HOLTS CIGAR HOLDINGS INC, S-1/A, 1997-11-20

HOLTS CIGAR HOLDINGS INC
S-1/A, 1997-11-20
RETAIL STORES, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 20, 1997

REGISTRATION NO. 333-36263
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HOLT'S CIGAR HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------

<TABLE>
<S> <C> <C>
DELAWARE 5993 51-0350003
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
REGISTRATION)
</TABLE>

12270 TOWNSEND ROAD
PHILADELPHIA, PENNSYLVANIA 19154
(215) 676-8778
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

ROBERT G. LEVIN, PRESIDENT
HOLT'S CIGAR HOLDINGS, INC.
12270 TOWNSEND ROAD
PHILADELPHIA, PA 19154
(215) 676-8778
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

Copies to:

<TABLE>
<S> <C>
MATTHEW H. LUBART, ESQ. NEIL GOLD, ESQ.
FOX, ROTHSCHILD, O'BRIEN & FRANKEL, LLP FULBRIGHT & JAWORSKI L.L.P.
(FORMED IN THE COMMONWEALTH OF PENNSYLVANIA) 666 FIFTH AVENUE
997 LENOX DRIVE, BUILDING THREE NEW YORK, NEW YORK 10103
LAWRENCEVILLE, NEW JERSEY 08648
</TABLE>
------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box. /x/

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE AN AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

================================================================================

<PAGE>

SUBJECT TO COMPLETION -- DATED NOVEMBER 20, 1997

PROSPECTUS
- --------------------------------------------------------------------------------

1,750,000 Shares

[LOGO] HOLT'S CIGAR HOLDINGS, INC.

Common Stock
- --------------------------------------------------------------------------------

All of the 1,750,000 shares of common stock, par value $.001 per share (the
"Common Stock"), offered hereby are being sold by Holt's Cigar Holdings, Inc.
(the "Company"). Prior to the Offering (the "Offering"), there has been no
public market for the Common Stock. It is currently anticipated that the initial
public offering price will be between $12.00 and $14.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.

The Common Stock has been approved for quotation in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "HOLT."

Robert G. Levin and a partnership affiliated with two of the Company's directors
will own 45.3% and 24.4%, respectively, of the shares of Common Stock
outstanding after the Offering and, as a result, will collectively have the
ability to control the outcome of all matters submitted to a vote of the
Company's stockholders, including the election of directors. See "Principal and
Selling Shareholders."

SEE "RISK FACTORS" ON PAGES 8 TO 15 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company (2)(3)
- --------------------------------------------------------------------------------
Per Share................ $ $ $
- --------------------------------------------------------------------------------
Total(4)................. $ $ $
================================================================================

(1) The Company and Robert G. Levin (the "Selling Shareholder"), Chairman of the
Board, Chief Executive Officer and President of the Company, have agreed to
indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Principal and
Selling Shareholders" and "Underwriting."
(2) Before deducting expenses payable by the Company estimated to be $575,000.
(3) Approximately $2,700,000 of such proceeds will be used to repay indebtedness
of the Company incurred to finance the distribution of estimated
undistributed S Corporation earnings to Mr. Levin. See "Use of Proceeds."
(4) The Selling Shareholder has granted the several Underwriters a 30-day
over-allotment option to purchase up to 262,500 additional shares of Common
Stock on the same terms and conditions as set forth above. If all such
additional shares are purchased by the Underwriters, the total Price to
Public will be $ , the total Underwriting Discounts and Commissions
will be $ , the total Proceeds to Company will be $ and the
total Proceeds to Selling Shareholder will be $ . See "Principal and
Selling Shareholders" and "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Shareholder and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York, on or about November , 1997.

PRUDENTIAL SECURITIES INCORPORATED JANNEY MONTGOMERY SCOTT INC.

November , 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALES OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.

<PAGE>

Pictures of (i) Ashton premium cigars and accessories; (ii) covers of sample
Holt's mail order catalogs; (iii) interior views of the Holt's Philadelphia
retail store; and (iv) exterior view of Holt's corporate office and distribution
center.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and information under "Risk Factors." All
information in this Prospectus gives effect to the reorganization of the Company
(the "Reorganization"), pursuant to which the Company merged newly formed
wholly-owned subsidiaries with Ashton Distributors, Inc. and Holt's Cigar
Company, Inc. in exchange for shares of the Common Stock. See "Reorganization of
the Company" and Combined Financial Statements and notes thereto. Unless
otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised and all references in
this Prospectus to the "Company" mean Holt's Cigar Holdings, Inc. and its
subsidiaries. All references to a "Fiscal" year refer to the fiscal year ended
March 31 of such year.

THE COMPANY

The Company is a leading distributor and retailer of brand name premium
cigars. The Company is the exclusive wholesale distributor of Ashton premium
cigars and Ashton cigar-related accessories, a proprietary brand owned by the
Company. The Company believes that Ashton premium cigars are nationally
recognized as among the top brands due to their flavor, consistency and quality
of construction. Cigar Aficionado magazine has rated the Ashton brand as "very
good to excellent" in each category evaluated by the publication. The Company's
retail operations, which consist of a mail order catalog and the Company's
Philadelphia, Pennsylvania retail store, sell over 170 brands of premium cigars
as well as cigar-related accessories and other tobacco products. In Fiscal 1997
and the six months ended September 30, 1997, the Company had net sales of $17.3
million and $13.4 million, respectively, of which sales of premium cigars
represented approximately 86.3% and 91.7%, respectively. The Company believes
that the strength of the Ashton brand and the Company's distribution
capabilities, combined with increasing demand for premium cigars, will enable
the Company to continue to realize significant future growth.

The cigar market is divided into three principal categories: premium
cigars, mass market cigars and little cigars. The Company's primary product is
premium cigars, which are generally imported, hand-made or hand-rolled cigars
made with long filler, 100% natural tobacco leaf and which generally sell at
retail prices above $1.00 per cigar. According to the Cigar Association of
America, sales of all categories of cigars totalled 4.6 billion units, or $1.6
billion, in 1996, and grew from 1993 to 1996 at a compound annual growth rate
("CAGR") of 10.3% on a unit basis and 30.2% on a dollar basis. Unit sales of
premium cigars, which had remained essentially flat between 1981 and 1993,
increased at a CAGR of 36.9%, on a unit basis, from 1993 to 1996. The Cigar
Association of America reports that premium cigar imports for the six month
period ended June 30, 1997 have increased approximately 95.0% compared to cigar
imports for the same period in 1996. The Company believes that the increase in
demand for premium cigars is a result of several factors, including: (i)
increased visibility of cigar smoking; (ii) increased interest in luxury goods;
(iii) the expansion of the cigar smoking customer base; and (iv) an increase in
the number of venues that cater to cigar smoking customers. Due to the increased
demand for premium cigars, the industry continues to experience shortages in
supply and increasing prices.

3
<PAGE>

Fuente Cigar has shown its commitment to the Company through agreements which
provide for: (i) the exclusive manufacture by Fuente Cigar of Ashton brand
premium cigars; (ii) the sale to the Company of at least 5.0 million premium
cigars per year for a minimum of ten years; and (iii) the exclusive wholesale
distribution by the Company of up to three new premium cigar brands to be
developed by Fuente Cigar and the Company. In Fiscal 1996, Fiscal 1997 and the
six months ended September 30, 1997, the Company purchased, on a dollar basis,
approximately 39.2%, 47.0% and 58.1%, respectively, of its premium cigars from
Fuente Cigar.

The Company's principal objective is to enhance its position as a leading
distributor and retailer of premium cigars. The principal elements of the
Company's business strategy include: (i) strengthening the Ashton brand
primarily by increasing the volume of Ashton cigars supplied to the Company;
(ii) a continued focus on providing a broad range of premium cigar offerings
from a variety of leading manufacturers; (iii) building upon its relationship
with Fuente Cigar; (iv) using multiple distribution channels to reach a broader
customer base; and (v) a commitment to customer service and satisfaction.

The Company's growth strategy is designed to capitalize on its competitive
strengths and the significant growth trends in the premium cigar market by: (i)
introducing new premium cigar brands owned or exclusively distributed by the
Company; (ii) increasing the wholesale distribution of the Company's Ashton
brand premium cigars; (iii) expanding distribution of the Company's catalog and
the size of the Company's proprietary mailing list; and (iv) opening or
acquiring a limited number of retail stores in select markets.

The Company was incorporated on June 18, 1993 under the laws of the State
of Delaware. The Company's executive offices are located at 12270 Townsend Road,
Philadelphia, Pennsylvania 19154, and its telephone number is (215) 676-8778.
The Company's web site can be accessed at http://www.holts.com.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by the Company......................... 1,750,000 shares

Common Stock to be Outstanding after the Offering(1)(2)..... 5,770,000 shares

Use of Proceeds............................................. To (i) repay outstanding
indebtedness, a portion of which
was incurred to fund a Subchapter
S distribution to Robert G.
Levin; (ii) establish new retail
stores; (iii) expand inventories
of premium cigars; (iv) expand
the Company's mail order
business; (v) introduce new
premium cigar brands; (vi)
upgrade the Company's management
information and accounting
systems; and (vii) use for
general corporate purposes,
including working capital. See
"Use of Proceeds."

Proposed Nasdaq National Market Symbol...................... HOLT
</TABLE>

- ------------------
(1) Excludes options to purchase an aggregate of 300,000 shares of Common Stock
authorized under the 1997 Employee Stock Option Plan (the "Employee Stock
Plan"), of which options to purchase 169,500 shares of Common Stock have
been granted at the initial public offering price per share, and an
aggregate of 180,000 shares of Common Stock authorized under the
Non-Management Directors Stock Option Plan (the "Director Stock Plan"), of
which options to purchase 60,000 shares of Common Stock have been granted at
the initial public offering price per share. See "Management -- Stock
Options."

(2) The Company also has issued options to purchase an aggregate of 482,400
shares of Common Stock at a price of $.50 per share, which options were
granted in January 1996. At the time these options were granted, Robert G.
Levin, the Company's Chairman of the Board, Chief Executive Officer and
President, and the other shareholder of the Company agreed that these
options would only dilute Mr. Levin's ownership interest. Accordingly, Mr.
Levin has agreed to contribute to the capital of the Company one share of
Common Stock for each share purchased pursuant to these options. See
"Management -- Stock Plans."

RISK FACTORS

The shares of Common Stock offered hereby involve a high degree of risk.
Investors should consider the material risk factors involved in connection with
an investment in the Common Stock.

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

Ashton(Registered) is a registered trademark of the Company.
Holt's(Trademark), Cortesia(Trademark) and Castano(Trademark) are trademarks
with respect to which the Company has applications for registration pending.

5
<PAGE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $3,042 $3,738 $5,662 $9,467 $17,278 $7,610 $13,424
Cost of goods sold..................... 2,039 2,412 3,041 5,159 9,566 4,145 7,318
------ ------ ------ ------ ------- ------ -------
Gross profit........................... 1,003 1,326 2,621 4,308 7,712 3,465 6,106
Operating expenses..................... 950 1,440 1,949 3,484 4,895 2,240 2,894
------ ------ ------ ------ ------- ------ -------
Income (loss) from operations.......... 53 (114) 672 824 2,817 1,225 3,212
Other income........................... -- -- -- 22 32 11 33
------ ------ ------ ------ ------- ------ -------
Income (loss) before income tax
expense.............................. 53 (114) 672 846 2,849 1,236 3,245
Income tax expense(1).................. 18 1 209 318 577 398 653
------ ------ ------ ------ ------- ------ -------
Net income (loss)...................... $ 35 $ (115) $ 463 $ 528 $ 2,272 $ 838 $ 2,592
====== ====== ====== ====== ======= ====== =======

Pro forma net income(2)................ $ 1,699 $ 737 $ 1,942
Pro forma net income per share......... $ .41 $ .18 $ .47
Pro forma weighted average shares
outstanding(3)....................... 4,102 4,102 4,102
Supplemental pro forma data:
Net income(4)........................ $ 1,743 $ 754 $ 1,950
Net income per share................. $ .42 $ .18 $ .47
Weighted average shares
outstanding(5)..................... 4,136 4,139 4,142

SELECTED OPERATING DATA:
Percentage of net sales of premium
cigars(6)............................ 72.9% 79.0% 88.1% 84.5% 86.3% 89.2% 91.7%
Percentage of net sales of accessories
and other tobacco products........... 27.1% 21.0% 11.9% 15.5% 13.7% 10.8% 8.3%
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
------ ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................... $4,023 $1,870 $21,905
Total assets...................................................... 7,986 8,331 26,088
Total debt........................................................ 672 2,825 --
Stockholders' equity.............................................. 5,064 3,256 23,838
</TABLE>

- ------------------
(1) Ashton Distributors, Inc., formed in June 1993, operated as an S Corporation
from its inception and, as a result, its taxable income was passed through
to its shareholder for federal and state income tax purposes. Accordingly,
the financial statements do not include a provision for federal and state
income taxes with respect to the operations of Ashton Distributors, Inc.

(2) Pro forma net income is determined as if the Reorganization had occurred on
April 1, 1996. Ashton Distributors, Inc. will terminate its S Corporation
status as a result of the Reorganization. The pro forma information has been
computed: (i) as if the entire Company was subject to federal and all
applicable state corporate income taxes as a C Corporation for each of the
periods presented; and (ii) includes amortization of goodwill that would
have been recorded if the Reorganization had occurred on April 1, 1996.

(3) Pro forma weighted average shares outstanding is based upon the number of
shares outstanding upon completion of the Reorganization, increased to
include the effects of the incremental shares required to fund the repayment
of debt incurred to make a distribution in excess of earnings over the
previous year to Robert G. Levin, the sole shareholder of Ashton
Distributors, Inc.

(Footnotes continued on next page)
6
<PAGE>

(Footnotes continued from preceeding page)

(4) Supplemental pro forma net income is based on pro forma net income and gives
effect to the reduction in interest costs (net of applicable income taxes),
of $44,000, $16,800 and $8,400 for Fiscal 1997 and the six months ended
September 30, 1996 and 1997, respectively, which would have resulted
assuming the application of a portion of the net proceeds from the Offering
were used to repay certain indebtedness of the Company.

(5) Supplemental weighted average shares outstanding is calculated based upon
the pro forma weighted average shares outstanding increased by the number of
shares required to be sold to repay certain indebtedness of the Company.

(6) Includes both wholesale and retail sales of premium cigars.

(7) Pro forma to give effect to: (i) an S Corporation distribution from Ashton
Distributors, Inc. to Robert G. Levin, its sole shareholder before the
Reorganization, of approximately $2.2 million representing accumulated but
undistributed taxable earnings through September 30, 1997; (ii) the
incurrence of debt to fund such distribution; and (iii) the related effects
of the revised capital structure and the application of purchase accounting
to the acquisition of minority interests represented by certain stock
options.

(8) Pro forma as adjusted to reflect the sale by the Company of 1,750,000 shares
of Common Stock offered hereby at a price of $13.00 per share, the mid-point
of the filing range (after deducting underwriting discounts and estimated
offering expenses), and the application of the estimated net proceeds
therefrom. See "Reorganization of the Company" and "Use of Proceeds."

7
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the investment in the shares of Common Stock.

CONSTRAINTS ON ABILITY TO SATISFY DEMAND FOR PREMIUM CIGARS. The Company
has experienced, and expects to continue to experience, a shortage in the supply
of certain premium cigars, including its proprietary Ashton brand. Although many
premium cigar manufacturers (including Fuente Cigar from whom the Company
purchased approximately 47.0% and 58.1% of its premium cigars on a dollar basis
in Fiscal 1997 and the six months ended September 30, 1997, respectively) have
taken measures to increase production, there can be no assurance that the
Company will have access to sufficient supplies of premium cigars. With the
exception of a supply agreement between the Company and Fuente Cigar, the
Company is not a party to long-term supply contracts with any manufacturers. The
Company relies and intends in the future to rely upon the strength of its
relationships with leading manufacturers to meet its supply requirements. There
can be no assurance that the Company will be able to continue to maintain these
relationships or that such relationships will be sufficient to enable the
Company to meet future demand for its proprietary cigars and other premium
branded cigars which the Company sells. Any material inability of the Company to
expand its current supply of premium cigars in a timely manner would have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Suppliers."

Cigar manufacturers have experienced, and continue to experience, shortages
of properly aged and blended tobacco ready for manufacturing, and shortages in
skilled employees for blending and rolling premium cigars. In general, the aging
process for tobacco requires that tobacco be purchased several years in advance
of actual use in the manufacturing process. Tobacco shortages may prevent the
Company from purchasing sufficient cigars to meet demand, maintaining its growth
expectations or even maintaining its current level of sales. These factors are
all outside the control of the Company, may significantly impact the ability of
the Company to secure an adequate supply of premium cigars in a timely fashion
and could have a material adverse effect on the Company's business, results of
operations and financial condition.

DEPENDENCE ON FUENTE CIGAR LTD. In Fiscal 1996, Fiscal 1997 and the six
months ended September 30, 1997, the Company purchased, on a dollar basis,
approximately 39.2%, 47.0% and 58.1%, respectively, of its premium cigars from
Fuente Cigar. Purchases from Fuente Cigar include all of the Company's Ashton
brand cigars, a significant percentage of the Company's proprietary Holt's brand
cigars, as well as proprietary Fuente Cigar brands. The Company has entered into
a Private Label Manufacturing Agreement with Fuente Cigar (the "PLMA") pursuant
to which Fuente Cigar has agreed to sell to the Company at least 5.0 million
premium cigars per year (the "Minimum Amount") and to use its best reasonable
efforts to sell additional cigars ordered by the Company. However, there can be
no assurance that such minimum supply of cigars or any additional cigars will be
provided to the Company. The PLMA permits noncompliance with the Minimum Amount
for various reasons including, but not limited to, a shortage of labor or the
inability to secure materials or supplies at reasonable prices. Under the PLMA,
Fuente Cigar selects the brands and sizes of the various premium cigars that may
be delivered to the Company to satisfy the Minimum Amount, which brands may
include Ashton, Holt's or cigars sold under any Fuente Cigar owned brand names.
There can be no assurance that the various sizes and brands sold by Fuente Cigar
to the Company will coincide with the preferences of the Company's customers.
The Company has also entered into an exclusive distributorship agreement with
Fuente Cigar pursuant to which the Company will be the exclusive wholesale
distributor of up to three new premium cigar brands to be developed with and
manufactured by Fuente Cigar. These agreements specifically prohibit any actions
for specific performance and damages in the event of a breach of such agreements
by Fuente Cigar. It is unlikely that the Company could replace Fuente Cigar with
a substitute supplier in a timely fashion, and any failure of Fuente Cigar to
supply premium cigars to the Company in appropriate numbers and in a timely
manner or to develop new premium cigar brands to be distributed by the Company
would have a material adverse

8
<PAGE>

effect on the Company's business, results of operations and financial condition.
See "Business -- Suppliers."

DEPENDENCE ON ASHTON BRAND. In Fiscal 1996, Fiscal 1997 and the six months
ended September 30, 1997, wholesale sales of Ashton brand premium cigars and
accessories represented, on a dollar basis, approximately, 38.9%, 37.6% and
38.6%, respectively, of net sales. The Company estimates that an additional
3.5%, 7.3%, and 7.5% of net sales for Fiscal 1996, Fiscal 1997 and the six
months ended September 30, 1997, respectively, consisted of sales of Ashton
brand premium cigars and accessories through the Company's retail operations.
The success of the Company's business is therefore dependent, in significant
part, on the sale of Ashton brand premium cigars and accessories. A decline in
the demand for Ashton brand premium cigars and accessories for any reason would
have a material adverse effect on the Company's business, results of operations
and financial condition.

POTENTIAL CONFLICTS OF INTEREST. Fuente Cigar is controlled by Carlos A.
Fuente, Sr. and his son, Carlos P. Fuente, Jr., each of whom is a director of
the Company. The Fuente Investment Partnership, a partnership whose interests
are beneficially owned by Carlos A. Fuente, Sr., Carlos P. Fuente, Jr. and
Cynthia Fuente Suarez, will own approximately 24.4% of the shares of Common
Stock outstanding after the Offering. These relationships may present potential
conflicts of interest to Messrs. Fuente in their capacity as members of the
Board of Directors. The Company has established a policy that it will not enter
into or amend any agreement between the Company and any entity which is related
to Fuente Cigar, Carlos A. Fuente, Sr., Carlos P. Fuente, Jr. or Cynthia Fuente
Suarez on terms that are less favorable than those which could be otherwise
obtained from unaffiliated third parties. A majority of the disinterested
members of the Board of Directors will be required to approve any amended or new
agreements with Fuente Cigar and its related entities. Additionally, Fuente
Cigar and its affiliates are currently competitors of the Company and may
compete further with the Company in the future as Fuente Cigar: (i) makes
proprietary cigars for other distributors, including distributors in which
affiliates of Fuente Cigar own a controlling interest; and (ii) makes
proprietary cigars under its own name which compete directly with Ashton brand
premium cigars. See "Business -- Suppliers" and "Certain Transactions --
Relationship with Fuente Cigar and Related Parties."

LIMITED EXPERIENCE IN INTRODUCING NEW CIGAR BRANDS. One element of the
Company's growth strategy is to introduce and market new premium cigar brands.
To date, the Company has successfully introduced and marketed one proprietary
brand, the Ashton brand premium cigar, originally launched in 1986. The Company
expects to expand distribution in 1998 of the recently introduced Castano brand
and to exclusively distribute up to three new brands over the three year period
commencing in 1998. These brands are to be developed by Fuente Cigar and the
Company and to be manufactured by Fuente Cigar. Failure of the Company to
successfully introduce and market these new brands would have a material adverse
effect on the Company's business, results of operations and financial condition.

LIMITED EXPERIENCE IN OPENING SPECIALTY CIGAR STORES. The Company intends
to open or acquire additional retail cigar stores. To date, the Company has
opened and operated only one retail store. Although the Company's Philadelphia
store is profitable, no assurance can be given that such profitability can be
sustained in the future or that any additional Company stores will achieve sales
and profitability comparable to the Company's Philadelphia store. The profitable
operation of new retail stores is dependent on a number of factors, including
identifying appropriate geographic markets, evaluating the suitability of
specific locations within such markets, hiring, training and assimilating
management and store level employees, negotiating acceptable lease terms and
constructing and opening new stores in a timely and cost effective manner. There
can be no assurance that the Company will be able to successfully identify, open
and operate additional retail stores.

DECLINING MARKET FOR CIGARS THROUGH 1993. According to industry sources,
the cigar industry experienced declining unit sales between 1964 and 1993. While
the cigar industry has experienced increasing annual unit sales since 1993,
there can be no assurance that recent positive trends will continue on a
long-term basis or that new customers will remain cigar smokers in the future.
See "Business -- Market Overview." In addition, the market for premium cigars,
and consequently the

9
<PAGE>

Company's net sales and results of operations, will be subject to fluctuations
based upon general economic conditions in the United States. If there were to be
a general economic downturn or recession in the United States, the Company
expects that the market for luxury related items such as premium cigars would
decrease. In the event of such an economic downturn or recession, there can be
no assurance that the Company's business, results of operations and financial
condition would not be materially adversely affected.

