Company, Inc. and Marketing Solutions
                        USA.

10.44++*                Letter Agreement, dated September 30, 2002, between
                        North Atlantic Trading Company, Inc. and Jack Africk.

21                --    Subsidiaries of North Atlantic Trading Company, Inc.
                        (incorporated herein by reference to Exhibit 21 to the
                        Registrant's Annual Report on Form 10-K for the fiscal
                        year ended December 31, 1998).

99.1**            --    Certification by the Chief Executive Officer pursuant to
                        18 U.S.C.ss. 1350, as adopted by Section 906 of the
                        Sarbanes-Oxley Act of 2002.

99.2**            --    Certification by the Chief Financial Officer pursuant to
                        18 U.S.C.ss. 1350, as adopted by Section 906 of the
                        Sarbanes-Oxley Act of 2002.


*    Previously filed as an exhibit to the Company's Annual Report on Form 10-K
     for the fiscal year ended December 31, 2002 filed with the Securities and
     Exchange Commission on March 31, 2003.

**   Filed herewith.

+    Portions of this agreement have been omitted pursuant to Rule 406 under the
     Securities Act of 1933, as amended, and have been filed confidentially with
     the Securities and Exchange Commission.

++   Management contracts or compensatory plan or arrangement.