MANAGEMENT OF GROWTH; RISKS ASSOCIATED WITH EXPANSION. The Company has
experienced rapid growth over the last several years and its future operating
results will depend, in part, upon its ability to service a larger customer base
and to manage its overall expansion effectively. The Company's growth will
increase the responsibilities for both existing and new management personnel,
and will place significant demands on the Company's management, working capital
and systems. The Company will be required to expand and improve its operational
and financial systems and to expand the number of employees at all levels,
including senior management. There can be no assurance that the Company's
management information systems, accounting systems, purchasing systems,
inventory control systems, retail sales systems and internal controls will be
adequate or that the Company will be able to upgrade its systems and controls to
respond to such growth. The inability to successfully upgrade its controls and
systems could have a material adverse effect on the successful operation of the
Company's business, implementation of its growth strategy and future operating
results. If the Company is unable to manage this growth effectively, the
Company's business, results of operations and financial condition could be
materially adversely affected.

SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH INTERNATIONAL
TRADE. The cigars sold by the Company are manufactured outside the United
States, principally in the Dominican Republic, Honduras, Nicaragua, Jamaica and
Mexico. As a result, the Company is exposed to the risk of changes in social,
political and economic conditions inherent in foreign operations and
international trade including changes in the law and policies that govern
foreign investment and international trade in such countries, as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
investment and trade. Any such social, political or economic changes could pose,
among other things, the risk of supply interruption or significant increases in
the prices of tobacco products. Any such changes in social, political or
economic conditions may have a material adverse effect on the Company's
business, results of operations or financial conditions.

DEPENDENCE ON SHIPPERS. The Company primarily uses United Parcel Service
to ship its products. Although the recent strike by United Parcel Service
employees did not have a material adverse effect on the Company, there can be no
assurance that any future strike or work stoppage by United Parcel Service or
other major shipping carriers then being used by the Company will not have a
material adverse effect on the Company's business, results of operations and
financial condition or that alternate shipping carriers will be immediately
available and willing to deliver the Company's shipments in a timely fashion.

RELIANCE ON KEY PERSONNEL. The Company's operations will continue to
depend upon the efforts of senior personnel of the Company, including Robert G.
Levin, the Chairman of the Board, Chief Executive Officer and President of the
Company and a well known figure in the cigar industry. In significant part, the
Company's relationships with its manufacturers, suppliers and customers is based
upon long-term personal relationships with Mr. Levin. The loss of the services
of Mr. Levin or other senior personnel would have a material adverse effect on
the Company's business, results of operations and financial condition. Although
the Company intends to purchase and maintain key-man life insurance on Mr.
Levin, the proceeds of such insurance are not expected to be sufficient to
compensate the Company for the loss of his services. The Company's future
performance will also depend to a significant extent on its ability to identify,
attract, train and retain highly skilled sales, marketing and management
personnel. There can be no assurance that the Company will be successful in
identifying, attracting or retaining such personnel, and the failure to
identify, attract and retain such personnel could have a material adverse effect
on the Company's business, results of operations and financial condition.

10
<PAGE>

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results have fluctuated in the past and may fluctuate in the future as
a result of a variety of factors, including the timing of catalog mailings and
specialty direct mail pieces, the timing of the opening of new retail stores,
the timing of introduction of new brands and the price and availability of
premium cigars. Therefore, the results for any quarter are not necessarily
indicative of the results that the Company may achieve for any subsequent
quarter or any full year. Fluctuations caused by variations in quarterly
operating results may subsequently affect the market price of the Common Stock.
In addition, the Company expects its business to continue to exhibit some
seasonality, with increases in premium cigar and related accessory sales during
the holiday season, although the effect of this may be somewhat less evident due
to the growth in the Company's net sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Quarterly Results
of Operations."

EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS. The tobacco
industry is subject to regulation in the United States at the federal, state and
local levels, and the recent trend is toward increasing regulation. A variety of
bills relating to tobacco issues have been recently introduced in the United
States Congress, including bills that, if passed, would: (i) curtail the
advertising and promotion of all tobacco products and restrict or eliminate the
deductibility of such advertising expenses; (ii) increase labeling requirements
on tobacco products to include, among other things, addiction 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 at the federal level
from the United States Federal Trade Commission (the "FTC") to the United States
Food and Drug Administration (the "FDA") and require the tobacco industry to
fund the FDA's oversight; (v) increase tobacco excise taxes; (vi) restrict the
access to tobacco products by, among other things, banning the distribution of
tobacco products through the mail, except for sales subject to proof of age;
(vii) require licensing of retail tobacco product sellers; (viii) regulate
tobacco product development; and (ix) require tobacco companies to pay for
healthcare costs incurred by the federal government in connection with tobacco
related diseases. Although hearings have been held on certain of these
proposals, to date none of such proposals have been passed by Congress. Future
enactment of such proposals or similar bills may have a material adverse effect
on the Company's business, results of operations and financial condition.

In August 1996, the FDA determined that nicotine is a drug. Accordingly,
the FDA determined that it had jurisdiction over cigarettes and smokeless
tobacco products, pursuant to the FDA determination that cigarette and smokeless
tobacco products are drug delivery devices used for the delivery of nicotine.
Although certain legal challenges to the FDA's determination are pending, there
can be no assurance that such determination will not be upheld, nor that in the
future, the FDA will not prevail in an attempt to extend such jurisdiction to
cigars. In addition, a majority of states restrict or prohibit smoking in
certain public places and restrict sale of tobacco products (including cigars)
to minors. Local legislative and regulatory bodies have increasingly moved to
curtail smoking by prohibiting smoking in certain buildings or areas or by
requiring designated "smoking" areas. Individual establishments such as bars and
restaurants have further prohibited pipe and cigar smoking even though other
tobacco products are permitted in such establishments. Further restrictions of a
similar nature could have a material adverse effect on the business, results of
operations and financial condition of the Company. Numerous proposals have also
been considered at the state and local level restricting smoking in certain
public areas.

Federal law has required health warnings on cigarettes since 1965 and on
smokeless tobacco since 1986. Although no federal law currently requires that
cigars carry such warnings, California has enacted laws requiring that "clear
and reasonable" warnings be given to consumers who are exposed to chemicals
determined by the state to cause cancer or reproductive toxicity, including
tobacco smoke and several of its constituent chemicals. Similar legislation has
been introduced in other states. In addition, effective January 1, 1998,
smoking, including cigar smoking, has been banned by the State of California in
all bars, taverns and clubs where food and alcohol is served. Other legislation
recently introduced in Massachusetts would, if enacted, require warning labels
on cigar boxes. The states of Minnesota and Texas have enacted legislation which
require cigar manufacturers to provide

11
<PAGE>

information on the levels of certain substances in their cigars to these states
on an annual basis. There can be no assurance that such legislation introduced
in other states will not be passed in the future or that other states will not
enact similar or more restrictive legislation. Consideration at both the federal
and state level also has been given to consequences of second hand smoke. There
can be no assurance that regulations relating to second hand smoke will not be
adopted or that such regulations or related litigation would not have a material
adverse effect on the Company's business, results of operations and financial
condition.

Increased cigar consumption and the publicity such increase has received
may increase the risk of additional regulation of cigars. The National Cancer
Institute has announced that it will issue a report in 1997 describing research
into cigars and health. There can be no assurance as to the ultimate content,
timing or effect of this report or any additional regulation of cigars by any
federal, state, local or regulatory body, and there can be no assurance that any
such legislation or regulation would not have a material adverse effect on the
Company's business, results of operations and financial condition.

TOBACCO INDUSTRY LITIGATION. The tobacco industry has experienced and is
experiencing significant health-related litigation. Private plaintiffs in such
litigation are seeking compensatory and, in some cases, punitive damages, for
various injuries claimed to result from the use of tobacco products or exposure
to tobacco smoke, and some of these actions have named cigarette distributors as
well as manufacturers as defendants. Over 40 states have filed lawsuits against
the major United States cigarette manufacturers to recover billions of dollars
in damages, primarily costs of medical treatment of smokers. On June 20, 1997,
the Attorneys General of 40 states and several major cigarette manufacturers
announced a proposed settlement of the lawsuits filed by these states (the
"Proposed Settlement"). The Proposed Settlement, which will require Federal
legislation to implement, is complex and may change significantly or be
rejected. The Proposed Settlement would significantly change the way in which
cigarette companies and tobacco companies do business. Among other things, the
tobacco companies would pay hundreds of billions of dollars to the various
states; the FDA could regulate nicotine as a "drug" and tobacco products as
"drug delivery devices;" all outdoor advertising, sports event advertising and
advertising on non-tobacco products would be banned and certain class action
lawsuits and punitive damage claims against tobacco companies would be
prohibited. President Clinton recently announced that he would not support the
Proposed Settlement unless significant changes were incorporated. Therefore, the
potential impact of the Proposed Settlement on the cigar industry in general and
the Company in particular is uncertain. There can be no assurance that similar
litigation will not be brought against cigar manufacturers and distributors. The
potential costs to the Company of defending prolonged litigation and any
settlement or successful prosecution of any health-related litigation could have
a material adverse effect on the Company's business, results of operations and
financial condition. The State of Florida has entered into a separate settlement
agreement with major United States cigarette manufacturers with respect to
tobacco products, including roll-your-own and little cigars. This settlement
agreement provides, in part, for a ban on billboard and transit advertising,
significant document disclosure by the settling cigarette companies, billions of
dollars in settlement payments and certain adjustments pending the resolution of
the Proposed Settlement. The State of Mississippi has announced a separate
settlement agreement with major cigarette manufacturers which provides for a
payment of $4.0 billion, however, if the Proposed Settlement is approved the
Proposed Settlement will supercede the Mississippi settlement. The recent
increase in the sales of cigars and the publicity of such increases may increase
the probability of legal claims. See "-- Extensive and Increasing Regulation of
Tobacco Products" and "Business -- The Tobacco Industry -- Litigation."

EFFECT OF INCREASES IN EXCISE TAXES. Cigars have long been subject to
federal, state and local excise taxes and such taxes frequently have been
increased or proposed to be increased, in some cases significantly, to fund
various legislative initiatives. In the past, there have been proposals by the
federal government to reform healthcare through a national program to be funded
principally through increases in federal excise taxes on tobacco products.
Enactment of new or significant increases in existing federal, state or local
excise taxes on cigars could result in decreased unit sales of premium cigars

12
<PAGE>

which could have a material adverse effect on the Company's business, results of
operations and financial condition.

COMPETITION. The markets for the Company's products are highly competitive
and subject to rapid consumer change and frequent new product introductions and
extensions. The Company's wholesale distribution business faces competition from
larger, well-established premium cigar companies, including Fuente Cigar and its
affiliates, which manufacture and distribute numerous high-quality premium cigar
brands that are competitive with the Company's products, as well as from an
increasing number of new entrants to the marketplace. The Company's retail
operations compete with a large number of other mail order companies, some of
which are larger and better financed than the Company. The Company also faces
significant competition from a large number of existing, and an increasing
number of new, retail stores and smoking establishments selling the same branded
products as the Company. Existing or future competitors may develop or offer the
same or similar premium cigars which may result in decreases in the Company's
sales of premium cigars. Many of these competitors have longer operating
histories and significantly greater financial, managerial, creative, sales and
marketing and other resources than the Company. The Company's ability to retain
its existing customers and attract new customers depends on the quality of its
premium cigars, the availability of product, its reputation in the industry and
its ability to maintain customer satisfaction.

RISKS RELATING TO TRADEMARKS. The Company's success is dependent, in part,
on the brand name Ashton, and in the future, will be dependent on new brand name
trademarks to be developed by the Company (including the Castano brand name), or
which are used in connection with premium cigars which the Company expects to
exclusively distribute in the United States. The Company relies primarily on
trademarks to protect the Ashton, Holt's, Cortesia and Castano names. The
illegal use of the Company's trademarks, or trademarks associated with brands
the Company exclusively distributes, as well as the cost of prosecuting or
defending claims for infringement or invalidity, or claims for indemnification
resulting from infringement claims, with or without merit, could be
time-consuming, result in costly litigation and divert management's attention
and resources.

CONTROL BY EXISTING SHAREHOLDERS. Upon completion of the Offering, Robert
G. Levin will own approximately 45.3% of the outstanding shares of Common Stock
(40.7% if the Underwriters' over-allotment is exercised in full) and the Fuente
Investment Partnership will own approximately 24.4% of the outstanding shares of
the Common Stock. Mr. Levin and such partnership are parties to a shareholder
agreement pursuant to which they have agreed to vote for each other's respective
nominees to the Board of Directors. Accordingly, the parties to such shareholder
agreement will be able to control the Company, elect all the directors and
generally direct the affairs of the Company. In addition, each of the parties to
the shareholder agreement has a right of first refusal to purchase the others'
shares, and each of the parties to such shareholder agreement have granted the
other a right to participate on a proportionate basis in any sale of Common
Stock by either party. See "Management" and "Principal and Selling
Shareholders."

PROVISIONS WITH ANTI-TAKEOVER EFFECT. Certain provisions of the Company's
Certificate of Incorporation and By-Laws, as well as the Delaware General
Corporation Law could delay or frustrate the removal of incumbent directors and
could make difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be viewed as beneficial by the Company's
shareholders. The Board of Directors of the Company is empowered to issue
preferred stock in one or more series without shareholder action. Any issuance
of this "blank-check" preferred stock could materially limit the rights of
holders of the Common Stock and render more difficult or discourage an attempt
to obtain control of the Company by means of a tender offer, merger, proxy
contest or otherwise. In addition, the Certificate of Incorporation and By-Laws
contain a number of provisions which could impede a takeover or change in
control of the Company, including, among other things, staggered terms for
members of the Board, the requiring of two-thirds vote of shareholders to amend
certain provisions of the Certificate of Incorporation or to take any action by
written consent, and a fair price requirement. Certain provisions of the
Delaware General Corporation Law to which the Company will be subject may also
discourage takeover attempts that have not been approved by the Board. See

13
<PAGE>

"Description of Capital Stock -- Potential Anti-Takeover Effect of Certain
Provisions of the Certificate of Incorporation and By-Laws."

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have 5,770,000 shares of Common Stock outstanding, 1,750,000
(2,012,500 if the Underwriters' over-allotment option is exercised in full) of
which will be freely tradeable without restriction or requirement of future
registration under the Securities Act of 1933, as amended (the "Securities
Act"). All of the remaining 4,020,000 shares of Common Stock are "restricted
securities" as that term is defined by Rule 144 promulgated under the Securities
Act. Of such shares, no shares will be eligible for sale in the public market
immediately following commencement of the Offering and 4,020,000 shares will
become eligible for sale 90 days following commencement of the Offering. The
Company, its officers and directors and all shareholders and certain option
holders, including the Selling Shareholder, owning upon completion of the
Offering, in the aggregate, 4,020,000 shares of Common Stock and options to
purchase 542,400 shares of Common Stock, have executed agreements pursuant to
which they have agreed that they will not, for a period of 180 days from the
date of this Prospectus, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company or any securities convertible
into, or exercisable or exchangeable for, any Common Stock, or other capital
stock of the Company without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except that such agreement does not
prevent the Company from granting additional options under the Employee Stock
Plan or the Director Stock Plan. Upon the expiration or release from such
lock-up agreements, 4,020,000 shares will be available for immediate sale under
Rule 144 and 542,400 additional shares subject to vested stock options could
also be sold, subject in some cases to certain volume limitations. Prudential
Securities Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to such lock-up
agreements. Sale of such shares in the future could adversely affect the
prevailing market price of the Common Stock. No prediction can be made as to the
effect, if any, that future sales of shares or the availability of shares for
sale will have on the market price for Common Stock prevailing from time to
time. Sale of substantial amounts of Common Stock in the public market, or the
perception of the availability of shares for sale, could adversely affect the
prevailing market price of the Common Stock and could impair the Company's
ability to raise capital through the sale of its equity securities. Beginning
nine months after the Offering, the holders of options to purchase an aggregate
of 482,400 shares of Common Stock which are "restricted securities" (the
"Registerable Securities") will be entitled to certain rights with respect to
registration of such shares. If exercised, such registration rights could result
in the Registerable Securities being sold earlier than otherwise allowable under
Rule 144, and could adversely affect the prevailing market price of the Common
Stock. See "Description of Capital Stock -- Registration Rights" and "Shares
Eligible for Future Sale."

BROAD DISCRETION IN APPLICATION OF PROCEEDS. The Company intends to
utilize approximately $11.1 million, representing approximately 53.6% of the
estimated net proceeds of the Offering, for general corporate purposes,
including working capital. Accordingly, the Company will have broad discretion
as to the application of such proceeds. An investor will not have the
opportunity to evaluate the economic, financial and other relevant information
utilized by the Company in determining the application of such proceeds. See
"Use of Proceeds."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of shares of Common Stock
in the Offering will experience an immediate and substantial dilution in the net
tangible book value of each share of Common Stock of $8.95 per share based upon
an initial public offering price of $13.00, the mid-point of the filing range.
See "Dilution."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no public market for the Common Stock, and there can be
no assurance that an active trading market for the Common Stock will develop or
be sustained upon completion of the Offering. The initial public offering price
will be determined by negotiations between the Company and the representatives
of the Underwriters based upon a number of factors, including market valuations
of

14
<PAGE>

other companies engaged in activities similar to those of the Company, estimates
of the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors deemed
relevant. The initial public offering price may not be indicative of the market
price of the Common Stock following completion of the Offering. The trading
price of the Common Stock could also be subject to significant fluctuations in
response to variations in quarterly results of operations, announcements of new
products or the opening or acquisition of retail stores by the Company or its
competitors, developments or disputes with respect to proprietary rights,
general trends in the industry, changes in government legislation or litigation
affecting tobacco products, general trends in the industry, overall market
conditions or other factors. In addition, the stock markets historically have
experienced extreme price and volume fluctuations which may affect the market
price of the Common Stock in a manner unrelated or disproportionate to the
operating performance of the Company. These market fluctuations may adversely
affect the market price of the Common Stock. See "Underwriting."

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<PAGE>

REORGANIZATION OF THE COMPANY

THE REORGANIZATION

Prior to the Reorganization, the business of the Company was conducted
through separate, but related, companies: (i) Holt's Cigar Company, Inc., a
Pennsylvania corporation engaged in the operation of the mail order catalog
business and the Philadelphia retail store ("Holt's"); (ii) Ashton Distributors,
Inc., a Pennsylvania corporation engaged in the wholesale distribution of Ashton
premium cigars and Ashton cigar-related accessories ("Distributors"); and (iii)
the Company, Holt's Cigar Holdings, Inc. (formerly known as Ashton Holdings,
Inc.), a Delaware corporation which owned the Ashton trademarks and licensed
their use to Distributors. All of the issued and outstanding shares of the
common stock of Holt's and Distributors were owned by Robert G. Levin and the
issued and outstanding shares of the common stock of Holdings were owned 60.0%
by Mr. Levin and 40.0% by the Fuente Investment Partnership. In addition, there
were outstanding options (held by persons other than Mr. Levin) to purchase
shares of the Common Stock (the "Options").

The Company, Holt's and Distributors and their respective shareholders
agreed to a plan of reorganization (the "Reorganization"), whereby, in a series
of transactions prior to the closing of the Offering: (i) the Company will amend
its Certificate of Incorporation to change its authorized common stock from
15,000 shares of Class A common stock and 5,000 shares of Class B common stock
to 25,000,000 shares of Common Stock; (ii) the Company will effect a
307.74-for-one stock split; (iii) the Company will issue an aggregate of
3,517,197 shares of Common Stock in exchange for the shares of Class A and Class
B common stock then outstanding; (iv) Holt's and Distributors will become wholly
owned subsidiaries of the Company, and the Company will issue 502,803 shares of
Common Stock to Robert G. Levin in exchange for all the outstanding common stock
of Holt's and Distributors; and (v) holders of options to purchase an aggregate
of 12% of the Company will exchange such options for options to purchase 482,400
shares of Common Stock. Immediately following the Reorganization, it is the
Company's intention to form a new Delaware subsidiary and to assign and transfer
to it all of the Company's rights in and to the Ashton, Holt's, Cortesia and
Castano trademarks and other intellectual property rights currently owned by
Holt's.

As a result of the Reorganization: (i) the Company will have issued and
outstanding 4,020,000 shares of Common Stock, of which 2,613,015 shares will be
owned by Robert G. Levin and 1,406,985 shares will be owned by the Fuente
Investment Partnership; and (ii) the Company will have issued, options to
purchase an aggregate of 482,400 shares of Common Stock at a price of $.50 per
share. At the time these options were granted, Mr. Levin and the principals of
the Fuente Investment Partnership agreed that these options would not dilute the
ownership interest of the Fuente Investment Partnership. Accordingly, Mr. Levin
has agreed that upon exercise of any such options, he will contribute to the
capital of the Company one share of Common Stock for each share purchased
pursuant to these options.

TERMINATION OF S CORPORATION STATUS

Prior to the Reorganization, Distributors operated as an S Corporation for
federal income tax purposes under Subchapter S of the Internal Revenue Code of
1986, as amended (the "Code"), and for state corporate income tax purposes under
comparable state laws. As a result of its status as an S Corporation, the
taxable income of Distributors has been taxed for federal and state income tax
purposes directly to Robert G. Levin, Distributors' sole shareholder, rather
than to Distributors. Following the Reorganization, Distributors will no longer
qualify as an S Corporation and it will be fully subject to federal and state
income taxes as a C Corporation under the Code.

On October 24, 1997, Distributors declared a $2.7 million dividend to
Robert G. Levin, its sole shareholder, and the Chairman of the Board, Chief
Executive Officer and President of the Company, an amount equal to Distributors'
estimated accumulated undistributed taxable income as of the date of the
Reorganization. Distributors borrowed $2.7 million to fund this distribution.
Mr. Levin has guaranteed the repayment of this borrowing. As of September 30,
1997, actual accumulated undistributed taxable income totaled $2.2 million. Mr.
Levin and the Company have agreed to adjust the dividend to reflect the actual
accumulated earnings at the date of the Reorganization.

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,750,000 shares of
Common Stock offered by the Company hereby (after deducting underwriting
discounts and commissions and estimated offering expenses) are estimated to be
approximately $20.6 million, assuming an initial public offering price of $13.00
per share, the mid-point of the filing range.

The Company intends to use approximately: (i) $3.4 million to repay
outstanding indebtedness; (ii) $2.6 million to establish two new retail stores
in select urban centers; (iii) $2.0 million to increase inventories of premium
cigars; (iv) $600,000 to expand its mail order business; (v) $500,000 for the
introduction of new premium cigar brands; and (vi) $500,000 to upgrade the
Company's management information and accounting systems. The outstanding
indebtedness to be repaid with the net proceeds of the Offering includes four
different loans with approximately $2.7 million, $450,000, $146,000 and $64,000
outstanding, respectively, bearing interest at 6.0%, 8.75%, 8.5% and 9.0%,
respectively, and maturing December 1, 1997, December 2008, June 2020 and April
1998, respectively. The $2.7 million loan was incurred to finance the
distribution to Robert G. Levin, Chairman of the Board, Chief Executive Officer
and President of the Company, of the estimated $2.7 million in undistributed S
Corporation earnings of Ashton Distributors, Inc. through the date of the
Reorganization, which estimated earnings have been or will be taxed directly to
Mr. Levin. See "Reorganization of the Company" and "Certain Transactions." The
$450,000 loan was incurred to finance the construction of tenant improvements
for the Company's new office, warehouse and distribution facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

The remainder of the net proceeds of the Offering, approximately $11.1
million, will be used for general corporate purposes, including working capital
to support the growth of the Company business. In lieu of establishing new
retail stores, as described in (i) above, the Company may elect to acquire
existing retail locations and, to the extent such stores are acquired rather
than established, the Company anticipates that the cost to acquire a store will
be substantially greater than the $1.3 million allocated to establish a store.
The Company may use approximately $450,000 of the proceeds of the Offering to
make a contribution to a proposed joint venture. See "Business -- Marketing and
Distribution -- Retail Store." In addition, a portion of the net proceeds may
also be used for acquisition of proprietary cigar brands and existing
distributors of premium cigars. The Company currently has no agreements with
respect to the acquisition of any retail store, cigar brand or distributor.

Pending application of the net proceeds of the Company from the Offering,
the Company intends to invest in interest-bearing bank accounts, short-term,
investment grade securities or guaranteed obligations of the United States
government.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends except for S
Corporation distributions from Ashton Distributors, Inc. to its shareholder.
There are no restrictions on the declaration or payment of dividends by the
Company or any of its subsidiaries. However, the Company intends to retain
future earnings for use in its business and does not anticipate paying or
declaring any dividends on shares of its Common Stock in the foreseeable future.
The Board of Directors of the Company intends to review this policy from time to
time, after taking into account various factors such as the Company's financial
condition, results of operations, current and anticipated cash needs and plans
for expansion.

<PAGE>
CAPITALIZATION

The following table sets forth the current portion of long-term debt and
the capitalization of the Company at September 30, 1997 (i) on a combined basis,
(ii) on a pro forma combined basis assuming consummation of the Reorganization
and recording an S Corporation distribution of approximately $2.2 million with
respect to the undistributed earnings of Ashton Distributors, Inc. through
September 30, 1997, as well as the debt incurred to fund such distribution, and
(iii) on a pro forma as adjusted basis to give effect to the sale of 1,750,000
shares of Common Stock offered hereby (at an assumed initial public offering
price of $13.00 per share, the mid-point of the filing range) and the
application of the estimated net proceeds therefrom as described under "Use of
Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined Financial Statements and notes thereto appearing elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current portion of long-term debt........................ $ 125 $ 125 $ --
====== ====== =======
Short-term debt to fund stockholder distribution......... -- 2,153 --
====== ====== =======
Long-term debt........................................... 547 547 --
------ ------ -------
Stockholders' equity:
Preferred stock (pro forma), $.001 par value; 1,000,000
shares authorized; none issued...................... -- -- --
Common stock (pro forma), $.001 par value; 25,000,000
shares authorized; 4,020,000 shares issued and
outstanding and 5,770,000 shares issued and
outstanding pro forma as adjusted(1)(2)............. 91 4 6
Additional paid-in capital............................. 304 685 21,266
Retained earnings...................................... 4,719 2,567 2,566
Treasury stock......................................... (50) -- --
------ ------ -------
Total stockholders' equity.......................... 5,064 3,256 23,838
------ ------ -------
Total capitalization.......................... $5,611 $3,803 $23,838
====== ====== =======
</TABLE>

- ------------------
(1) Excludes: (i) 169,500 shares of Common Stock issuable upon the exercise of
options granted pursuant to the Employee Stock Plan; and (ii) 60,000 shares
of Common Stock issuable upon the exercise of options granted under the
Director Stock Plan. See "Management -- Stock Options."

18
<PAGE>

DILUTION

Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the pro forma book value of the Common Stock from
the initial public offering price. At September 30, 1997, the pro forma net
tangible book value of the Company was $2.8 million, or $0.69 per share, after
giving effect to the Reorganization and a subsequent S Corporation distribution
of $2.2 million. After giving effect to the Offering (at an assumed initial
public offering price of $13.00 per share, the mid-point of the filing range),
the pro forma net tangible book value of the Common Stock would be $23.4
million, or $4.05 per share. This represents an immediate increase in pro forma
net tangible book value of $3.36 per share of Common Stock to existing
shareholders and an immediate and substantial dilution of $8.95 per share of
Common Stock to new investors purchasing shares of Common Stock in the Offering.
The following table illustrates the dilution per share:

<TABLE>
<S> <C> <C>
Assumed initial public offering price...................... $13.00
Pro forma net tangible book value before the Offering.... $0.69
Increase attributable to new investors................... 3.36
-----
Pro forma net tangible book value after the Offering....... 4.05
------
Dilution to new investors.................................. $ 8.95
======
</TABLE>

The following table summarizes the number of shares of Common Stock sold by
the Company, the total consideration paid to the Company and the average price
per share paid by the existing shareholders and by the new investors purchasing
shares of Common Stock in the Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..... 4,020,000 69.7% $ 394,721 1.7% $ 0.10
New investors............. 1,750,000 30.3 22,750,000 98.3 13.00
--------- ------ ----------- ------
Total................... 5,770,000 100.0% $23,144,721 100.0%
========= ====== =========== ======
</TABLE>

The computations in the table set forth above exclude shares issuable
pursuant to the outstanding options granted January 1, 1996, the shares issuable
pursuant to the Employee Stock Plan and the Director Stock Plan.

19
<PAGE>

SELECTED FINANCIAL DATA

(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth, for the periods and at the dates indicated,
summary combined financial data for the Company. The information presented below
under the captions "Statement of Operations Data" for Fiscal 1995, 1996 and 1997
and "Balance Sheet Data" as of March 31, 1996 and 1997 is derived from the
Company's audited financial statements. The Company's audited financial
statements as of March 31, 1996 and 1997 and for the three years ended March 31,
1997 are included elsewhere in this Prospectus. The selected financial data for
the Company presented below under the captions "Statement of Operations Data"
for Fiscal 1993 and 1994 and for the six months ended September 30, 1996 and
1997 and the "Balance Sheet Data" as of March 31, 1993, 1994 and 1995 and
September 30, 1997 are derived from the Company's unaudited financial
statements. In the opinion of management, such unaudited financial information
contains all adjustments (which consist only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
the Company as of such dates and for such periods. The selected financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Combined Financial
Statements and notes thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
------------------------------------------- ----------------------
1993 1994 1995 1996 1997 1996 1997
------ ------ ------ ------ ------- ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $3,042 $3,738 $5,662 $9,467 $17,278 $7,610 $13,424
Cost of goods sold.................. 2,039 2,412 3,041 5,159 9,566 4,145 7,318
------ ------ ------ ------ ------- ------ -------
Gross profit........................ 1,003 1,326 2,621 4,308 7,712 3,465 6,106
Operating expenses.................. 950 1,440 1,949 3,484 4,895 2,240 2,894
------ ------ ------ ------ ------- ------ -------
Income (loss) from operations....... 53 (114) 672 824 2,817 1,225 3,212
Other income........................ -- -- -- 22 32 11 33
------ ------ ------ ------ ------- ------ -------
Income (loss) before income tax
expense........................... 53 (114) 672 846 2,849 1,236 3,245
Income tax expense(1)............... 18 1 209 318 577 398 653
------ ------ ------ ------ ------- ------ -------
Net income (loss)................... $ 35 $ (115) $ 463 $ 528 $ 2,272 $ 838 $ 2,592
====== ====== ====== ====== ======= ====== =======
PRO FORMA AND SUPPLEMENTAL PRO FORMA INCOME DATA:
Income before income tax expense.... $ 2,849 $1,236 $ 3,245
Pro forma income tax
provision(2).................... 1,133 491 1,294
Pro forma amortization of
goodwill(2)..................... 17 8 9
------- ------ -------
Pro forma net income(2)............. $ 1,699 $ 737 $ 1,942
======= ====== =======
Pro forma net income per share...... $ .41 $ .18 $ .47
======= ====== =======
Pro forma weighted average shares
outstanding(3).................... 4,102 4,102 4,102
Supplemental pro forma net
income(4)......................... $ 1,743 $ 754 $ 1,950
======= ====== =======
Supplemental pro forma net income
per share......................... $ .42 $ .18 $ .47
======= ====== =======
Supplemental pro forma weighted
average shares outstanding(5)..... 4,136 4,139 4,142

MARCH 31,
------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1997
------ ------ ------ ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................... $ 431 $ 433 $ 721 $1,035 $ 2,211 $ 4,023
Total assets........................ 938 1,425 2,260 3,686 5,406 7,986
Total debt.......................... 31 88 72 497 312 672
Stockholders' equity................ 453 643 1,162 1,653 3,025 5,064
</TABLE>

(footnotes on following page)

20
<PAGE>

- ------------------
(1) Ashton Distributors, Inc., formed in June 1993, operated as an S Corporation
from its inception, and, as a result, its taxable income was passed through
to its shareholder for federal and state income tax purposes. Accordingly,
the financial statements do not include a provision for federal and state
income taxes with respect to the operations of Ashton Distributors, Inc.

21
<PAGE>

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

When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend" and similar
expressions are intended to identify forward-looking statements regarding among
other things: (i) trends affecting the Company's financial condition or results
of operations; (ii) the Company's business and growth strategies; (iii) the
Company's relationship with Fuente Cigar and other manufacturers; (iv) the use
of the net proceeds to the Company of the Offering; (v) trends in the premium
cigar industry; (vi) government regulations; (vii) the Company's financing
plans; and (viii) the declaration and payment of dividends. Prospective
investors are cautioned that any forward-looking statements are not guarantees
of future performance and are subject to risks and uncertainties and that actual
results may differ materially from those included within the forward-looking
statements as a result of various factors. Factors that could cause or
contribute to such differences include, but are not limited to, those described
below, and under the heading "Risk Factors" and elsewhere in this Prospectus.

All references to a "Fiscal" year refer to the fiscal year ended March 31
of such year.

OVERVIEW

The Company is a leading distributor and retailer of brand name premium
cigars, cigar-related accessories and other tobacco products. The Company's
primary focus is the premium cigar market. The following table sets forth the
net sales of the Company's products, expressed in thousands of dollars and as a
percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
1995 1996 1997
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Premium Cigars.............. $4,988 88.1% $7,996 84.5% $14,915 86.3%
Accessories and Other....... 674 11.9 1,471 15.5 2,363 13.7
------ ----- ------ ----- ------- -----
Total....................... $5,662 100.0% $9,467 100.0% $17,278 100.0%
====== ===== ====== ===== ======= =====

<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1996 1997
------------------- -------------------
<S> <C> <C> <C> <C>
Premium Cigars.............. $6,785 89.2% $12,304 91.7%
Accessories and Other....... 825 10.8 1,120 8.3
------ ----- ------- -----
Total....................... $7,610 100.0% $13,424 100.0%
====== ===== ======= =====
</TABLE>

The Company's results of operations have been significantly affected by
current industry trends in the premium cigar market. Since 1993, the cigar
industry has experienced increasing consumption and retail sales across all
major categories, especially in the premium cigar segment. On a unit basis,
premium cigar sales grew at a CAGR of approximately 36.9% from 1993 to 1996,
while retail dollar sales have increased more rapidly due to price increases.
From Fiscal 1994 to Fiscal 1997, the Company's net sales increased at a CAGR of
66.6% and its sales of premium cigars increased at a CAGR of 71.6% over the same
period.

The Company's products are marketed on a wholesale basis to premium cigar
retailers nationwide, and on a retail basis through the Company's mail order
catalog and Philadelphia retail store. The following table sets forth the
Company's wholesale and retail sales, expressed in thousands of dollars and as a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------------------- -----------------------------------------
1995 1996 1997 1996 1997
------------------- ------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Wholesale............ $2,296 40.6% $3,687 38.9% $ 6,502 37.6% $2,751 36.1% $ 5,570 41.5%
Retail-Mail Order.... 1,674 29.5 3,178 33.6 6,633 38.4 3,249 42.7 5,202 38.7
Retail-Store......... 1,692 29.9 2,602 27.5 4,143 24.0 1,610 21.2 2,652 19.8
------ ----- ------ ----- ------- ----- ------ ----- ------- -----
Total................ $5,662 100.0% $9,467 100.0% $17,278 100.0% $7,610 100.0% $13,424 100.0%
====== ===== ====== ===== ======= ===== ====== ===== ======= =====
</TABLE>

The Company was incorporated in 1983, and its predecessors have been in
continuous operation since 1898. Immediately prior to the Offering, the Company
will undergo a Reorganization whereby, among other things, the Company will
acquire all of the issued and outstanding stock of Ashton Distributors, Inc. and
Holt's Cigar Company, Inc. from their sole shareholder, Robert G. Levin, in
exchange for shares of Common Stock and Ashton Distributors, Inc. will thereupon
be subject to taxation as a C Corporation. The Reorganization is intended to
qualify as a tax-free exchange under the Code. See "Reorganization of the
Company."

22
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, as a percentage of net sales, certain items
in the Company's statement of operations for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
---------------------------- ----------------------
1995 1996 1997 1996 1997
----- ----- ------ -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................ 53.7 54.5 55.4 54.5 54.5
----- ----- ------ ----- -----
Gross profit.............................. 46.3 45.5 44.6 45.5 45.5
Operating expenses........................ 34.4 36.8 28.3 29.4 21.6
----- ----- ------ ----- -----
Income from operations.................... 11.9 8.7 16.3 16.1 23.9
Other income.............................. 0.0 0.2 0.2 0.1 0.3
----- ----- ------ ----- -----
Income before income tax
expense................................. 11.9% 8.9% 16.5% 16.2% 24.2%
===== ===== ====== ===== =====
</TABLE>

SIX MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1996

Net Sales. Net sales increased approximately $5.8 million, or 76.4%, from
$7.6 million in the six months ended September 30, 1996 to $13.4 million in the
six months ended September 30, 1997. Net sales increased primarily as a result
of the increase in net sales of premium cigars from $6.8 million for the six
months ended September 30, 1996 to $12.3 million for the comparable period in
1997. Of such increase, $3.0 million was attributable to increased retail sales
of premium cigars and $2.5 million was attributable to increased wholesale sales
of premium cigars. These increases were the result of (i) increased availability
of premium cigars from the Company's suppliers, (ii) strong demand for premium
cigars, and (iii) increases in the average selling price per cigar of premium
cigars.

Gross Profit. Gross profit increased approximately $2.6 million, or 76.2%,
from $3.5 million in the six months ended September 30, 1996 to $6.1 million in
the six months ended September 30, 1997. Gross profit as a percent of net sales
was 45.5% for the six months ended September 30, 1996 and 1997.

Operating Expenses. Operating expenses increased approximately $654,000,
or 29.2%, from $2.2 million in the six months ended September 30, 1996 to $2.9
million in the six months ended September 30, 1997. As a percentage of net
sales, operating expenses decreased from 29.4% in the six months ended September
30, 1996 to 21.6% in the six months ended September 30, 1997. This decrease was
primarily due to net sales increasing at a higher rate than the increase in
operating expenses.

FISCAL 1997 COMPARED TO FISCAL 1996

Net Sales. Net sales increased approximately $7.8 million, or 82.5%, from
$9.5 million in Fiscal 1996 to $17.3 million in Fiscal 1997. Net sales increased
primarily as a result of the increase in net sales of premium cigars from $8.0
million in Fiscal 1996 to $14.9 million in Fiscal 1997. Of such increase, $4.6
million was attributable to increased retail sales of premium cigars and $2.3
million was attributable to increased wholesale sales of premium cigars. These
increases were the result of (i) increased availability of premium cigars from
the Company's suppliers, (ii) strong demand for premium cigars, and (iii)
increases in the average selling price per cigar of premium cigars. The
remaining increase in net sales of approximately $900,000 was attributable to
increased sales of accessories and other products.

Gross Profit. Gross profit increased approximately $3.4 million, or 79.0%,
from $4.3 million in Fiscal 1996 to $7.7 million in Fiscal 1997. Gross profit as
a percent of net sales decreased from 45.5% in Fiscal 1996 to 44.6% in Fiscal
1997. The decrease in gross profit as a percent of net sales was

23
<PAGE>

primarily due to cigars on a retail basis being sold at a lower margin as a
result of costs from manufacturers increasing faster than market retail prices.

Operating Expenses. Operating expenses increased approximately $1.4
million, or 40.5%, from $3.5 million in Fiscal 1996 to $4.9 million in Fiscal
1997. This increase was primarily due to an increased number of employees which
increased payroll and related employee expenses, and an increase in professional
fees and sales commissions. As a percentage of net sales, operating expenses
decreased from 36.8% in Fiscal 1996 to 28.3% in Fiscal 1997. This decrease was
primarily due to net sales increasing at a higher rate than the increase in
expenses.

FISCAL 1996 COMPARED TO FISCAL 1995

Net Sales. Net sales increased approximately $3.8 million, or 67.2%, from
$5.7 million in Fiscal 1995 to $9.5 million in Fiscal 1996. Net sales increased
primarily as a result of the increase in net sales of premium cigars from $5.0
million in Fiscal 1995 to $8.0 million in Fiscal 1996. Of such increase, $1.6
million was attributable to increased retail sales of premium cigars and $1.4
million was attributable to increased wholesale sales of premium cigars. These
increases were the result of increased supply of premium cigars from the
Company's suppliers and strong demand for premium cigars. The remaining increase
in net sales of approximately $800,000 was attributable to increased sales of
accessories and other products.

Gross Profit. Gross profit increased approximately $1.7 million, or 64.4%,
from $2.6 million in Fiscal 1995 to $4.3 million in Fiscal 1996. Gross profit as
a percent of net sales decreased from 46.3% in Fiscal 1995 to 45.5% in Fiscal
1996. The decrease in gross profit as a percent of net sales was primarily due
to cigars on a retail basis being sold at a lower margin as a result of
increased costs from the manufacturers, partially offset by an increase in the
Company's wholesale prices.

Operating Expenses. Operating expenses increased approximately $1.6
million, or 78.8%, from $1.9 million in Fiscal 1995 to $3.5 million in Fiscal
1996. This increase was due to an increased number of employees which increased
payroll and related employee expenses, increased advertising expenditures and
other increased costs incurred as a result of the Company's growth. As a
percentage of net sales, operating expenses increased from 34.4% in Fiscal 1995
to 36.8% in Fiscal 1996.

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited operations data for each of
the Company's preceding ten quarters:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1996 1996 1996 1996 1997
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $1,809 $2,450 $2,518 $2,689 $3,450 $4,160 $4,957 $4,710
Gross profit........... 826 1,086 1,157 1,239 1,472 1,993 2,227 2,020
Income from
operations........... 79 297 275 174 438 786 1,043 551

<CAPTION>
QUARTER ENDED
--------------------
JUNE 30, SEPT. 30,
1997 1997
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net sales.............. $6,361 $7,063
Gross profit........... 2,749 3,356
Income from
operations........... 1,356 1,855
</TABLE>

The following table sets forth certain unaudited operations data as a
percentage of net sales for each of the Company's preceding ten quarters:
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1996 1996 1996 1996 1997
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit........... 45.7 44.3 46.0 46.1 42.7 47.9 44.9 42.9
Income from
operations........... 4.4 12.1 10.9 6.5 12.7 18.9 21.0 11.7

<CAPTION>
QUARTER ENDED
--------------------
JUNE 30, SEPT. 30
1997 1997
-------- --------
<S> <C> <C>
Net sales.............. 100.0% 100.0%
Gross profit........... 43.2 47.5
Income from
operations........... 21.3 26.3
</TABLE>

24
<PAGE>

The Company's quarterly operating results have fluctuated due to several
factors, including the timing of catalog mailings and specialty direct mail
pieces, the opening of the Company's retail store and the price and availability
of premium cigars. In addition, the Company expects its business to continue to
exhibit some seasonality, with increases in premium cigar and cigar-related
accessory sales during the holiday season, although the effect of this may be
somewhat less evident due to the growth in the Company's net sales.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through a combination
of cash generated from operations and bank debt. Net cash provided by operations
for Fiscal 1995, Fiscal 1996, Fiscal 1997 and the six months ended September 30,
1997 of $539,000, $669,000, $1,130,000 and $1,684,000, respectively, consisted
primarily of net income, depreciation and amortization and an increase in
accounts payable, offset by increases in accounts receivable and inventory.

On January 29, 1997, the Company entered into a $400,000 line of credit
with Jefferson Bank with borrowings thereunder accruing interest at the bank's
prime rate. At September 30, 1997, the Company had no borrowings under the line
of credit. On May 5, 1995, the Company entered into a long-term note payable
with Jefferson Bank accruing interest at 9.0% and due in monthly payments. At
September 30, 1997, the outstanding balance on this note was $63,552. The note
matures in April 1998. On October 14, 1994, the Company entered into a long-term
note payable with Jefferson Bank accruing interest at 8.5% and due in monthly
payments. At September 30, 1997, the outstanding balance on this note was
$146,171. This note matures in June 2020. On June 17, 1997, the Company entered
into a construction loan agreement with Jefferson Bank to construct tenant
improvements for the Company's new office, warehouse and distribution facility.
The maximum available under this agreement is $450,000. Interest on the loan is
charged at 8.75% and the loan matures December 2008. At September 30, 1997, the
outstanding balance on this note was $450,000. The credit line and the notes
payable are secured by accounts receivable and inventory. The long-term notes
payable and the construction loan will be repaid with the net proceeds of the
Offering. On October 24, 1997, Ashton Distributors, Inc. declared a distribution
of $2.7 million to Robert G. Levin, its shareholder and Chairman of the Board,
Chief Executive Officer and President of the Company, such amount being
estimated to equal the accumulated but undistributed earnings of Ashton
Distributors, Inc. as of the date of the Offering which have been or will be
taxed as income to Mr. Levin. Ashton Distributors, Inc. borrowed this amount
from Jefferson Bank pursuant to a demand note due no later than December 1,
1997. Interest on this note accrues at the rate of 6.0%. This note is guaranteed
by Mr. Levin and will be repaid with the proceeds of the Offering.

The Company believes that the net proceeds of the Offering, together with
cash generated from its operating activities and available bank borrowings, will
be sufficient to fund its operations and expansion programs at least through the
end of Fiscal 1999.

IMPACT OF INFLATION

The Company does not believe that inflation has had a material impact on its
net sales or results of operations.

<PAGE>

BUSINESS

GENERAL

The Company believes that its success is due, in part, to the popularity of
the Company's Ashton brand, which was introduced in 1986. All Ashton cigars, as
well as a portion of the Company's Holt's brand premium cigars, are manufactured
for the Company by Fuente Cigar, a Dominican Republic based manufacturer of
premium cigars. Cigars made by Fuente Cigar enjoy a worldwide reputation for the
finest tobaccos, expert blends, consistency and quality of construction. The
Company believes that its relationship with Fuente Cigar will enable the Company
to continue to grow its Ashton brand as well as to introduce new brands to be
manufactured for the Company by Fuente Cigar. Two of the executive officers of
Fuente Cigar, Carlos A. Fuente, Sr. and Carlos P. Fuente, Jr., are directors of
the Company and a related Fuente family partnership will own approximately 24.4%
of the shares of Common Stock outstanding upon completion of the Offering.
Fuente Cigar has shown its commitment to the Company through agreements which
provide for: (i) the exclusive manufacture by Fuente Cigar of Ashton brand
premium cigars; (ii) the sale to the Company of at least 5.0 million premium
cigars per year for a minimum of ten years; and (iii) the exclusive wholesale
distribution by the Company of up to three new premium cigar brands to be
developed with and manufactured by Fuente Cigar. In Fiscal 1996, Fiscal 1997 and
the six months ended September 30, 1997, the Company purchased, on a dollar
basis, approximately 39.2%, 47.0% and 58.1%, respectively, of its premium cigars
from Fuente Cigar.

MARKET OVERVIEW

The cigar market is divided into three principal categories: premium
cigars, mass market cigars (large and small) and little cigars. Premium cigars
are generally imported, hand-made or hand-rolled cigars made with long filler,
100% natural tobacco leaf and which generally sell at retail prices above $1.00
per cigar. In order to make hand-made cigars, tobaccos are combined according to
brand specified formulas to create the "filler" of each cigar and "binder"
tobacco is wrapped around filler to create the "bunch" which is placed in a
mold. Then, "wrapper" tobacco is hand-wrapped around the bunch, creating a
premium cigar.

After declining for almost thirty years from a peak in 1964, the cigar
market entered a significant growth period in 1993. According to the Cigar
Association of America, sales of all categories of cigars totaled 4.6 billion
units, or $1.6 billion, in 1996, and grew from 1993 to 1996 at a CAGR of 10.3%
on a unit basis and 30.2% on a dollar basis. Unit sales of premium cigars, which
had remained essentially flat between 1981 and 1993, increased at a CAGR of
36.9%, on a unit basis, from 1993 to 1996. The Cigar Association of America
reports that premium cigar imports for the six month period ended June 30, 1997
have increased approximately 95.0% compared to cigar imports for the same period
in 1996.

The Company believes that the increase in demand for premium cigars is the
result of several factors, including: (i) the improved image of cigar smoking
resulting from increased publicity, including the success of Cigar Aficionado
magazine and the increased visibility of cigar smoking by celebrities; (ii) the
emergence of an expanded base of younger, highly educated, affluent adults aged
25 to 35 and the growing interest of this group in luxury goods, including
premium cigars; (iii) the increase in the number of adults over age 40 (a
demographic group believed to smoke more cigars than any other demographic
group); and (iv) the proliferation of establishments where cigar smoking is
encouraged, as well as "cigar smoker" dinners and other special events for cigar
smokers.

26
<PAGE>

Cigar manufacturers have experienced a shortage of raw materials
(principally properly aged tobacco) due to increased demand for premium cigars
and the length of time necessary to cultivate, grow, harvest, age and process
the tobacco used in the manufacture of premium cigars. In addition,
manufacturers of premium cigars have reported shortages of skilled labor
necessary for processing, blending and manufacturing premium cigars, although
these manufacturers currently report that labor shortages have been easing. As a
result, wholesalers and retailers of premium cigars have experienced and
continue to experience shortages in supply and increasing prices with respect to
premium cigars.

BUSINESS STRATEGY

The Company's principal business objective is to enhance its position as a
leading distributor and retailer of a broad range of premium cigars and
cigar-related accessories. The principal elements of this business strategy
include:

Strengthening the Ashton Brand. The Company believes its proprietary
Ashton brand premium cigars are nationally recognized among the top brands due
to their flavor, consistency and quality of construction. Cigar Aficionado
magazine has consistently rated Ashton cigars as "very good to excellent" in
each category evaluated by the publication. To continue to build the Ashton
brand, the Company plans to: (i) secure an increasing volume of Ashton cigars
supplied by Fuente Cigar; (ii) expand the Ashton product line to include
additional sizes and shapes; (iii) broaden awareness of the Ashton brand name
through targeted advertising in select national and regional publications; and
(iv) increase the sales of cigar-related accessories featuring the Ashton brand
name.

Concentration on Premium Cigars. The Company is focused on the premium,
hand-made cigar market. Within this segment, the Company offers a diverse range
of sizes, shapes, tastes, blends and prices designed to appeal to the
preferences of premium cigar consumers. Products sold by the Company include
over 170 brands manufactured by companies such as Fuente Cigar, General Cigar
Company, Consolidated Cigar Holdings Corporation, Lane Limited and Villazon &
Co., Inc. (acquired by General Cigar Company in January 1997). The Company
believes that its broad offering of premium cigars is essential to maintain the
appeal of its catalog and retail store as single sources for a broad range of
premium cigar products. This concentration on premium cigars has positioned the
Company to benefit from the highest growth segment of the cigar industry.

Building on Relationship with Fuente Cigar. To secure a source of
high-quality premium cigars at a time when demand exceeds supply, the Company
entered into an amended agreement with Fuente Cigar pursuant to which Fuente
Cigar agreed to sell at least 5.0 million premium cigars per year to the Company
and to use its best reasonable efforts to sell to the Company premium cigars in
excess of the 5.0 million annual minimum. Fuente Cigar is a leading manufacturer
of premium cigars made in the Dominican Republic, and cigars made by Fuente
Cigar enjoy a worldwide reputation for use of the finest tobaccos, expert
blends, consistency and quality of construction. Fuente Cigar has manufactured
the Company's Ashton brand since 1988 and has agreed that the Company will be
the exclusive distributor of up to three new brands to be introduced over the
three year period commencing in 1998, which brands will be developed with and
manufactured exclusively by Fuente Cigar. Carlos A. Fuente, Sr. and Carlos P.
Fuente, Jr., two of the principal executive officers of Fuente Cigar, serve on
the Company's Board of Directors and their affiliated family partnership will
own approximately 24.4% of the shares of Common Stock outstanding after the
Offering. The Company believes that its relationship with Fuente Cigar is an
important element of its overall strategy of increasing sales of branded premium
cigars.

Use of Multiple Distribution Channels. The Company believes that
distribution of its products through its wholesale, catalog and retail store
channels enables it to: (i) reach a geographically broad group of customers;
(ii) maintain a strong retail presence enabling it to react quickly to changes
in customer preferences; and (iii) benefit from significant growth opportunities
available through national distribution of its branded products.

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Commitment to Customer Service. The Company believes its emphasis on
customer service and satisfaction is an integral part of its success. Catalog
and store sales personnel are trained to educate customers on the relative
merits of premium cigar products and to assist customers in making informed
purchasing decisions. In addition, the Company offers a 100% Guarantee of
Satisfaction to its customers which provides for a refund, credit or replacement
for any full or partially smoked box of cigars. The Company received the Best of
Philly award from Philadelphia magazine in 1997 as the best retail cigar store
in the Philadelphia area.

GROWTH STRATEGY

The principal elements of the Company's growth strategy are:

Introduction of New Proprietary Brands. The Company believes that the
increased popularity of premium cigars has resulted in cigar smokers who are
more informed, selective and brand conscious. At the same time, several new
brands of premium cigars have been introduced by manufacturers and distributors
seeking to capitalize on the increasing popularity of cigars. The Company
believes that many of these brands have not utilized the tobacco grades and
production methods normally associated with quality premium cigars. As a result,
the Company believes that premium cigar smokers prefer cigars with a highly
regarded brand name that are produced by respected cigar manufacturers. Under a
distributorship agreement with Fuente Cigar, the Company will be the exclusive,
worldwide distributor for up to three new premium brands to be developed by
Fuente Cigar and the Company. The Company and Fuente Cigar anticipate that these
brands will be introduced over a three year period beginning in 1998. The
Company intends to support these new brands through advertising in trade and
consumer publications and at cigar-related events. Based on its success with the
Ashton brand and its wholesale customer base of over 1,000 specialty
tobacconists, the Company believes that it is well positioned to support the
introduction of new brands.

Increase Wholesale Distribution of Proprietary Premium Cigars. The Company
expects to be able to distribute an increased number of premium cigars under the
Ashton brand, other proprietary brands and brands for which it will act as the
exclusive distributor. In anticipation of an increased supply of premium cigars,
the Company intends to expand its wholesale operations by: (i) increasing the
number of its direct sales force personnel covering wholesale acccounts; (ii)
penetrating existing accounts with a greater amount and variety of premium
cigars; and (iii) adding new accounts domestically and internationally.

Expand Catalog Distribution and Sales. The Company believes that its
catalog operations enable it to market and sell premium cigars to a large and
diverse group of customers. During Fiscal 1998, the Company distributed its
Spring/Summer catalog to a proprietary list of over 80,000 cigar smokers, cigar
purchasers and others evidencing interest in premium cigar products, compared to
35,000 and 45,000 in Fiscal 1995 and Fiscal 1996, respectively. The Company
anticipates that it will distribute its Fall/Winter catalog to over 100,000
individuals by the end of Fiscal 1998. The Company plans to increase its catalog
revenues by: (i) increasing the size of the Company's proprietary mailing list;
(ii) increasing the frequency of catalog mailings; and (iii) increasing the size
and capability of the Company's mail order operations. The Company completed a
move to a larger distribution facility in September 1997, and believes that the
larger facility will enable it to process a greater number of incoming telephone
orders and a greater volume of deliveries to its catalog customers.

Open or Acquire Selected Retail Locations. The Company intends to open or
acquire cigar stores in selected, densely populated and highly trafficked areas
where demand for premium cigars is high. New store openings or acquired stores
will enable the Company to increase its total market presence and develop a
broader base of customers for its catalog division. The Company is also
considering opening retail locations in special venues such as sports arenas and
casino/hotels. The Company is currently negotiating to open a Holt's retail
cigar store and Holt's Smoking Club at the CoreStates Center Arena in
Philadelphia.

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PRODUCTS

The Company markets a broad selection of premium cigars and related
accessories. A small percentage of the Company's sales are derived from the sale
of mass market cigars. Premium cigars accounted for approximately 88.1%, 84.5%,
86.3% and 91.7% of the Company's net sales in Fiscal 1995, Fiscal 1996, Fiscal
1997 and the six months ended September 30, 1997, respectively.

Premium Cigars. Premium cigars are generally imported, hand-made or
hand-rolled cigars made with long filler, 100% natural tobacco leaf which sell
at retail prices above $1.00 per cigar. The Company uses tobaccos of the finest
grades for its Ashton brand cigars. Such tobaccos are combined according to
brand specified formulas to create the "filler" of each cigar and "binder"
tobacco is wrapped around filler to create the "bunch," which is placed in a
mold. Then, specially selected "wrapper" tobacco is hand-wrapped around the
bunch. After the manufacturing process is complete, an Ashton cigar will
normally be aged from three months to one year in specially constructed and
climate controlled aging rooms. The premium cigars manufactured by Fuente Cigar
for the Company undergo numerous quality control procedures at each stage of the
manufacturing, aging and packaging process.

The Company markets over 170 brands of premium cigars, ranging in price
from $1.00 to $28.00 per cigar. Of these brands, Ashton, Holt's, Cortesia and
Castano are proprietary brands owned by the Company. Net sales of the Company's
proprietary cigars represented approximately 44.1%, 41.6% and 48.6% of the
Company's net sales for Fiscal 1996, Fiscal 1997 and the six months ended
September 30, 1997, respectively.

The significant growth in the Company's proprietary cigar sales has been
primarily due to an increase in the popularity of the Ashton brand. The Ashton
brand, which was introduced in 1986, is comprised of 22 different sizes and
shapes with retail prices generally between $4.50 and $17.00 per cigar. The
Company believes that the proprietary Ashton brand premium cigars are nationally
recognized as among the top brands due to their flavor, consistency and quality
of construction. Ashton brand cigars are targeted at the upper end of the
premium cigar market. Based upon the continued strong demand for Ashton brand
cigars and understandings with Fuente Cigar regarding increased production for
the Company, the Company expects to sell 3.3 million Ashton brand cigars during
Fiscal 1998 and 5.0 million Ashton brand cigars during Fiscal 1999.

Holt's and Cortesia brand premium cigars are sold by the Company
exclusively through its catalog and Philadelphia retail store. The Holt's brand
is comprised of 18 different sizes and shapes with retail prices generally
between $2.30 and $4.80 per cigar. The Holt's brand premium cigars are targeted
at the middle of the premium cigar market. The Cortesia brand is comprised of
six different sizes and shapes with retail prices generally between $1.30 and
$3.10 per cigar. The Company also distributes cigars under its proprietary
Castano brand name. The Castano brand of premium cigars was introduced in July
1997 and has been in limited production since that time. The Company intends to
increase distribution of this brand in 1998. The Castano brand currently has
five different sizes and shapes with retail prices generally between $4.50 and
$6.75 per cigar.

The Company intends to introduce up to three more brands to be developed
with and manufactured by Fuente Cigar over the next three years under an
exclusive distributorship agreement. Management will work closely with Fuente
Cigar to develop the specific blends, wrappers and sizes for these new brands
which will be sold under trademarks owned by Fuente Cigar. See "-- Suppliers."

Accessories. The increased demand for premium cigars has led to an
increase in the market for cigar accessories such as humidors, cigar cutters,
cigar cases, lighters and ashtrays. The Company offers accessories by brand name
manufacturers, as well as accessories incorporating the Ashton trademark. Net
sales of accessories represented approximately 7.1%, 10.8%, 12.4% and 5.3% of
the Company's net sales for Fiscal 1995, Fiscal 1996, Fiscal 1997 and the six
months ended September 30, 1997, respectively.

Other Tobacco Products. The Company offers a limited selection of other
tobacco products, including mass market cigars, smokeless tobacco, pipes and
pipe tobacco for sale through its mail order catalog and retail store, as well
as a limited number of imported cigarettes which are sold only through the
Company's retail store. Pipes and pipe tobacco are also sold through the
Company's wholesale operations. Net sales of other tobacco products represented
approximately 4.8%, 4.7%,

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1.3%, 3.0% of the Company's net sales for Fiscal 1995, Fiscal 1996, Fiscal 1997
and the six months ended September 30, 1997, respectively.

MARKETING AND DISTRIBUTION

The Company distributes its Ashton brand premium cigars and cigar-related
accessories on a wholesale basis to specialty tobacconists nationwide, and also
sells premium cigars on a retail basis through its mail order catalog and its
retail store.

Wholesale Operations. The Company distributes premium cigars, cigar cases,
travel humidors and ashtrays which are marketed under the Ashton brand name and
feature the Ashton logo. Net sales from wholesale operations were $2.3 million,
$3.7 million, $6.5 million and $5.6 million for Fiscal 1995, Fiscal 1996, Fiscal
1997 and the six months ended September 30, 1997, respectively.

The Company believes that its ability to secure an increasing supply of
premium cigars under the PLMA with Fuente Cigar will allow it to better satisfy
the current demand for Ashton cigars and to increase the number of its wholesale
customers. See "-- Suppliers." At present, the Company has limited the
acceptance of new wholesale accounts in order to attempt to satisfy the demand
of its existing account base. As of September 30, 1997, the Company's wholesale
account base totaled approximately 1,200 customers.

The Company's wholesale activities are serviced by a direct sales force of
six employees who represent only the Company's brands and four independent sales
representatives who represent Company brands as well as competing brands. The
Company intends to increase the size of its direct sales force in order to: (i)
better penetrate its existing wholesale accounts; (ii) increase its wholesale
account base through the opening of new accounts; and (iii) manage the
distribution of its products to protect the overall integrity and image of the
Company's brands. Additionally, the Company has agreed to serve as the exclusive
distributor for up to three new Fuente Cigar manufactured brands to be
introduced over a three year period beginning in 1998. To support the Company's
proprietary brands and brands which the Company will distribute exclusively, the
Company intends to invest in further brand and product promotion in national
publications, trade magazines and other publications. The Company utilizes two
distributors for the distribution of its Ashton brand cigars on a limited basis
in Europe.

Retail Operations. The Company sells a broad selection of premium cigar
and related accessories through its mail order operation and its Philadelphia
retail store. The Company is committed to providing high quality customer
service and provides a 100% Guarantee of Satisfaction for every product sold.
For premium cigar purchases, the Company's 100% Guarantee of Satisfaction
provides a refund, credit or replacement for any full box of cigars provided
that less than four cigars have been smoked, and a proportionate credit if four
or more have been smoked. Any other merchandise may be returned by the customer
for a full refund, credit or replacement within ten days of receipt of the
merchandise.

Mail Order Catalog

The Company's mail order catalog markets a large selection of premium
cigars and accessories. In the current fiscal year, the Company distributed
approximately 80,000 copies of its Spring/Summer catalog and anticipates
distributing over 100,000 copies of its Fall/Winter catalog. Each of the
Company's four-color glossy catalogs contains photographs of the Company's
products and features premium cigars and other special offerings. The Company
mails its catalogs to its proprietary list of cigar smokers, cigar purchasers
and others evidencing interest in cigar products, and the Company deletes a name
from its proprietary list if there has been no sales activity for two years. In
addition, the Company produces four to eight page mailings that it distributes
four times per year. Sales associates are able to provide information on
products offered in the Company's catalogs and other mailings. The Company's
call center operates from 8:00 a.m. to 6:00 p.m. Monday to Friday, Eastern Time,
and from 9:00 a.m. to 3:00 p.m., Eastern Time, on Saturdays. Net sales from the
Company's mail order catalog were $1.7 million, $3.2 million, $6.6 million and
$5.2 million in Fiscal 1995, Fiscal 1996, Fiscal 1997 and the six months ended
September 30, 1997, respectively.

Retail Store

The Company currently operates a 3,000 square foot retail store located in
Philadelphia, Pennsylvania. The Company's retail store contains a large,
walk-in, open-display humidor, smoking lounge, cigar lockers and accessory
retail space. The Company intends to incorporate many of these

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features in new retail locations in order to establish them as "destination"
stores which draw customers from a large geographic area. The Company's store
received the Best of Philly award from Philadelphia magazine as the best retail
cigar store in the Philadelphia area in 1997. The Company intends to acquire or
develop two additional cigar stores in selected, densely populated, highly
trafficked areas where demand for premium cigars is high. The cost to develop a
new retail location is estimated to be approximately $600,000 for fit-out,
furnishings and equipment, and approximately $700,000 for the cost of inventory
and initial operating capital. With respect to any retail store acquisitions,
the costs will be dependent upon the location, size and operating performance of
the store. The Company is also considering opening retail facilities in special
venues such as sports arenas and casino/hotels. Net sales from the Company's
retail store were $1.7 million, $2.6 million, $4.1 million and $2.7 million in
Fiscal 1995, Fiscal 1996, Fiscal 1997 and the six months ended September 30,
1997, respectively.

The Company is currently negotiating a joint venture agreement with
Spectrum Arena Limited Partnership ("Spectrum"), the operator of the CoreStates
Center Arena in Philadelphia, Pennsylvania (the "Arena") to open a Holt's retail
cigar store and a Holt's Smoking Club at the Arena. The Company will license the
Holt's name for use in connection with the Holt's retail cigar store and the
Holt's Smoking Club at the Arena, both of which will be managed by Aramark
Lesiure Services, Inc., the exclusive concessionnaire at the Arena. The Arena is
the home to the Philadelphia 76ers basketball team and the Philadelphia Flyers
hockey team and hosts concerts and other events. Pursuant to the joint venture
agreement, which the Company anticipates will be executed by the end of 1997,
the Company would: (i) make a contribution of $450,000 to the joint venture;
(ii) be the exclusive supplier of cigars and related accessories at the Arena;
and (iii) be entitled to share in the net income of the Holt's retail cigar
store and the membership fees and humidor rental fees at the Holt's Smoking
Club.

Distribution. In September 1997, the Company relocated its distribution
center to a 21,360 square foot facility located in Philadelphia, Pennsylvania.
The facility also houses the Company's corporate offices, wholesale and mail
order operations. The humidified and climate controlled cigar storage warehouse
located within this facility is approximately 5,000 square feet, a substantial
increase over the 2,200 square feet of humidified storage space at the Company's
prior facility. The specific products in stock vary from time to time depending
upon the ability of the Company to secure supplies of premium cigars, and if in
stock, such products are available for shipment to wholesale and retail
customers within one day of receipt of an order.

SUPPLIERS

The Company has long-term relationships with over 50 suppliers including
major manufacturers such as Fuente Cigar, General Cigar Company, Consolidated
Cigar Holdings Corporation, Lane Limited and Villazon & Co., Inc. Fuente Cigar
supplied approximately 39.2%, 47.0% and 58.1% of all premium cigars purchased,
on a dollar basis, by the Company during Fiscal 1996, Fiscal 1997 and the six
month period ended September 30, 1997, respectively. General Cigar Company
acquired Villazon & Co., Inc. in January 1997, and, on a combined basis, they
supplied approximately 13.4%, 18.4% and 17.6% of all premium cigars purchased,
on a dollar basis, by the Company in Fiscal 1996, Fiscal 1997 and the six months
ended September 30, 1997, respectively. No other supplier accounted for more
than 10% of the Company's premium cigar purchases during these periods. The
Company believes that maintaining and strengthening its long-term relationships
with its suppliers is essential to securing an allocation of the limited
worldwide premium cigar supply. Other than its agreements with Fuente Cigar, the
Company has no agreements relating to the supply of premium cigars.

Private Label Manufacturing Agreement with Fuente Cigar ("PLMA"). The
Company entered into the PLMA with Fuente Cigar in April 1997 whereby Fuente
Cigar agreed to sell the Company a minimum of 5.0 million premium cigars per
year for an initial term of ten years and the Company has agreed to use its best
reasonable efforts to purchase at least 5.0 million cigars during each year of
the term of the PLMA. In addition, Fuente Cigar agreed to use its best
reasonable efforts to sell to the Company premium cigars in excess of the 5.0
million per year. The premium cigars supplied by Fuente Cigar pursuant to the
PLMA include the Company's proprietary Ashton and Holt's brand premium cigars,
as well as any other premium cigars manufactured by Fuente Cigar under its
trademarks, and will be comprised of those brands in such amounts, sizes and
shapes as determined by Fuente Cigar. The PLMA represents a commitment by Fuente
Cigar to increase its supply of premium cigars to the Company. Fuente Cigar
supplied the Company with 2.1 million premium cigars in Fiscal 1996, 3.3

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million premium cigars in Fiscal 1997 and 2.3 million premium cigars in the six
months ended September 30, 1997. The purchase price for premium cigars delivered
under the PLMA is set by Fuente Cigar at the market price in effect from time to
time. The PLMA specifies that while the Company owns the trademark to the name
Ashton, Fuente Cigar owns the formula used to blend the tobacco contained in
Ashton cigars. The PLMA permits noncompliance with the obligations of Fuente
Cigar to sell 5.0 million premium cigars per year for various reasons, including
but not limited to, a shortage of labor or the inability to secure materials and
supplies at reasonable prices. The PLMA provides that it is to be interpreted
and enforced under Florida law. However, the agreement specifically prohibits
any actions for specific performance and damages in the event of a breach of the
PLMA by Fuente Cigar. In the event that a competitor of Fuente Cigar were to
acquire control of the Company, Fuente Cigar may, after the expiration of an
eight month period commencing on the date of such change in control, give notice
of the termination of the PLMA effective one year from the date of such notice.
If Fuente Cigar does not give such notice, the PLMA will be automatically
renewed for successive one year terms if neither party gives notice of
termination.

Exclusive Distributorship Agreement. In September 1997, the Company and
Fuente Cigar entered into an exclusive distributorship agreement whereby Fuente
Cigar agreed to develop with the Company up to three new premium cigar brands to
be manufactured by Fuente Cigar, and to be exclusively distributed by the
Company on a worldwide basis. Cigars manufactured for the Company under this
agreement will be applied to the annual minimum requirement under the PLMA. The
initial term of this agreement expires on August 31, 2007. The Company is
obligated to use its best reasonable efforts to promote these new brands.

SALES AND ADVERTISING

At September 30, 1997, the Company employed six direct sales personnel in
connection with its wholesale operations, eight telephone sales associates in
the Company's mail order catalog call center and 16 sales people in the
Company's retail operations, six of whom are part-time employees. In addition,
the Company utilized four independent sales agents in connection with its
wholesale operations.

The Company's catalogs are its primary means of marketing to retail
customers. The Company targets its potential customers by originating its own
mailing list and keeping the mailing list exclusive to interested customers by
removing names from the mailing list if there has not been a purchase made
within two years. To support its retail sales, the Company utilizes local print
advertising, radio advertising during local sporting events and attends or
sponsors numerous cigar related events. The Company advertises through full page
advertisements in each issue of Cigar Aficionado magazine and through its
presence at or sponsorship of cigar related marketing events such as the "Big
Smokes" sponsored by Cigar Aficionado. Additionally, the Company relies to a
certain extent upon the reputation of the Ashton brand, Robert G. Levin, the
Company's Chairman of the Board, Chief Executive Officer and President, and
Fuente Cigar.

INFORMATION SYSTEMS

The Company has upgraded its information systems over the past year and
intends to make additional capital expenditures of approximately $500,000 from
the net proceeds of the Offering to further upgrade the capabilities of its
systems in support of anticipated growth. The Company has engaged an outside
consultant to further enhance the productivity and regularly review the
suitability of its management information systems. Additional investments are
also anticipated to enhance the Company's web site.

INTELLECTUAL PROPERTY

Ashton is a registered trademark of the Company. Holt's, Cortesia and
Castano are trademarks with respect to which the Company has applications for
registration pending. As the Company believes that its existing trademarks,
particularly the Ashton trademark, are critical to the Company's continued
success, the Company intends to vigorously defend its trademarks against any
potential infringement.

COMPETITION

The markets for the Company's products are highly competitive and subject
to rapid consumer change and frequent new product introductions and extensions.
The Company's wholesale distribution business faces competition from larger,
well-established premium cigar companies, including Fuente Cigar and its
affiliates, which manufacture and distribute numerous high-quality premium cigar
brands

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that are competitive with the Company's products, as well as from an increasing
number of new entrants to the marketplace. The Company's retail sales compete
with a large number of other mail order companies, some of which are larger and
better financed than the Company. The Company also faces significant competition
from a large number of existing, and an increasing number of new, retail stores
and smoking establishments selling the same branded products as the Company.
Existing or future competitors may develop or offer the same or similar premium
cigars which may result in decreases in the Company's sales of premium cigars.
Many of these competitors have longer operating histories and significantly
greater financial, managerial, creative, sales and marketing and other resources
than the Company. The Company's ability to retain its existing customers and
attract new customers depends on the quality of its premium cigars, the
availability of product, its reputation in the industry, and its ability to
maintain customer satisfaction. The Company's Ashton brand competes on the basis
of quality and consistency of its premium cigars and service to its wholesale
customers. The Company's retail operations compete on the basis of breadth of
product, customer service and price.

THE TOBACCO INDUSTRY

Regulation. Cigar manufacturers, like other producers of tobacco products,
are subject to regulation at the federal, state and local levels. Federal law
has recently required states, in order to receive full funding for federal
substance abuse block grants, to establish a minimum age of 18 years for the
purchase of tobacco products, together with an appropriate enforcement program.
The recent trend is toward increasing regulation of the tobacco industry, and
the recent increase in popularity of cigars could lead to an increase in
regulation of cigars. A variety of bills relating to tobacco issues have been
introduced in the U.S. Congress, including bills that would: (i) curtail the
advertising and promotion of all tobacco products and restrict or eliminate the
deductibility of such advertising expenses; (ii) increase labeling requirements
on tobacco products to include, among other things, addiction 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 at the federal level
from the FTC to the FDA and require the tobacco industry to fund the FDA's
oversight; (v) increase tobacco excise taxes; (vi) restrict the access to
tobacco products by, among other things, banning the distribution of tobacco
products through the mail, except for sales subject to proof of age; (vii)
require licensing of retail tobacco product sellers; (viii) regulate tobacco
product development; and (ix) require tobacco companies to pay for health care
costs incurred by the federal government in connection with tobacco related
diseases. Although hearings have been held on certain of these proposals, to
date none of such proposals have been passed by Congress.

In August 1996, the FDA determined that nicotine is a drug. Accordingly,
the FDA determined that it had jurisdiction over cigarettes and smokeless
tobacco products, pursuant to the FDA determination that cigarette and smokeless
tobacco products are drug delivery devices used for the delivery of nicotine. In
addition, a majority of states restrict or prohibit smoking in certain public
places and restrict sale of tobacco products (including cigars) to minors. Local
legislative and regulatory bodies have increasingly moved to curtail smoking by
prohibiting smoking in certain buildings or areas or by requiring designated
"smoking" areas. Individual establishments, such as bars and restaurants, have
further prohibited pipe and cigar smoking even though other tobacco products are
permitted in such establishments. Numerous proposals also have been considered
at the state and local level restricting smoking in certain public areas.

Federal law has required health warnings on cigarettes since 1965 and on
smokeless tobacco since 1986. Although no federal law currently requires that
cigars carry such warnings, California has enacted laws requiring that "clear
and reasonable" warnings be given to consumers who are exposed to chemicals
determined by the state to cause cancer or reproductive toxicity, including
tobacco smoke and several of its constituent chemicals. Similar legislation has
been introduced in other states. In addition, effective January 1, 1998,
smoking, including cigar smoking, has been banned by the State of California in
all bars, taverns and clubs where food and alcohol is served. Other legislation
recently introduced in Massachusetts would, if enacted, require warning labels
on cigar boxes. The states of Minnesota and Texas have recently enacted
legislation which require cigar manufacturers to report the levels of various
substances in their cigars on an annual basis. Consideration at both the federal
and state level also has been given to consequences of second-hand smoke.

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The U.S. Environmental Protection Agency (the "EPA") published a report in
January 1993 with respect to the respiratory health effects of second-hand
smoke, which concluded that widespread exposure to environmental tobacco smoke
presents a serious and substantial public health concern. Issuance of the
report, which is based primarily on studies of passive cigarette smokers, may
lead to further legislation designed to protect non-smokers. Also, a study
recently published in the journal Science reported that a chemical found in
cigarette smoke has been found to cause genetic damage in lung cells that is
identical to damage observed in many malignant tumors of the lung and, thereby,
directly links lung cancer to smoking. The National Cancer Institute also has
announced that it will issue a report in 1997 describing research into cigars
and health. The study and these reports could affect pending and future tobacco
regulation and litigation.

Litigation

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

Current tobacco litigation generally falls within one of three categories:
class actions, individual actions or actions brought by individual states
generally to recover Medicaid costs allegedly attributable to tobacco-related
illnesses. The pending actions allege a broad range of injuries resulting from
the use of tobacco products or exposure to tobacco smoke and seek various
remedies, including compensatory and, in some cases, punitive damages together
with certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies are vigorously
defending these actions.

Over 40 states have filed lawsuits against the major United States
cigarette manufacturers to recover billions of dollars in damages, primarily
costs of medical treatment of smokers. On June 20, 1997, the Attorneys General
of 40 states and several major cigarette manufacturers announced a proposed
settlement of the lawsuits filed by these states (the "Proposed Settlement").
The Proposed Settlement, which will require Federal legislation to implement, is
complex and may change significantly or be rejected. The Proposed Settlement
would significantly change the way in which cigarette companies and tobacco
companies do business. Among other things, the tobacco companies would pay
hundreds of billions of dollars to the various states; the FDA could regulate
nicotine as a "drug" and tobacco products as "drug delivery devices;" all
outdoor advertising, sports event advertising and advertising on non-tobacco
products would be banned and certain class action lawsuits and punitive damage
claims against tobacco companies would be prohibited. President Clinton recently
announced that he would not support the Proposed Settlement unless significant
changes were incorporated. Therefore, the potential impact of the Proposed
Settlement on the cigar industry in general and the Company in particular is
uncertain. The State of Florida has entered into a separate settlement agreement
with major United States cigarette manufacturers with respect to tobacco
products including roll-your-own and little cigars. The settlement agreement
provides, in part, for a ban on billboard and transit advertising, significant
document disclosure by the settling cigarette companies, billions of dollars in
settlement payments, and certain adjustments pending the resolution of the
Proposed Settlement. The State of Mississippi has announced a separate
settlement agreement with major cigarette manufacturers which provides for a
payment of $4.0 billion, however, if the Proposed Settlement is approved it will
supercede the Mississippi settlement. The recent increase in the sales of cigars
and the publicity such increases have received may have the effect of increasing
the probability of legal claims.

In May 1996, the Fifth Circuit Court of Appeals reversed a Louisiana
district court's certification of a nationwide class consisting essentially of
nicotine dependent cigarette smokers. Notwithstanding the dismissal, new class
actions asserting claims similar to those in this action recently have been
filed in certain states. To date, two pending class actions against major
cigarette manufacturers have been

34
<PAGE>

certified. The first case is limited to Florida citizens allegedly injured by
their addiction to cigarettes; the other is limited to flight attendants
allegedly injured through exposure to second-hand smoke.

Excise Taxes. Cigars have long been subject to federal, state and local
excise taxes, and such taxes frequently have been increased or proposed to be
increased in some cases significantly, to fund various legislative initiatives.
The federal excise tax rate on large cigars (weighing more than three pounds per
thousand cigars) is 12.75% of the manufacturer's selling price, net of the
federal excise tax and certain other exclusions, capped at $30.00 per thousand
cigars.

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

Tobacco products also are subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. Forty-two states impose excise taxes on cigars. State cigar excise taxes
are not subject to caps similar to the federal cigar excise tax. From time to
time, the imposition of state and local taxes has had some impact on sales
regionally. The enactment of new state excise taxes and the increase in existing
state excise taxes are likely to have an adverse effect on sales of cigars.

EMPLOYEES

As of September 30, 1997, the Company had a total of 43 full time and six
part time employees, all of whom are based in the United States. Of this total,
24 full time and six part time employees were engaged in sales and marketing,
nine full time employees were employed in administration and finance, and ten
full time employees were employed in shipping and receiving. None of the
Company's employees is represented by a labor union. The Company has not
experienced any work stoppages and considers its relations with employees to be
good.

FACILITIES

The Company's principal executive and administrative offices, as well as
its warehouse, shipping, call center and customer service facilities, are
located at its leased headquarters facility in Philadelphia, Pennsylvania. The
Company currently occupies 21,360 square feet of space in the Philadelphia
facility. This facility, which was opened in September 1997, is leased for a
term of five years (with options to extend) at an aggregate annual rental of
$74,760 plus certain common area expenses, which rental will increase in
proportion to increases in the consumer price index. The Company anticipates
that this new facility will be sufficient to meet the Company's needs for the
foreseeable future. The Company leases its 3,000 square foot Philadelphia retail
store from the Company's Chairman of the Board, Chief Executive Officer and
President, Robert G. Levin, for an initial term through October 31, 2004. The
Company has the right to renew this lease for an additional five year period.
The rent payable by the Company is $75,000 per year, which rent is fixed through
the end of the renewal term. See "Certain Transactions."

LEGAL PROCEEDINGS

The Company is not currently engaged in any legal proceedings which are
expected, individually or in the aggregate, to have a material adverse effect on
the Company's business, operating results or financial condition.

35
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's executive officers and directors are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Robert G. Levin...................... 51 Chairman of the Board, Chief Executive Officer and
President
Michael Pitkow....................... 49 Chief Operating Officer, Executive Vice President
and Director
Robert H. Levitt..................... 40 Chief Financial Officer
Carlos A. Fuente, Sr................. 62 Director
Carlos P. Fuente, Jr................. 43 Director
Harvey W. Grossman(1)(2)............. 60 Director
Marvin B. Sharfstein(1)(2)........... 54 Director
</TABLE>

- ------------------
(1) Member of the Compensation Committee

(2) Member of the Audit Committee

Robert G. Levin is the Chairman of the Board, Chief Executive Officer and
President of the Company. Mr. Levin has been engaged in the business of the
Company since 1972, and has been Chairman of the Board, Chief Executive Officer
and President since 1980.

Michael Pitkow joined the Company in October 1995 as Chief Operating
Officer and Executive Vice President and has been a Director of the Company
since September 1997. From 1985 through October 1995, Mr. Pitkow was the owner
of Pitkow Associates, a media service and marketing communications company. From
1983 to 1985, Mr. Pitkow was general manager of Cable AdNet, then Philadelphia's
largest cable advertising interconnect company.

Robert H. Levitt joined the Company as Chief Financial Officer in November
1996. From 1991 until November 1996, Mr. Levitt was a senior manager at
Schmeltzer o Master Group, P.C., the Company's independent accountants until May
1997. From 1989 through 1991, Mr. Levitt served as a controller for several
privately held companies. From 1981 through 1989, Mr. Levitt was a manager in
the emerging business group of Deloitte & Touche, L.L.P.

Carlos A. Fuente, Sr. became a Director in September 1997. Mr. Fuente, Sr.
has worked in the cigar industry his entire life, first working for his father,
Arturo Fuente, Sr., and then as President and Chairman of the Board of the
family manufacturing business which he acquired from his father in the early
1960's. The cigar manufacturing business is currently operated through Fuente
Cigar, a privately-held company owned by Fuente family interests. Mr. Fuente,
Sr. is the third of four generations of Fuente family members to own and operate
a cigar manufacturing business.

Carlos P. Fuente, Jr. became a Director in September 1993. Mr. Fuente, Jr.
is the son of Carlos A. Fuente, Sr. and has been employed by the Fuente family's
cigar manufacturing business since 1970. Mr. Fuente, Jr. has been the President
of Fuente Cigar since 1990.

Harvey W. Grossman became a Director in September 1997 and serves on the
Audit and Compensation Committees. Mr. Grossman is a certified public accountant
and a partner in Cogen Sklar LLP, a certified public accounting firm in Bala
Cynwyd, Pennsylvania. Mr. Grossman is a member of both the American and
Pennsylvania Institutes of Certified Public Accountants and was a member of the
Pennsylvania Institute of Certified Public Accountants' Forensic and Litigation
Services Committee from 1995 to 1996.

Marvin B. Sharfstein became a Director in September 1997, and serves on the
Company's Audit and Compensation Committees. Mr. Sharfstein has been a Director
of Holt's Cigar Company, Inc., and

36
<PAGE>

Ashton Distributors, Inc. the Company's wholly owned subsidiaries, since January
1996. From 1983 through February 1996, Mr. Sharfstein served as the Vice
President of Corporate Development and a Director of Cabot Medical Corp., a
publicly traded medical device manufacturer which he founded. Since February
1996, Mr. Sharfstein has been a financial consultant to a variety of businesses
through MBS Capital Corp. a merchant banking firm.

TERMS OF OFFICE AND BOARD COMMITTEES

Prior to the consummation of the Offering, the Company's Certificate of
Incorporation will be amended to provide that directors of the Company shall be
divided into three classes, as nearly equal in number as possible. The initial
term of office of the Class I Directors shall expire on the day of the first
annual meeting of stockholders following the end of Fiscal 1998 (the "1998
Annual Meeting"); the initial term of office of the Class II Directors shall
expire on the day of the annual meeting of stockholders next succeeding the 1998
Annual Meeting; and the initial term of office of the Class III Directors shall
expire on the day of the second annual meeting of stockholders succeeding the
1998 Annual Meeting. At each annual meeting of stockholders, directors elected
to succeed those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election. Thus, after consummation of the Offering and effective upon the
amendment of the Certificate of Incorporation, directors will stand for election
only once in three years. Effective upon the amendment of the Certificate of
Incorporation, Messrs. Pitkow and Grossman are expected to serve as Class I
directors, Messrs. Fuente, Jr. and Sharfstein are expected to serve as Class II
directors, and Messrs. Fuente, Sr. and Levin are expected to serve as Class III
directors.

In accordance with the amendment, the affirmative vote of the holders of at
least 66 2/3% of the outstanding shares of capital stock of the Company entitled
to vote generally in the election of directors, voting together as a single
class, shall be required to alter, change, amend, repeal, or adopt any provision
inconsistent with, the provisions of the Certificate of Incorporation providing
for the classified Board of Directors.

The Audit and Compensation Committees consist of Messrs. Sharfstein and
Grossman. The Audit Committee reviews the adequacy of the Company's internal
control systems and financial reporting procedures, reviews the general scope of
the annual audit, reviews and monitors the performance of non-audit services by
the Company's independent public accountants and reviews interested transactions
between the Company and any of its affiliates. The Compensation Committee
administers the Company's Employee Stock Plan and makes recommendations to the
Board of Directors concerning salaries and non-stock compensation for the
Company's officers and employees.

SHAREHOLDERS' AGREEMENT

Pursuant to the shareholders' agreement between the Fuente Investment
Partnership and Robert G. Levin, Mr. Levin is required to vote for two directors
nominated by the Fuente Investment Partnership and the Fuente Investment
Partnership is required to vote for the balance of the Board of Directors
nominees nominated by Mr. Levin. Currently, Carlos A. Fuente, Sr. and Carlos P.
Fuente, Jr. are the directors nominated by Fuente Investment Partnership. All
other directors are the nominees of Mr. Levin. In addition, each of the Fuente
Investment Partnership and Mr. Levin (i) has a right of first refusal to
purchase the others shares and (ii) the right to participate on a proportionate
basis in any sale of the other party's Common Stock. Pursuant to the
shareholders' agreement, unanimous consent of the Board of Directors is required
to authorize the issuance of any preferred stock.

DIRECTOR COMPENSATION

Each director who is not an employee of the Company receives $1,000 for
each meeting of the Board attended and for each committee meeting attended.
Messrs. Carlos A. Fuente, Sr., Carlos P. Fuente, Jr., Sharfstein and Grossman
have been granted options to purchase 15,000 shares of the Common Stock, each,
pursuant to the Director Stock Plan, which options are all fully vested and

37
<PAGE>

exercisable at a price equal to the initial public offering price per share. The
Director Stock Plan provides that options will be granted to non-employee
directors of the Company pursuant to an automatic, non-discretionary grant
mechanism. Following the Offering, each new non-employee director will
automatically be granted an option to purchase 15,000 shares of the Common
Stock. Each non-employee director will subsequently be granted an option to
purchase 15,000 at each annual meeting of stockholders beginning with the 1998
Annual Meeting of Stockholders. Each such option will be granted at the fair
market value of the Common Stock on the date of the grant. Options granted to
non-employee directors under the Director Stock Plan vest in full upon the
grant, and may be exercised immediately. See "-- Stock Options -- The
Non-Management Directors Stock Option Plan."

EXECUTIVE COMPENSATION

The following table and accompanying footnotes provide certain information
concerning the compensation earned by the Company's Chief Executive Officer and
the other executive officer of the Company whose salary and bonus was in excess
of $100,000 (the "Named Officers") for Fiscal 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
-------------------------------------- COMPENSATION
NAME AND POSITION SALARY($) BONUS($) OTHER($)(1) ($)(2)
- ----------------- --------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Robert G. Levin........................... $335,973 -- -- $4,750
Chairman of the Board, Chief Executive
Officer and President

Michael Pitkow............................ $111,039 $5,000 -- --
Chief Operating Officer and Executive
Vice President
</TABLE>

- ------------------
(1) Pursuant to the Securities and Exchange Commission rules on executive
compensation disclosure, "All Other Compensation" does not include
perquisites because the aggregate amount of such compensation for each of
the persons listed did not exceed the lesser of (i) $50,000 or (ii) ten
percent of the combined salary and bonus for such person in Fiscal 1997.

(2) Represents the Company's matching contribution pursuant to its 401(k)
defined contribution plan.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with Messrs. Levin and Pitkow. Mr.
Levin's employment agreement, effective as of October 1, 1997, provides for a
minimum base salary of $400,000, to be reviewed at least annually and to be
adjusted based upon his performance, and has a term of five years. This
Agreement is automatically renewed each year to maintain a five-year term if
neither party gives a notice of termination. Mr. Pitkow's employment agreement,
effective as of October 1, 1997, provides for a minimum base salary of $150,000
per year, to be reviewed at least annually, and expires on March 31, 1999.

STOCK OPTIONS

The 1997 Employee Stock Option Plan. The Employee Stock Plan, approved by
the Board of Directors and shareholders of the Company in September 1997, is
intended to provide incentives to the officers and other key employees of the
Company by providing them with opportunities to purchase shares of Common Stock
pursuant to options granted which qualify as "incentive stock options" ("ISO's")
under Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code") or which do not qualify as ISO's ("Non-Qualified Options") (ISO and
Non-Qualified Options being

38
<PAGE>

referred to collectively as "Options"). Options for up to a maximum of 300,000
shares of Common Stock can be issued under the Employee Stock Plan.

The Employee Stock Plan is currently administered by the Board of
Directors, although it is the intent of the Board of Directors to transfer this
responsibility to the Compensation Committee following the Offering. The
Compensation Committee will have the authority to determine those employees of
the Company to whom Options will be granted. If any Option granted under the
Employee Stock Plan expires or terminates for any reason without having been
exercised in full or ceases for any reason to be exercisable in whole or in
part, the unpurchased shares subject to such Options are again available for
grants under the Employee Stock Plan.

Grants of Options under the Employee Stock Plan can be made at any time on
or after October 1, 1997 and prior to September 30, 2006. The exercise price of
all options to be granted under the Employee Stock Plan will be the fair market
value of the Common Stock on the date of grant defined in the Employee Stock
Plan. If an optionee ceases to be employed by the Company or certain affiliated
or successor entities other than by reason of death or disability, no further
installments of the Options shall generally become exercisable, and such
optionee's Options shall terminate after the passage of ninety days from the
date of termination or such optionee's employment. Upon the occurrence of
certain events such as stock dividends and stock splits, consolidations or
mergers, an optionee's rights with respect to Options granted are to be adjusted
as provided in the Employee Stock Plan. Pursuant to the Employee Stock Plan, the
Company has granted options to purchase an aggregate of 169,500 shares of Common
Stock at an exercise price equal to the initial public offering price per share.
These options vest as to one-third of the shares on each of the anniversary
dates of the date the Company granted such options, so long as the option holder
remains in the continuous employ of the Company during such period.

The Non-Management Directors Stock Option Plan. The Director Stock Plan,
approved by the Board of Directors and shareholders of the Company in September
1997, and is intended to provide incentives to the directors of the Company who
are not employees of the Company by providing them with options to purchase
shares of Common Stock. Options for up to a maximum of 180,000 shares of Common
Stock may be issued under the Director Stock Plan.

The Director Stock Plan is currently administered by the Board of
Directors. Each outside director of the Company is automatically granted options
to purchase 15,000 shares of the Common Stock at the fair market value thereof
as defined in the Director Stock Plan on the date of each grant of Options, and
each outside director is granted Options to purchase 15,000 shares of the Common
Stock at each annual meeting of the stockholders of the Company. All of these
Options vest immediately upon grant. Upon the occurrence of certain events such
as stock dividends and stock splits, consolidations or mergers, an optionee's
rights with respect to Options granted are to be adjusted as provided in the
Director Stock Plan.

Pursuant to the Director Stock Plan, the Company granted options to each of
Messrs. Fuente, Sr., Fuente, Jr., Sharfstein and Grossman to purchase 15,000
shares of Common Stock at the initial public offering price per share.

Other Options. In January 1996, options to purchase 201,000, 201,000 and
80,400 shares of the Common Stock were granted to Michael Pitkow, Chief
Operating Officer, Executive Vice President and a director of the Company,
Marvin Sharfstein, a director the Company and Carole Cohn, Mr. Levin's sister,
respectively. These options were granted at an exercise price of $.50 per share,
the estimated fair market value at the date of grant. At the time these options
were granted, Robert G. Levin and the Fuente Investment Partnership agreed that
these options granted by the Company would not dilute the ownership interest of
the Fuente Investment Partnership. Accordingly, Mr. Levin has agreed that upon
exercise of any such options he will contribute to the capital of the Company
one share of Common Stock for each share purchased pursuant to these options.

39
<PAGE>

CERTAIN TRANSACTIONS

Relationships with Fuente Cigar and Related Parties. In Fiscal 1996,
Fiscal 1997 and for the six months ended September 30, 1997, the Company
purchased approximately $1.9 million, $3.6 million and $3.9 million,
respectively, of premium cigars from Fuente Cigar, representing approximately
39.2%, 47.0% and 58.1%, respectively, of premium cigar purchases for such
periods. At September 30, 1997, approximately $842,000 was due to Fuente Cigar
for premium cigars sold to the Company. Two of the principal executive officers
of Fuente Cigar, Carlos A. Fuente, Sr. and Carlos P. Fuente, Jr., are directors
of the Company and a related family partnership will own approximately 24.4% of
the shares of Common Stock outstanding upon completion of the Offering. The
Company has entered into two agreements with Fuente Cigar. See "Risk Factors --
Dependence on Fuente Cigar Ltd." and " -- Potential Conflicts of Interest" and
"Business -- Suppliers." Robert G. Levin, Chairman of the Board, Chief Executive
Officer and President of the Company, and an affiliate of Fuente Cigar have also
entered into a consulting agreement whereby such affiliate paid Mr. Levin the
sum of $50,000 per year for consulting services. This agreement will be
terminated upon completion of the Offering.

Shareholders' Agreement. The Fuente Investment Partnership and Robert G.
Levin have entered into an agreement which provides that Mr. Levin will vote all
of his shares of Common Stock for the election of two directors nominated by the
Fuente Investment Partnership (currently Carlos A. Fuente, Sr. and Carlos P.
Fuente, Jr.) and the Fuente Investment Partnership will vote all of its shares
of Common Stock for the remainder of the directors to be nominated by Mr. Levin.
This agreement also requires unanimous approval by the Company's Board of
Directors prior to the issuance of any preferred stock. In addition, the
agreement grants each party a right of first refusal on sales of Common Stock by
the other party and provides for each party to participate on a percentage basis
in any transaction involving the sale of Common Stock. This agreement also
provides for the Fuente Investment Partnership to have the right to acquire all
of the shares of Common Stock owned by Mr. Levin, except for up to 10% of the
then issued and outstanding shares of Common Stock, upon the death or permanent
disability of Mr. Levin, and for Mr. Levin to have the right to purchase all of
the shares of Common Stock owned by the Fuente Investment Partnership upon the
death or permanent disability of the last of Carlos A. Fuente, Sr., Carlos P.
Fuente, Jr. and Cynthia Fuente Suarez.

Philadelphia Retail Store Lease. The Company currently leases from Robert
G. Levin the entire two-story building comprising approximately 4,700 square
feet in which the Company's retail store is located. The Company's retail store
occupies 3,000 square feet on the street level, and the Company sublets
approximately 1,700 square feet on the second floor to an unrelated third party.
The Company paid approximately $48,000 and $54,000 to Mr. Levin under this lease
in Fiscal 1996 and Fiscal 1997, respectively. The term of this lease extends
through October 31, 2004 and the Company has the right to renew this lease for
an additional five year term. The current rent payable to Mr. Levin is $6,250
per month, or $75,000 per year, which rent is fixed through the end of the
renewal term.

Guaranty of Loan. The Company guaranteed certain debt of Robert G. Levin
relating to the acquisition of the building in which the Company's Philadelphia
retail store is located. The outstanding balance under that loan was $433,711 at
September 30, 1997. Mr. Levin currently guarantees certain indebtedness of the
Company. The total of this indebtedness was $659,723 at September 30, 1997. In
addition, on October 24, 1997 Mr. Levin guaranteed a loan to Ashton
Distributors, Inc. in the amount of $2.7 million, the proceeds of which were
used to fund the distribution of estimated Subchapter S earnings of Ashton
Distributors, Inc. through the date of the Reorganization.

Loan to Shareholder. The Company advanced payment of certain insurance
policy premiums and personal purchases of Robert G. Levin in the aggregate
amount of $23,396 as of September 30, 1997. These advances did not accrue
interest and have been repaid in full by Mr. Levin.

All of the foregoing transactions between the Company and the foregoing
persons and entities were on substantially the same terms and conditions as if
such transactions would have been entered into with unrelated third parties. The
Company has a policy to the effect that any future transactions between it and
any of its officers, directors, principal stockholders or the affiliates of the
foregoing persons be on terms no less favorable to the Company than could
reasonably be obtained in arm's length transactions with independent third
parties, and that any such transactions also be approved by a majority of the
Company's directors who are disinterested in the transaction.

40
<PAGE>

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Common Stock after giving effect to the
Reorganization and as adjusted to reflect the sale of the shares of Common Stock
offered hereby, by (i) each director of the Company, (ii) each person who is
known by the Company to beneficially own 5% or more of the outstanding shares of
Common Stock, (iii) the Named Officers, (iv) the Selling Shareholder, and (v)
all of the Company's executive officers and directors as a group.

<TABLE>
<CAPTION>
PERCENTAGE OWNED
-------------------
SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OFFERING OFFERING
- --------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Robert G. Levin(2).................................... 2,613,015 65.0% 45.3%
Fuente Investment Partnership(3)...................... 1,406,985 35.0 24.4
Carlos A. Fuente, Sr.(4).............................. 1,421,985 35.2 24.6
Carlos P. Fuente, Jr.(4).............................. 1,421,985 35.2 24.6
Marvin B. Sharfstein(5)............................... 216,000 5.4 3.7
Michael Pitkow(5)..................................... 201,000 5.0 3.5
Harvey W. Grossman(5)................................. 15,000 * *
All directors and executive officers as a group
(7 persons)......................................... 4,080,000 100.0% 70.0%
</TABLE>

- ------------------
*Less than 1% of outstanding shares of Common Stock.

(1) Unless otherwise noted, the Company believes that all persons named in the
above table have sole voting and investment power with respect to the shares
beneficially owned by them. The address for Messrs. Levin, Pitkow and
Sharfstein is 12270 Townsend Road, Philadelphia, Pennsylvania 19154, the
address for the Fuente Investment Partnership and Messrs. Fuente is c/o
Fuente Cigar Ltd., Zona Franca, Santiago, Dominican Republic.

(2) If the Underwriters' over-allotment option is exercised in full, Mr. Levin
will sell 262,500 shares of Common Stock, reducing his beneficial ownership
to 2,350,515 shares of Common Stock or 40.7% of the outstanding shares.
Further, in the event options to purchase up to 482,400 shares of Common
Stock are exercised by certain option holders including options to purchase
201,000 shares of Common Stock held by each of Messrs. Sharfstein and
Pitkow, Mr. Levin has agreed to contribute an equal number of shares owned
by him to the Company. See "Management -- Stock Options."

(3) The Fuente Investment Partnership is a Florida general partnership, the
partnership interests are beneficially owned by Carlos A. Fuente, Sr.,
Carlos P. Fuente, Jr. and Cynthia Fuente Suarez, principals in Fuente Cigar.
Carlos P. Fuente, Jr. and Cynthia Fuente Suarez are the children of Carlos
A. Fuente, Sr.

(4) Carlos A. Fuente, Sr. and Carlos P. Fuente, Jr. are deemed the beneficial
owners of the shares of Common Stock owned by such partnership. Also
includes options to purchase 15,000 shares of Common Stock each granted
pursuant to the Director Stock Plan.

(5) Represents shares of Common Stock which may be acquired upon the exercise of
options granted by the Company.

41
<PAGE>

DESCRIPTION OF CAPITAL STOCK

GENERAL

Upon completion of the Offering, the Company will be authorized to issue
25,000,000 shares of Common Stock and 1,000,000 shares of preferred stock
immediately after the completion of the Offering, there will be 5,770,000 shares
of Common Stock outstanding.

COMMON STOCK

Holders of the Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Holders of the Common Stock do not
have cumulative voting rights, and, therefore, holders of a majority of the
shares voting for the election of directors can elect all of the directors of
the Company. In such event, the holders of the remaining shares of Common Stock
will not be able to elect any directors.

Holders of the Common Stock are entitled to receive such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor, subject to the terms of any existing of future agreements
between the Company and its debtholders. In the event of the liquidation,
dissolution or winding up of the Company, the holders of the Common Stock are
entitled to share ratably in all assets legally available for distribution after
payment of all debts and other liabilities.

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 1,000,000 shares of preferred stock in one or more
series and to fix the relative rights, preferences and limitations of the shares
within each series, including the dividend rights, voting rights, redemption and
sinking fund provisions, liquidation preferences, conversion rights and
preemptive rights and the number of shares constituting any series. The issuance
of preferred stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could adversely affect the
voting and other rights of holders of Common Stock and, under certain
circumstances, make it more difficult or costly for a third party to acquire, or
discourage a third party from attempting to acquire, control of the Company. The
Company has no present plans to issue any shares of preferred stock. Pursuant to
the shareholders' agreement, unanimous consent of the Board of Directors is
required to authorize the issuance of any preferred stock.

STATUTORY BUSINESS COMBINATION PROVISION

Upon consummation of the Offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person or an affiliate, or associate of such person, who is an "interested
stockholder" for a period of three years from the date that such person became
an interested stockholder unless: (i) the transaction resulting in a person
becoming an interested stockholder, or the business combination, is approved by
the Board of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who
are both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. Under Section 203, an
"interested stockholder" is defined as any person who is (i) the owner of 15% or
more of the outstanding voting stock of the corporation or (ii) an affiliate or
associate of the corporation and who was the owner of 15% or more of the
outstanding voting stock of the corporation at any time within the

42
<PAGE>

three year period immediately prior to the date on which it is sought to be
determined whether such person is an interested stockholder.

A corporation may, at its option, exclude itself from the coverage of
Section 203 by amending its certificate of incorporation or by-laws by action of
its stockholders to exempt itself from coverage, provided that such by-law or
amendment to the Certificate of Incorporation shall not become effective until
12 months after the date that it is adopted. The Company has not adopted such an
amendment to the Certificate of Incorporation or By-laws.

LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

Pursuant to the Company's Certificate of Incorporation and under Delaware
laws, directors of the Company are not liable to the Company or its stockholders
for monetary damages, for breach of fiduciary duty, except for liability in
connection with a breach of duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, for
dividend payments or stock repurchases illegal under Delaware law or any
transaction in which a director has derived an improper personal benefit.

The Company's Certificate of Incorporation provides for mandatory
indemnification of directors and officers of the Company against any expense,
liability and loss to which they become subject, or which they may incur as a
result of having been a director or officer of the Company. In addition, the
Company must advance or reimburse directors and officers for expenses incurred
by them in connection with certain claims.

In addition to the indemnification provision in the Certificate of
Incorporation, the Company will enter into an Indemnification Agreement with
each of its directors and executive officers in the belief that such individuals
may become unwilling to serve the Company without assurances that adequate
liability insurance, indemnification or a combination thereof is, and will
continue to be, provided to them.

Following completion of the Offering, the Company intends to purchase
directors' and officers' liability insurance.

POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS OF THE CERTIFICATE OF
INCORPORATION AND BY-LAWS

The Certificate of Incorporation and By-laws of the Company contain
provisions that could have an anti-takeover effect. The provisions are intended
to enhance the likelihood of continuity and stability in the composition of the
Board and in the policies formulated by the Board. These provisions also are
intended to help ensure that the Board, if confronted by an unsolicited proposal
from a third party which has acquired a block of stock of the Company, will have
sufficient time to review the proposal and appropriate alternatives to the
proposal and to act in what it believes to be the best interest of the
stockholders.

The Certificate of Incorporation provides that the Board be divided into
three classes of directors serving staggered three year terms. The
classification of the Board has the effect of making it more difficult for
stockholders to change the composition of the Board in a relatively short period
of time. At least two annual meetings of stockholders, instead of one, generally
will be required to effect a change in a majority of the Board. Such a delay may
help ensure that the Board and the stockholders, if confronted with an
unsolicited proposal by a stockholder attempting to force a stock repurchase at
a premium above market, a proxy contest or an extraordinary corporate
transaction, will have sufficient time to review the proposal and appropriate
alternatives to the proposal and to act in what it believes to be the best
interest of the stockholders. Directors, if any, elected by holders of preferred
stock voting as a class, will not be classified as aforesaid. In addition, under
Delaware law, in the case of a corporation having a classified board,
stockholders may remove a director only for cause. This provision will preclude
a stockholder from removing incumbent directors without cause.

43
<PAGE>

In addition, the Certificate of Incorporation restricts the ability of the
stockholders to take any action by written consent by requiring the approval of
two-thirds, instead of a majority, of the outstanding capital stock, and
contains a fair price requirement, pursuant to which certain merger, combination
or sale transaction proposals shall require the approval of two-thirds, instead
of a majority, of the outstanding capital stock, unless the proposal is approved
by two-thirds of the full Board of Directors or all holders of the then
outstanding capital stock (other than the stockholder making the bid) receive
cash in an amount at least equal to the highest price paid by the bidding
stockholder for shares of the capital stock of the Company during the three year
period preceding the date of such stockholder's offer or proposal. Such a
provision may have the effect of deterring takeover offers. The Certificate of
Incorporation also provides that the stockholders may not amend any of the
foregoing provisions without the approval of two-thirds of the outstanding
capital stock.

REGISTRATION RIGHTS

Pursuant to the options (the "Options") to purchase an aggregate of 482,400
shares of Common Stock which were granted to Michael Pitkow, Marvin B.
Sharfstein and Carol Cohn (the "Optionholders"), the Optionholders were granted
the right to demand that the Company register the shares of Common Stock
issuable upon the exercise of the Options at any time commencing nine months
after the effective date of this Prospectus. In addition, the Optionholders have
certain "piggy-back" registration rights. These registration rights expire on
December 31, 2005, at the expiration of the Options.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.

44
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 5,770,000 shares of
Common Stock outstanding, 1,750,000 (2,012,500 if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or requirement of further registration under the Securities Act. All
of the remaining 4,020,000 shares of Common Stock are "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act.

Upon completion of the Offering, no shares will be eligible for sale in the
public market immediately following commencement of the offering, and, beginning
90 days after commencement of the Offering, 4,020,000 shares will become
eligible for sale pursuant to Rule 144. Upon expiration of the lock-up
agreements, no shares will become immediately eligible for sale without
restriction pursuant to Rule 144(k) (described below), and approximately
4,020,000 shares will be eligible for sale subject to the timing, volume, and
manner of sale restrictions of Rule 144. In addition, 542,400 additional shares
of Common Stock subject to outstanding vested stock options could also be sold,
subject in some cases to compliance with certain volume limitations as described
below.

In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares not acquired in the Offering for
at least one year (including the holding period of any prior owner except an
affiliate from whom such shares were purchased) is entitled to sell in "brokers
transactions" or to market makers, within any three month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of (i) one percent of the number of shares of Common Stock then
outstanding (approximately 57,700 shares immediately after the completion of the
Offering) or (ii) generally, the average weekly trading volume in the Common
Stock during the four calendar weeks preceding the required filing of a Form 144
with respect to such sale. Sales under Rule 144 are generally subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner other than an affiliate from whom such shares were purchased), is
entitled to sell by shares without having to comply with the manner of sale,
public information, volume limitation or notice provisions of Rule 144. Sales of
such shares by affiliates, even after the two-year holding period, must continue
to be made in broker's transactions or to market makers and are subject to the
volume limitations described above.

The Company, its officers and directors, and all shareholders and certain
option holders, including the Selling Shareholder, owning upon completion of the
Offering, in the aggregate, 4,020,000 shares of Common Stock and options to
purchase 582,400 shares of Common Stock, have executed agreements pursuant to
which they have agreed that they will not, for a period of 180 days from the
date of this Prospectus, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, pledge,
grant of any option to purchase or other sale or disposition) of any shares of
Common Stock or other capital stock of the Company or any securities convertible
into, or exercisable or exchangeable for, any shares of Common Stock, or other
capital stock of the Company without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters, except that such
agreement does not prevent the Company from granting additional options under
the Employee Stock Plan or the Director Stock Plan. Prudential Securities
Incorporated may in its sole discretion, at any time and without notice, release
all or any portion of the securities subject to such lock-up agreements.

Approximately 180 days after the date of this Prospectus, the Company
intends to file a Registration Statement on Form S-8 covering an aggregate of
approximately 962,400 shares of Common Stock (including the 482,400 shares
subject to outstanding options) that have been reserved for issuance under its
stock option and stock purchase plans, thus permitting the resale of such shares
in the public market without restriction under the Securities Act.

45
<PAGE>

The holders of an aggregate of 482,400 shares of Common Stock (including
shares issuable upon exercise of vested options) or their transferees are
entitled to certain rights with respect to the registration of such shares under
the Securities Act. See "Description of Capital Stock -- Registration Rights."

Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.

46
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated and Janney Montgomery Scott Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions contained in the underwriting agreement, (the "Underwriting
Agreement") to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names:

NUMBER
OF SHARES
UNDERWRITER ---------
Prudential Securities Incorporated..........................
Janney Montgomery Scott Inc.................................

---------
Total.................................................. 1,750,000
=========

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the shares of Common Stock offered hereby if any are purchased.

The Underwriters, through the Representatives, have advised the Company
that they propose to offer the Common Stock initially at the initial public
offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $ per
share; and that such dealers may reallow a concession of $ per share
to certain other dealers. After the initial public offering, the offering price
and the concessions may be changed by the Representatives.

The Selling Shareholder has granted the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to 262,500
additional shares of Common Stock at the initial public offering price, less
underwriting discounts and commissions, as set forth on the cover page of this
Prospectus. The Underwriters may exercise such option solely for the purpose of
covering over-allotments incurred in the sale of the shares of Common Stock
offered hereby. To the extent such option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number set
forth next to such Underwriters' name in the preceding table bears to 1,750,000.

The Company and the Selling Shareholder have agreed to indemnify the
several Underwriters and contribute to losses arising out of certain
liabilities, including liabilities under the Securities Act.

The Representatives have informed the Company and the Selling Shareholder
that the Underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

The Company, its officers and directors, the Selling Shareholder, all other
beneficial owners of the Common Stock and holders of options to purchase Common
Stock have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, grant any option to purchase or otherwise

47
<PAGE>

sell or dispose (or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or disposition) of any
shares of Common Stock or other capital stock or any securities convertible into
or exercisable or exchangeable for any shares of Common Stock or other capital
stock of the Company, for a period of 180 days after the date of this Prospectus
without the prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters. Prudential Securities Incorporated may in its sole
discretion, at any time and without notice, release all or any portion of the
securities subject to such lock-up agreements.

Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price will be
determined through negotiations between the Company and the Representatives.
Among the factors to be considered in making such determination will be the
prevailing market conditions, the Company's financial and operating history and
condition, its prospects and the prospects for its industry in general, the
management of the Company and the market prices of securities for companies in
businesses similar to that of the Company.

In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company and the Selling Shareholder, and
in such case may purchase Common Stock in the open market following the closing
of the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
262,500 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, Prudential Securities Incorporated, on
behalf of the Underwriters, may impose "penalty bids" under contractual
arrangements with the Underwriters whereby it may reclaim from an Underwriter
(or dealer participating in the Offering) for the account of the other
Underwriters, the selling concession with respect to Common Stock that is
distributed in the Offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which might otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if they are
undertaken, they may be discontinued at any time.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Fox, Rothschild, O'Brien &
Frankel, LLP. Certain legal matters related to the Offering will be passed upon
for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York.

EXPERTS

The financial statements as of March 31, 1997 and for the year ended March
31, 1997 included in this Prospectus have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.

The financial statements as of March 31, 1996 and for each of the two years
in the period ended March 31, 1996 included in this Prospectus have been so
included in reliance on the report of SchmeltzeroMaster Group, P.C., independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

48
<PAGE>

CHANGE IN INDEPENDENT ACCOUNTANTS

Effective as of May 30, 1997, the Company's Board dismissed
SchmeltzeroMaster Group, P.C. and appointed Price Waterhouse LLP as the
Company's independent accountants. The report of SchmeltzeroMaster Group, P.C.
on the Company's combined financial statements as of March 31, 1996 and for each
of the two years in the period then ended did not contain an adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. In connection with the audits for the years
ended March 31, 1995 and 1996 and through May 30, 1997, there were no
disagreements with SchmeltzeroMaster Group, P.C. on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which disagreements if not resolved to the satisfaction of
SchmeltzeroMaster Group, P.C. would have caused them to make reference thereto
in their report on the financial statements for such years. Prior to retaining
Price Waterhouse LLP, the Company had not consulted with Price Waterhouse LLP
regarding the application of accounting principles or the type of audit opinion
that might be rendered on the Company's financial statements.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement of Form
S-1 under the Securities Act with respect to the Company's Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in the Prospectus as to the contents of any contract or other document
referred to are not necessarily complete and in each instance reference is made
to the Registration Statement and the exhibits and schedules thereto. The
information so omitted, including exhibits and schedules, may be obtained from
the Commission at its principal office in Washington, D.C. upon the payment of
the prescribed fees, or may be examined without charge at the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-1004,
or at the following regional offices of the Commission: 7 World Trade Center,
Suite 1300, New York, New York 10048; and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511. Such materials also may be
accessed electronically by means of the Commission's home page on the Internet
at http://www.sec.gov.

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by independent accountants.

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
INDEX TO COMBINED FINANCIAL STATEMENTS

PAGE(S)
----------
Reports of Independent Accountants.......................... F-2, F-3

FINANCIAL STATEMENTS

Combined Balance Sheets................................... F-4

Combined Statements of Operations......................... F-5

Combined Statements of Stockholders' Equity............... F-6

Combined Statements of Cash Flows......................... F-7

Notes to Combined Financial Statements.................... F-8 - F-19

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders
of Holt's Cigar Holdings, Inc. and Affiliates

In our opinion, the accompanying combined balance sheet and the related combined
statements of operations, of stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of Holt's Cigar
Holdings, Inc. and Affiliates at March 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. 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 audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
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 audit provides a
reasonable basis for the opinion expressed above.

Price Waterhouse LLP

Philadelphia, Pennsylvania
July 2, 1997

F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders
Holt's Cigar Holdings, Inc. and Affiliates

We have audited the accompanying combined balance sheet of Holt's Cigar
Holdings, Inc. and Affiliates as of March 31, 1996 and the related combined
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended March 31, 1996. 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 audit.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Holt's Cigar
Holdings, Inc. and Affiliates as of March 31, 1996 and the results of its
operations and its cash flows for each of the two years in the period ended
March 31, 1996 in conformity with generally accepted accounting principles.

Schmeltzer o Master Group, P.C.

Certified Public Accountants

Wyncote, Pennsylvania
August 13, 1996

F-3
<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES

COMBINED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, PRO FORMA
----------------------- SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1997 1997
---------- ---------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash................................. $ 639,450 $ 515,520 $1,344,825 $1,344,825
Accounts receivable (net of allowance
for doubtful accounts of $19,500,
$34,500 and $40,000 (unaudited) at
March 31, 1996, 1997, and
September 30, 1997................ 464,740 1,235,669 1,506,091 1,506,091
Inventory............................ 1,557,207 2,583,877 3,390,502 3,390,502
Loan receivable -- officer........... 18,830 23,396 23,396 23,396
Prepaid expenses and other current
assets............................ 41,724 51,408 133,237 133,237
---------- ---------- ---------- ----------
Total current assets.............. 2,721,951 4,409,870 6,398,051 6,398,051
Property and equipment, net............ 817,938 848,226 1,442,531 1,442,531
Deposits............................... 8,302 15,495 15,495 15,495
Goodwill............................... -- -- -- 344,311
Other assets (net of accumulated
amortization of $120,770, $104,036
and $111,314 (unaudited) at March 31,
1996, 1997 and September 30, 1997.... 138,291 131,919 130,210 130,210
---------- ---------- ---------- ----------
Total assets........................... $3,686,482 $5,405,510 $7,986,287 $8,330,598
========== ========== ========== ==========
Current liabilities:
Lines of credit...................... $ 5,000 $ -- $ -- $ --
Current portion of long-term debt.... 148,666 129,441 125,000 125,000
Accounts payable..................... 383,671 892,999 1,045,134 1,045,134
Due to related party................. 504,000 713,800 841,824 841,824
Accrued expenses and other current
liabilities....................... 183,564 165,870 66,323 66,323
Income taxes payable................. 462,300 296,351 297,170 297,170
Short-term debt to fund stockholder
distribution...................... -- -- -- 2,153,000
---------- ---------- ---------- ----------
Total current liabilities......... 1,687,201 2,198,461 2,375,451 4,528,451
Long-term debt -- less current
portion.............................. 342,995 182,440 546,536 546,536
Deferred income taxes.................. 3,400 -- -- --
Commitments
Stockholders' equity:
Preferred stock (pro forma) $.001 par
value, 1,000,000 shares
authorized, none
issued............................ -- -- -- --
Common stock (pro forma) $.001 par
value, 25,000,000 shares
authorized, 4,020,000 issued and
outstanding....................... 91,114 91,114 91,114 4,020
Additional paid-in capital........... 303,607 303,607 303,607 685,012
Retained earnings.................... 1,308,165 2,679,888 4,719,579 2,566,579
---------- ---------- ---------- ----------
1,702,886 3,074,609 5,114,300 3,255,611
Treasury stock, 18,000 shares at
cost.............................. (50,000) (50,000) (50,000) --
---------- ---------- ---------- ----------
Total stockholders' equity........... 1,652,886 3,024,609 5,064,300 3,255,611
---------- ---------- ---------- ----------
Total liabilities and stockholders'
equity............................... $3,686,482 $5,405,510 $7,986,287 $8,330,598
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES

COMBINED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------------- ------------------------
1995 1996 1997 1996 1997
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................ $5,662,215 $9,466,848 $17,277,940 $7,610,333 $13,424,403
Cost of goods sold....... 3,041,490 5,158,563 9,565,964 4,145,178 7,318,879
---------- ---------- ----------- ---------- -----------
Gross profit............. 2,620,725 4,308,285 7,711,976 3,465,155 6,105,524
Operating expenses....... 1,948,670 3,483,645 4,894,829 2,239,965 2,894,149
---------- ---------- ----------- ---------- -----------
Income from operations... 672,055 824,640 2,817,147 1,225,190 3,211,375
Other income............. -- 21,610 31,976 11,268 33,316
---------- ---------- ----------- ---------- -----------
Income before income tax
expense................ 672,055 846,250 2,849,123 1,236,458 3,244,691
Income tax expense....... 209,400 318,200 576,600 398,000 653,000
---------- ---------- ----------- ---------- -----------
Net income............... $ 462,655 $ 528,050 $ 2,272,523 $ 838,458 $ 2,591,691
========== ========== =========== ========== ===========
Pro forma and
supplemental pro forma
income data (unaudited)
(Note 15):
Income before income
tax expense, as
reported............ $ 2,849,123 $1,236,458 $ 3,244,691
Pro forma amortization
of goodwill......... 17,216 8,608 8,608
----------- ---------- -----------
Pro forma income before
income tax
expense............. 2,831,907 1,227,850 3,236,083
Pro forma income
taxes............... 1,133,000 491,000 1,294,000
----------- ---------- -----------
Pro forma net income... $ 1,698,907 $ 736,850 $ 1,942,083
=========== ========== ===========
Pro forma net income
per share........... $ .41 $ .18 $ .47
=========== ========== ===========
Pro forma weighted
average number of
shares.............. 4,101,701 4,101,701 4,101,701
Supplemental pro forma
net income.......... $ 1,742,907 $ 753,628 $ 1,950,430
=========== ========== ===========
Supplemental pro forma
net income per
share............... $ .42 $ .18 $ .47
=========== ========== ===========
Supplemental pro forma
weighted average
number of shares.... 4,135,861 4,138,695 4,142,252
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994........ $91,100 $204,621 $ 396,960 $(50,000) $ 642,681
Net income..................... -- -- 462,655 -- 462,655
Issuance of common stock....... 7 49,493 -- -- 49,500
------- -------- ---------- -------- ----------

Balance at March 31, 1995........ 91,107 254,114 859,615 (50,000) 1,154,836
Net income..................... -- -- 528,050 -- 528,050
Stockholders' distributions.... -- -- (79,500) -- (79,500)
Issuance of common stock....... 7 49,493 -- -- 49,500
------- -------- ---------- -------- ----------

Balance at March 31, 1996........ 91,114 303,607 1,308,165 (50,000) 1,652,886
Net income..................... -- -- 2,272,523 -- 2,272,523
Stockholders' distributions.... -- -- (900,800) -- (900,800)
------- -------- ---------- -------- ----------

Balance at March 31, 1997........ 91,114 303,607 2,679,888 (50,000) 3,024,609
Net income (unaudited)......... -- -- 2,591,691 -- 2,591,691
Stockholders' distributions
(unaudited)................. -- -- (552,000) -- (552,000)
------- -------- ---------- -------- ----------

Balance at September 30, 1997
(unaudited).................... $91,114 $303,607 $4,719,579 $(50,000) $5,064,300
======= ======== ========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------- -------------------------
1995 1996 1997 1996 1997
-------- -------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income..................................... $462,655 $528,050 $2,272,523 $838,458 $2,591,691
Adjustments to reconcile net income to net cash
provided by operations:
Allowance for doubtful accounts.............. 3,215 11,785 15,000 -- 5,500
Depreciation and amortization................ 54,102 114,758 140,852 59,401 59,858
Deferred income taxes........................ -- 3,400 (3,400) -- --
(Increase) decrease in:
Accounts receivable........................ (261,663) (147,803) (785,929) (433,430) (275,922)
Inventory.................................. (191,982) (462,918) (1,026,670) (230,531) (806,625)
Prepaid expenses and other current
assets.................................. (34,543) 22,115 (9,684) 21,399 (81,829)
Deposits................................... (1,560) 1,721 (7,193) (40) --
Increase (decrease) in:
Accounts payable and due to related
party................................... 236,937 209,241 719,122 218,866 280,159
Accrued expenses and other current
liabilities............................. 62,458 134,423 (17,694) 29,406 (90,135)
Income taxes payable....................... 209,400 254,200 (165,949) 211,325 819
-------- -------- ---------- -------- ----------
Net cash provided by operating
activities............................ 539,019 668,972 1,130,978 714,854 1,683,516
-------- -------- ---------- -------- ----------
Cash flows from investing activities:
Purchase of property, equipment and other
assets....................................... (256,061) (61,948) (142,762) (67,547) (661,866)
Proceeds from (advances on) loan receivable --
officer...................................... 12,120 (18,830) (4,566) (5,066) --
-------- -------- ---------- -------- ----------
Net cash used in investing activities... (243,941) (80,778) (147,328) (72,613) (661,866)
-------- -------- ---------- -------- ----------
Cash flows from financing activities:
Net (payments) proceeds from lines of credit... (194,198) 5,000 (5,000) (5,000) --
Payments on long-term debt..................... (20,755) (41,442) (201,780) (113,116) (90,345)
Payments on loan payable -- officer............ 48,218 (48,218) -- -- --
Proceeds from issuance of common stock......... 49,500 -- -- -- --
Stockholder distributions...................... -- (79,500) (900,800) (168,000) (552,000)
Proceeds from long-term debt................... -- -- -- -- 450,000
-------- -------- ---------- -------- ----------
Net cash used in financing activities... (117,235) (164,160) (1,107,580) (286,116) (192,345)
-------- -------- ---------- -------- ----------
Net (decrease) increase in cash.................. 177,843 424,034 (123,930) 356,125 829,305
Cash -- beginning of the year.................... 37,573 215,416 639,450 639,450 515,520
-------- -------- ---------- -------- ----------
Cash -- end of the year.......................... $215,416 $639,450 $ 515,520 $995,575 $1,344,825
======== ======== ========== ======== ==========
Supplemental disclosures:
Interest paid.................................. $ 18,486 $ 50,048 $ 73,184 $ 27,961 $ 13,912
======== ======== ========== ======== ==========
Income taxes paid (refunded)................... $(14,749) $ 60,594 $ 487,739 $130,000 $ 637,371
======== ======== ========== ======== ==========
Supplementary information regarding
non-cash investing and financing
activities:
Non-cash acquisition of property............... $ 4,709 $574,634 $ 22,000 $ 20,000 $ --
======== ======== ========== ======== ==========
Non-cash disposition of property............... $ -- $(50,829) $ -- $ -- $ --
======== ======== ========== ======== ==========
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-7

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying combined financial statements include the historical
accounts of Holt's Cigar Company, Inc., Ashton Distributors, Inc. and Ashton
Holdings, Inc. all of which are controlled by a single stockholder (together the
"Company") and reflect their combined financial position, results of operations
and cash flows after elimination of intercompany accounts and transactions. The
Company is engaged in the wholesale and retail sale of premium cigars and
cigar-related accessories.

The combined financial statements have been presented as if the Company had
operated as a single combined entity for all periods presented. Such financial
statements may not necessarily present the financial position, results of
operations and cash flows the Company would have reported as a single entity
because in part, Ashton Distributors, Inc. is a Subchapter S Corporation and the
Subchapter S election will terminate upon consummation of the Company's
reorganization. (See Note 15 for unaudited combined pro forma financial
information.)

Corporate Reorganization (unaudited)

In conjunction with the Company's initial public offering, the companies
will be reorganized in a transaction among entities under common control. Prior
to the reorganization, the controlling stockholder owned 100% of the outstanding
common stock of both Holt's Cigar Company, Inc. and Ashton Distributors, Inc.
and 60% of the outstanding common stock of Ashton Holdings, Inc. Ashton
Holdings, Inc. which changed its name to Holt's Cigar Holdings, Inc., will
acquire all the outstanding common stock of Holt's Cigar Company, Inc. and
Ashton Distributors, Inc. The assets acquired and liabilities assumed of Holt's
Cigar Company, Inc. and Ashton Distributors, Inc. are reflected in the unaudited
proforma combined balance sheet at historical costs except for the ownership
interests (represented by options) held by individuals other than the
controlling stockholder or his immediate family which have been recorded as the
acquisition of minority interests at estimated fair value.

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 amounts reported in the combined financial
statements and accompanying disclosures at the date of the financial statements.
Differences from those estimates, if any, are recorded in the period they become
known.

Inventory

Inventory is stated at the lower of average cost or market. Cost is
determined by the first-in first-out method. Inventory is composed of finished
goods held for re-sale.

Concentration of Credit Risk

Certain financial instruments potentially subject the Company to
concentrations of credit risk. These financial instruments consist primarily of
cash and trade accounts receivable. The Company places its temporary cash
investments with high credit quality financial institutions to limit its credit
exposure. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base, their dispersion across different geographic areas and generally short
payment terms.

F-8

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

The carrying amounts of cash, accounts receivable, other current assets,
accounts payable, accrued expenses and other liabilities approximate fair value
because of the short maturity of those instruments.

The carrying amount of long-term debt approximates fair value, as the
interest rates on the debt approximate rates currently available to the Company
for debt with similar terms and remaining maturities.

Property and Equipment

Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged against operations. Renewals and betterments that materially
extend the life of the asset are capitalized. Depreciation is computed using
straight-line and accelerated methods over the estimated useful lives of the
related assets. Useful lives range from five to thirty-nine years.

Long-lived Assets

In March 1995, Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", was issued. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used or disposed of by an entity
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. During 1997, the
Company adopted this statement and determined that no impairment loss need be
recognized for applicable assets of continuing operations.

Revenue Recognition

Sales are recognized upon shipment of products.

Cost of Goods Sold

Cost of goods sold comprises the following:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
------------------------------------ SEPTEMBER 30,
1995 1996 1997 1997
---------- ---------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning inventory................. $ 902,307 $1,094,289 $1,557,207 $ 2,583,877
Purchases from:
Related party supplier
(Notes 11 and 12).............. 1,020,929 1,853,269 3,631,481 3,853,472
Other suppliers................... 2,212,543 3,768,212 6,961,153 4,272,032
Less: ending inventory.............. (1,094,289) (1,557,207) (2,583,877) (3,390,502)
---------- ---------- ---------- -----------
Cost of goods sold.................. $3,041,490 $5,158,563 $9,565,964 $ 7,318,879
========== ========== ========== ===========
</TABLE>

F-9

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)

Stock Options

The Company applies Accounting Principles Board (APB) Opinion 25,
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for its stock-based compensation plans.

Net Income Per Share

Net income per share is presented on a pro forma basis only. See Note 15.

Income Taxes

The Company utilizes the liability method of accounting for income taxes.
Under this method, deferred tax liabilities and assets are recognized for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.

Holt's Cigar Company, Inc. (Holt's) and Ashton Holdings, Inc. (Holdings)
are subchapter C corporations and therefore subject to federal and state
corporate income taxes.

Ashton Distributors, Inc. (Ashton) has elected to be taxed under the
provisions of subchapter S of the Internal Revenue Code and Pennsylvania Tax
Reform Code. Under these provisions, Ashton does not pay federal or state income
taxes on its taxable income. Instead, Ashton's income, losses and credits are
included in the individual tax return of Ashton's stockholder.

Interim Financial Statements

The interim financial data is unaudited; however, in the opinion of the
Company, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results of the
interim period and are prepared on the same basis as the audited annual
financial statements.

Advertising

The Company expenses the cost of advertising and promotions as incurred.
Advertising and promotions costs amounted to $228,029, $328,111, $329,057 and
$158,370 (unaudited) for the years ended March 31, 1995, 1996 and 1997 and the
six months ended September 30, 1997, respectively.

Recently Issued Accounting Standards

In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). This Statement establishes a fair
value method of accounting for, or disclosing, stock-based compensation plans.
The Company adopted the disclosure provisions of SFAS No. 123 which require
disclosing the pro forma effect on net income and earnings per share of the fair
value method of accounting for stock-based compensation. The adoption of the
disclosure provisions did not affect the Company's combined financial condition,
results of operations, or cash flows. See Note 13.

In February 1997, the FASB issued Statement No. 128, "Earnings Per Share"
("SFAS No. 128"). This statement requires companies to present basic earnings
per share, and if applicable, diluted earnings per share instead of primary and
fully diluted earnings per share. Basic earnings per share include the weighted
average number of common shares outstanding during the period, and does not
include common stock equivalents. Under SFAS No. 128, diluted earnings per share
include the weighted average number of shares outstanding and common stock
equivalents. SFAS No. 128 must be adopted by the Company in the third quarter of
fiscal year 1998. Early adoption of SFAS No. 128 is

F-10

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)

not permitted. Adoption of SFAS 128 is not expected to have material effect on
the Company's earnings per share.

2. LOAN RECEIVABLE -- OFFICER

Loan receivable -- officer represents a short-term advance to an officer
with no interest being charged.

3. INCOME TAXES

As discussed in Note 1, the Company utilizes the liability method of
accounting for income taxes in accordance with SFAS 109. The effective tax rates
differ from the statutory rate primarily due to the Company's historical
corporate structure. The income recorded in Ashton Distributors, Inc. was not
subject to corporate taxation, rather the tax consequences were the
responsibility of the individual stockholder, resulting in a permanent
difference. The historical income tax expense is detailed as follows on a
separate company basis, after the effects of eliminations:

For the year ended March 31, 1997:

<TABLE>
<CAPTION>
HOLT'S CIGAR ASHTON ASHTON
COMPANY, INC. DISTRIBUTORS, INC. HOLDINGS, INC. COMBINED
------------- ------------------ -------------- ----------
<S> <C> <C> <C> <C>
Income (loss) before income
tax expense................ $1,399,619 $1,603,634 $(154,130) $2,849,123
Current tax provision
Federal income tax...... 435,000 -- -- 435,000
State income tax........ 141,600 -- -- 141,600
---------- ---------- --------- ----------
Income tax expense........... 576,600 -- -- 576,600
---------- ---------- --------- ----------
Net income (loss)............ $ 823,019 $1,603,634 $(154,130) $2,272,523
========== ========== ========= ==========
</TABLE>

For the year ended March 31, 1996:

<TABLE>
<CAPTION>
HOLT'S CIGAR ASHTON ASHTON
COMPANY, INC. DISTRIBUTORS, INC. HOLDINGS, INC. COMBINED
------------- ------------------ -------------- --------
<S> <C> <C> <C> <C>
Income (loss) before income
tax expense................. $752,139 $261,512 $(167,401) $846,250
Current tax provision
Federal income tax.......... 237,500 -- -- 237,500
State income tax............ 77,300 -- -- 77,300
Deferred income taxes......... 3,400 -- -- 3,400
-------- -------- --------- --------
Income tax expense............ 318,200 -- -- 318,200
-------- -------- --------- --------
Net income (loss)............. $433,939 $261,512 $(167,401) $528,050
======== ======== ========= ========
</TABLE>

F-11

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

3. INCOME TAXES -- (CONTINUED)

For the year ended March 31, 1995:

<TABLE>
<CAPTION>
HOLT'S CIGAR ASHTON ASHTON
COMPANY, INC. DISTRIBUTORS, INC. HOLDINGS, INC. COMBINED
------------- ------------------ -------------- --------
<S> <C> <C> <C> <C>
Income (loss) before income
tax expense................. $494,210 $296,531 $(118,686) $672,055
Current tax provision
Federal income tax.......... 160,400 -- -- 160,400
State income tax............ 49,000 -- -- 49,000
-------- -------- --------- --------
Income tax expense............ 209,400 -- -- 209,400
-------- -------- --------- --------
Net income (loss)............. $284,810 $296,531 $(118,686) $462,655
======== ======== ========= ========
</TABLE>

The historical losses in Ashton Holdings, Inc. result in a net operating
loss carryforward for tax purposes of $63,000. The tax loss carryforward is less
than the historical book losses due to the effects of the elimination of
intercompany transactions. The Company has recorded a valuation allowance
against the entire deferred tax asset of $25,830.

4. PROPERTY AND EQUIPMENT, NET

Property and equipment is detailed as follows:

<TABLE>
<CAPTION>
MARCH 31,
--------------------- SEPTEMBER 30,
1996 1997 1997
-------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Equipment.................................. $122,295 $ 223,963 $ 292,097
Furniture and fixtures..................... 185,800 205,800 213,576
Leasehold improvements..................... 617,224 636,638 1,200,255
-------- ---------- ----------
925,319 1,066,401 1,705,928
Accumulated depreciation................... (107,381) (218,175) (263,397)
-------- ---------- ----------
Property and equipment, net................ $817,938 $ 848,226 $1,442,531
======== ========== ==========
</TABLE>

Depreciation expense amounted to $16,768, $80,049, $110,794 and $45,222
(unaudited) in the years ended March 31, 1995, 1996 and 1997 and the six months
ended September 30, 1997, respectively.

5. STOCKHOLDERS' EQUITY

Stockholders' equity comprised the following:

<TABLE>
<CAPTION>
MARCH 31,
----------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Common stock
Holt's Cigar Company, Inc. -- No par value, $1 stated
value, 100,000 shares authorized, 90,000 shares
issued and 72,000 outstanding..................... $90,000 $90,000 $90,000
Ashton Holdings, Inc. -- $.01 par value, 20,000
shares authorized, 10,000 shares issued and
outstanding....................................... 114 114 114
Ashton Distributors, Inc. -- No par value, 1,000
shares authorized, issued and outstanding......... 1,000 1,000 1,000
------- ------- -------
$91,114 $91,114 $91,114
======= ======= =======
</TABLE>

F-12

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

5. STOCKHOLDERS' EQUITY -- (CONTINUED)

<TABLE>
<CAPTION>
MARCH 31,
----------------------- SEPTEMBER 30,
1996 1997 1997
---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Additional paid-in capital
Holt's Cigar Company, Inc....................... $ 4,721 $ 4,721 $ 4,721
Ashton Holdings, Inc............................ 298,886 298,886 298,886
---------- ---------- ----------
$ 303,607 $ 303,607 $ 303,607
========== ========== ==========
Retained earnings (accumulated deficit)
Holt's Cigar Company, Inc....................... $1,196,096 $2,019,115 $2,998,165
Ashton Holdings, Inc............................ (149,572) (303,702) (431,291)
Ashton Distributors, Inc........................ 261,641 964,475 2,152,705
---------- ---------- ----------
$1,308,165 $2,679,888 $4,719,579
========== ========== ==========
</TABLE>

6. OTHER ASSETS

Other assets include several intangible assets including restrictive
covenants, trademarks, trade name, customer list and organization costs. The
assets are being amortized over periods ranging from five to twenty years.

7. BORROWINGS

Lines of Credit

The Company maintained a line of credit of $200,000 with a bank, payable on
demand of which $5,000 was outstanding at March 31, 1996. Interest was payable
at the bank's prime rate (8.25% at March 31, 1996) plus 1%. The line was
collateralized by the personal guarantee of a stockholder. The line was
terminated in 1997.

The Company maintains another line of credit of $400,000 with a bank,
payable on demand of which no amounts were outstanding at March 31, 1996 and
1997. Interest is payable at the bank's prime rate (8.5% at both March 31, 1997
and 1996). The line is collateralized by Company assets and the personal
guarantee of a stockholder.

F-13

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. BORROWINGS -- (CONTINUED)

Long-term Debt

Long-term debt consists of the following:

<TABLE>
<CAPTION>
MARCH 31,
--------------------- SEPTEMBER 30,
1996 1997 1997
--------- --------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Note payable -- bank -- due in monthly payments of $1,042
plus interest at the bank's prime rate (8.25% at both
March 31, 1997 and 1996) plus 1%, collateralized by
inventory, property and the guarantee of a stockholder.
Note was paid off in July, 1997............................. $ 36,450 $ 22,894 $ --
Notes payable -- equipment -- due in various monthly
payments ranging from $148 to $709 including interest
from 9.9% to 14%, collateralized by equipment. Payments
extend through March, 1999.................................. 22,273 25,841 11,813
Note payable -- bank-- due in monthly payments of $1,208
including interest at 8.5% (using a twenty-five year
amortization), collateralized by a second mortgage on
the retail location property owned by the stockholder,
an insurance policy on the life of a stockholder and the
guarantee of a stockholder. In June, 2000 the interest
rate changes to the prime rate plus 1%. Payments extend
through June, 2020.......................................... 148,811 147,078 146,171
Note payable -- bank -- due in monthly payments of $4,042
including interest at 9%. Monthly payments increased to
$9,470 in September, 1996. Collateralized by the
assignment of rents on the real property at the retail
location, accounts receivable, inventory and a mortgage
on the retail location property, along with the
guarantee of a stockholder. Payments extend through
April, 1998................................................ 284,127 116,068 63,552
Note payable -- bank -- construction loan agreement --
Maximum amount available -- $450,000. Interest is
charged at 8.75% for the initial thirty months, prime
plus .25% for the next thirty months, adjusted
thereafter based on prime for each thirty month period.
Payable over a ten and a half year period. First six
monthly payments interest only -- monthly installments
of principal and accrued interest begin January 1, 1998.
Secured by a third lien on the accounts receivable,
inventory and property and guaranteed by a stockholder.
Payments extend through December, 2008...................... -- -- 450,000
--------- --------- ---------
Total....................................................... 491,661 311,881 671,536
Less: current portion....................................... (148,666) (129,441) (125,000)
--------- --------- ---------
Long-term debt.............................................. $ 342,995 $ 182,440 $ 546,536
========= ========= =========
</TABLE>

F-14

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

7. BORROWINGS -- (CONTINUED)

The following is a schedule of long-term debt maturities as of March, 31,
1997:

1998.............................. $129,441
1999.............................. 39,734
2000.............................. 2,492
2001.............................. 2,712
2002.............................. 2,951
Thereafter........................ 134,551
--------
$311,881
========

Total interest expense amounted to $18,486, $50,048, $73,184 and $13,912
(unaudited) for the years ended March 31, 1995, 1996 and 1997 and the six months
ended September 30, 1997, respectively.

8. LEASE COMMITMENTS

The Company leases warehouse space in Philadelphia under a noncancelable
operating lease expiring in December, 1998. The lease also requires payment of
the tenant's common area maintenance expenses. The Company also leases retail
space from a stockholder under an operating lease expiring in October, 2004. The
lease includes a five year renewal option.

The Company leases various office and warehouse equipment and an automobile
under operating leases expiring through April, 2002. The Company entered into an
operating lease agreement for a new office and warehouse facility in
Philadelphia expiring in June, 2002 with one five year renewal option.

The following is a schedule of future minimum rental payments required
under the above operating leases as of March 31, 1997:

1998.............................. $161,976
1999.............................. $181,896
2000.............................. $158,400
2001.............................. $153,303
2002.............................. $152,268

Rental expense amounted to $67,244, $100,008, $103,044 and $66,018
(unaudited) for the years ended March 31, 1995, 1996 and 1997 and the six months
ended September 30, 1997, respectively.

9. PROFIT SHARING PLAN

The Company sponsors a 401(k) contributory qualified profit sharing plan
covering substantially all of its employees. Under the Plan, the Company's
contributions are based upon the employee's elective deferral contribution. The
Company's contribution is equal to 50% of the employee's contribution up to 6%
of the employee's pre-tax salary. Contributions for the years ended March 31,
1995, 1996 and 1997 and the six months ended September 30, 1997, amounted to
$8,397, $18,463, $23,233 and $9,819 (unaudited), respectively.

10. MAJOR SUPPLIERS

During fiscal years 1995, 1996 and 1997, the Company purchased
approximately 37%, 39% and 47%, respectively, of its cigars from one supplier.
At March 31, 1996, 1997 and September 30, 1997, amounts due to the supplier were
approximately $504,000, $713,800 and $842,000 (unaudited), respectively and are
included in due to related party. This supplier is a company controlled by an

F-15

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

10. MAJOR SUPPLIERS -- (CONTINUED)

affiliate of a stockholder of the Company. During fiscal 1997, approximately 18%
of the Company's purchases were from one other supplier. At March 31, 1997,
approximately $256,000 was due to the other supplier and included in accounts
payable.

11. COMMITMENTS

The Company is required to pay royalties to an unaffiliated individual
related to the purchase of the "Ashton" name. Royalties are based on 1% of all
purchases of cigars bearing the Ashton name through January 1, 2000. Royalties
incurred for the years ended March 31, 1995, 1996 and 1997 and the six months
ended September 30, 1997 were $12,000, $16,150, $31,616 and $30,813 (unaudited),
respectively.

The Company has guaranteed certain debt of the controlling stockholder. The
balance on such debt was $443,714 and $436,783 at March 31, 1996 and 1997,
respectively.

The Company has certain employment contracts for executives which extend
for up to five years.

12. RELATED PARTY TRANSACTIONS

The Company has a loan receivable due from the controlling stockholder (see
Note 2).

The controlling stockholder guarantees certain debt of the Company (see
Note 7).

The Company guarantees certain debt of the controlling stockholder (see
Note 11).

The Company paid rent of approximately $48,000, $54,000 and $35,000
(unaudited) to the controlling stockholder for the years ended March 31, 1996
and 1997 and the six months ended September 30, 1997, respectively (see Note 8).

The major supplier mentioned in Note 10 is a company controlled by a
stockholder of the Company. Amounts due to the related party are separately
shown on the face of the balance sheet.

13. STOCK OPTIONS

Effective January 1, 1996, three individuals were granted stock options to
purchase common stock of each of the three companies at estimated fair market
value. The individuals were an employee, an outside director, and a member of
the controlling stockholder's immediate family, respectively. After giving
effect to the organization, an aggregate of 482,400 shares are issuable pursuant
to these options at an exercise price of $.50 per share. The Company has adopted
the disclosure-only provisions of SFAS 123 "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). The options expire on December 31, 2005. The
employee option vests ratably over five years, the family member and director's
options vested immediately. The controlling stockholder has agreed that upon
exercise of any such options he will contribute to the capital of the Company
one share of common stock for each share purchased pursuant to those options.

The following table summarizes the stock options outstanding for each of
the three years ended March 31, 1997:

F-16

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

13. STOCK OPTIONS -- (CONTINUED)

<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
WEIGHTED-AVERAGE NUMBER OF FAIR MARKET
TOTAL NUMBER OF EXERCISE PRICE SHARES GRANTED DURING
SHARES (PRO FORMA) PER SHARE EXERCISABLE THE YEAR
------------------ ---------------- ----------- ----------------
<S> <C> <C> <C> <C>
Balance at April 1, 1994......... -- -- -- --
Balance at March 31, 1995........ -- -- -- --
Granted fiscal 1996.............. 482,400 $.50 -- $.24
Balance at March 31, 1996........ 482,400 $.50 281,400 --
Granted fiscal 1997.............. -- -- -- --
Balance at March 31, 1997........ 482,400 $.50 321,600 --
</TABLE>

The weighted average fair value was estimated on the date of grant using
the Black-Scholes option pricing model assuming no dividends or volatility, a
ten-year expected life and a risk free interest rate of 6.5%.

The Company accounts for options in accordance with APB No. 25 and
accordingly, no compensation cost has been recognized. If the Company had
elected to recognize compensation cost consistent with the method prescribed by
SFAS 123, net income would have been reduced by approximately $50,000 in fiscal
1996 and $8,000 in fiscal 1997 (no effect on pro forma earnings per share).

14. CAPITAL STRUCTURE (UNAUDITED)

As discussed in Note 1, the Company reorganized in September 1997. After
the reorganization, Holt's Cigar Holdings, Inc. has one class of common stock
with a par value of $.001. The Company, after reorganization, will have options
outstanding for the purchase of 711,900 shares of common stock. In addition, the
Company is authorized to issue 1,000,000 shares of preferred stock, the features
of which are subject to designation by the Board of Directors.

15. PRO FORMA AND SUPPLEMENTAL INFORMATION (UNAUDITED)

Pro Forma Balance Sheet Information

The unaudited pro forma balance sheet reflects the S Corporation estimated
distribution of $2,153,000 and the related effects of the revised capital
structure including the termination of the Company's S Corporation status
assuming such termination had occurred at September 30, 1997. No deferred taxes
resulted from such termination. The pro forma balance sheet does not give effect
to distributions that may be paid from earnings generated subsequent to
September 30, 1997.

The pro forma balance sheet also includes the goodwill resulting from the
application of purchase accounting to option holder minority interests in Holt's
Cigar Company, Inc. and Ashton Distributors, Inc. acquired in the reorganization
described in Note 1 utilizing an estimated $13.00 per share offering price. The
pro forma balance sheet includes reclassifications of certain stockholders'
equity accounts to reflect the Company's capital structure after the
reorganization.

Pro Forma Income Before Income Taxes

Pro forma net income per share is based on net income per share decreased
to give effect to the increased amortization costs of $17,216 for the year ended
March 31, 1997 and $8,608 for the six months ended September 30, 1997, and which
would have resulted if the goodwill created at the reorganization had existed at
March 31, 1996. Such goodwill is being amortized over 20 years.

F-17

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

15. PRO FORMA AND SUPPLEMENTAL INFORMATION (UNAUDITED) -- (CONTINUED)

Pro Forma Income Taxes

As discussed in Note 1 and reported in Note 3, Ashton Distributors, Inc.
does not pay federal or state income tax. Upon consummation of the
reorganization Ashton will terminate its S Corporation status and be subject to
federal and state income taxes. The pro forma provision for income taxes
represents the income tax provisions that would have been reported had the
Company been a combined C Corporation during the year ended March 31, 1997 and
the six months ended September 30, 1997:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
MARCH 31, 1997 1997
-------------- ----------------
(UNAUDITED)
<S> <C> <C>
Pro forma income before taxes.................... $2,831,907 $3,236,083
Current tax provisions
Federal income tax.......................... 963,000 1,100,000
State income tax............................ 170,000 194,000
---------- ----------
Income tax expense.......................... 1,133,000 1,294,000
---------- ----------
Pro forma net income............................. $1,698,907 $1,942,083
========== ==========
</TABLE>

The reconciliation between the effective pro forma income tax rate and the
U.S. federal statutory rate is as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
MARCH 31, 1997 1997
-------------- ----------------
<S> <C> <C>
U.S. Federal taxes at statutory rate............. 34.0% 34.0%
State and local taxes, net....................... 5.9 6.3
---- ----
Income tax provision............................. 39.9% 40.3%
==== ====
</TABLE>

Pro Forma Net Income Per Share

The computation of pro forma earnings per share is based on the weighted
average number of outstanding common shares during the period plus common stock
equivalents, if dilutive. Pursuant to the requirements of the Securities and
Exchange Commission, the weighted average number of outstanding common shares
includes the effects of the incremental number of shares required to fund
distributions to the shareholder of Ashton Distributors, Inc. in excess of
earnings for the preceding 12 months (including the estimated distribution of
$2,153,000). The pro forma net income per share does not give effect to
distributions that may be paid from earnings generated subsequent to September
30, 1997. As discussed in Note 1, the Company reorganized in September 1997.
After the reorganization, Holt's Cigar Holdings, Inc. has one class of common
stock with a par value of $.001. As discussed in Note 13, the Company, after
reorganization, will have options outstanding for the purchase of 482,400 shares
of common stock. The controlling stockholder has agreed that upon exercise of
any such options he will contribute to the capital of the Company one share of
common stock for each share purchased pursuant to those options, thereby
reducing his ownership interest. Historical net income per share data has not
been presented since such amounts are not deemed to be meaningful due to the
significant change in the Company's capital structure which is to occur in
connection with the Offering.

F-18

<PAGE>

HOLT'S CIGAR HOLDINGS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

15. PRO FORMA AND SUPPLEMENTAL INFORMATION (UNAUDITED) -- (CONTINUED)

Supplemental Pro Forma Net Income Per Share

The supplemental pro forma net income per share is based on pro forma net
income, (i) increased to give effect to the reduction in interest costs of
$44,000 for the year ended March 31, 1997, $16,800 for the six months ended
September 30, 1996, and $8,400 for the six months ended September 30, 1997 (net
of the applicable income taxes), which would have resulted assuming the
application of a portion of the net proceeds from the Offering were used to
repay certain indebtedness of the Company and (ii) divided by pro forma weighted
average shares plus the incremental shares issued to repay the debt.

16. SUBSEQUENT EVENTS (UNAUDITED)

In September 1997, the Board of Directors approved an Employee Stock Option
Plan. The plan allows for options to purchase up to 300,000 shares of common
stock to be granted, at their fair market value on the date of grant. The
Company expects to grant options to purchase an aggregate of 169,500 shares at
the effective date of the Offering.

In September 1997, the Board of Directors approved a "Non-Management
Directors Stock Option Plan" which allows for options to purchase up to 180,000
shares. The Company expects to grant outside directors options to purchase an
aggregate of 60,000 shares at the effective date of the Offering. Such options
will vest immediately and will be granted at their fair market value on the date
of grant.

In October 1997 the Company borrowed $2.7 million to fund a distribution to
the controlling shareholder of $2.7 million, which represents the estimated
accumulated earnings expected at the Reorganization. The controlling shareholder
and the Company have agreed to adjust the distribution to reflect the actual
accumulated earnings at the date of the Offering. The debt is payable upon
demand.

F-19

<PAGE>

[PHOTOGRAPH]

Picture of Ashton Cigars

<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS

PAGE
----
Prospectus Summary.............................. 3
Risk Factors.................................... 8
Reorganization of the Company................... 16
Use of Proceeds................................. 17
Dividend Policy................................. 17
Capitalization.................................. 18
Dilution........................................ 19
Selected Financial Data......................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 22
Business........................................ 26
Management...................................... 36
Certain Transactions............................ 40
Principal and Selling Shareholders.............. 41
Description of Capital Stock.................... 42
Shares Eligible for Future Sale................. 45
Underwriting.................................... 47
Legal Matters................................... 48
Experts......................................... 48
Change in Independent Accountants............... 49
Additional Information.......................... 49
Index to Financial Statements................... F-1

1,750,000 Shares

[HOLT'S LOGO]

Common Stock

------------------------
PROSPECTUS
------------------------

PRUDENTIAL SECURITIES INCORPORATED

JANNEY MONTGOMERY SCOTT INC.

November , 1997

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered hereby, other than underwriting discounts and
commissions, are itemized below.

Securities and Exchange Commission registration fee......... $ 8,538
NASD filing fee............................................. 3,318
Nasdaq National Market listing fee.......................... 50,000
Accounting Fees and Expenses................................ 150,000
Legal fees and expenses..................................... 200,000
Printing and engraving expenses............................. 120,000
Blue Sky fees and expenses (including legal fees)........... 2,500
Transfer Agent and Registrar fees and expenses.............. 10,000
Miscellaneous............................................... 30,644
--------
Total.................................................. $575,000

ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
Delaware corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expenses
(including attorneys' fees) incurred by any officer, director, employee or agent
in defending such action, provided that the director or officer undertakes to
repay such amount if it shall ultimately be determined that he is not entitled
to be indemnified by the corporation. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.

A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's by-law, agreement, vote or otherwise.

The Company's Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors to the Company or its
stockholders for monetary damages for breach of their fiduciary duty to the
maximum extent permitted by the DGCL. The DGCL does not permit liability to be
eliminated (i) for any breach of a director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions, as provided
in Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. In addition, as permitted in Section 145
of the DGCL, the Certificate of Incorporation and By-Laws of the Company provide
that the Company shall

II-1

<PAGE>

indemnify its directors and officers to the fullest extent permitted by the
DGCL, including those circumstances in which indemnification would otherwise be
discretionary, subject to certain exceptions. The By-Laws also provide that the
Company shall advance expenses to directors and officers incurred in connection
with an action or proceeding as to which they may be entitled to
indemnification, subject to certain exceptions.

The indemnification provisions in the Company's Certificate of
Incorporation and By-Laws may permit indemnification for liabilities arising
under the Securities Act. Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.

The Company currently expects to carry director and officer liability
insurance following this offering.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the following shares were sold by the Company
without registration under the Securities Act of 1933, as amended (the "Act").
All references to shares of the Company's Common Stock give effect to the
Reorganization.

The Company relied on the exemption from registration set forth in Section
4(2) of the Act. No fees were paid in connection with the foregoing sales of
securities.

During December 1995, the Company sold 234,497 shares of Common Stock for
an aggregate purchase price of $49,500 to Fuente Investment Partnership pursuant
to the exercise of an option.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS

(a) Exhibits:

1 Form of Underwriting Agreement*
2 Plan of Reorganization*
3.1 Restated Certificate of Incorporation*
3.2 By-Laws*
4 Specimen Common Stock Certificate
5 Opinion re: Legality and Consent of Fox, Rothschild, O'Brien
& Frankel, LLP*
10.1 Employment Agreement dated October 1, 1997, with Robert G.
Levin*
10.2 Employment Agreement dated October 1, 1997, with Michael
Pitkow*
10.3 Employment Agreement dated October 1, 1997, with Robert H.
Levitt*
10.4 Private Label Manufacturing Agreement dated April 1997
between Ashton Distributors, Inc. and Fuente Cigar Ltd.*
10.5 Exclusive Distributorship Agreement dated September 1, 1997
between Ashton Distributors, Inc. and Fuente Cigar Ltd.*
10.6 Lease Agreement dated March 20, 1997 between the Company and
P. D'Andrea, Inc.*
10.7 Lease Agreement between Robert G. Levin and Suzanne J. Levin
and Holt's Cigar Company Inc. dated as of November 1, 1994*
10.8 License Agreement dated May 4, 1993 between Ashton Holdings
Inc. and William Ashton Taylor*
10.9 1997 Employee Stock Option Plan*
10.10 Non-Management Director Stock Plan*

II-2

<PAGE>

10.11 Amended and Restated Shareholders' Agreement dated April 27,
1997, between and among
Robert G. Levin, The Fuente Investment Partnership and
Ashton Holdings, Inc.*
10.12 Option Agreement between the Company and Michael Pitkow
dated January 1, 1997.
10.13 Option Agreement between the Company and Marvin B.
Sharfstein dated January 1, 1997.
10.14 Option Agreement between the Company and Carole Cohn dated
January 1, 1997.
11.1 Amended Computation of Pro Forma Net Income Per Share*
11.2 Amended Computation of Supplemental Pro Forma Net Income Per
Share*
16 Letter re change in certifying accountant*
21 Subsidiaries of the Company
23.1 Consent of Schmeltzer Master Group, P.C.
23.2 Consent of Price Waterhouse LLP
23.3 Consent of Fox, Rothschild, O'Brien & Frankel, LLP, included
as Exhibit 5*
27 Financial Data Schedule*

- ------------------
* Previously filed.

(b) No Financial Statements Schedules are filed as part of this Registration
Statement

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

The undersigned registrant hereby undertakes that:

(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers
and controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

(2) For purposes of determining any liability under the Securities Act
of 1933, as amended, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(3) For the purpose of determining any liability under the Securities
Act of 1933, as amended, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

II-3

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Philadelphia, Commonwealth of Pennsylvania, on November 20, 1997.

HOLT'S CIGAR HOLDINGS, INC.

By: /s/ ROBERT G. LEVIN
--------------------------------------
Robert G. Levin,
Chairman of the Board, Chief Executive
Officer and President

In accordance with the requirements of the Securities Act of 1933, this
Amendment to Registration Statement on Form S-1 has been signed by the following
persons in their capacities and on the date signed.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s / ROBERT G. LEVIN Chairman of the Board, Chief November 20, 1997
- -------------------------------- Executive Officer and President
Robert G. Levin

/s / MICHAEL PITKOW* Director, Chief Operating Officer November 20, 1997
- -------------------------------- and Executive Vice President
Michael Pitkow

/s / MARVIN B. SHARFSTEIN Director November 20, 1997
- --------------------------------
Marvin B. Sharfstein

/s / CARLOS A. FUENTE, SR.* Director November 20, 1997
- --------------------------------
Carlos A. Fuente, Sr.

/s / CARLOS P. FUENTE, JR. Director November 20, 1997
- --------------------------------
Carlos P. Fuente, Jr.

/s / HARVEY W. GROSSMAN* Director November 20, 1997
- --------------------------------
Harvey W. Grossman

/s / ROBERT H. LEVITT Chief Financial Officer November 20, 1997
- -------------------------------- (Principal Financial
Robert H. Levitt and Accounting Officer)

*By /s / ROBERT G. LEVIN
- --------------------------------
Robert G. Levin, as attorney-in-fact
(for each of the persons indicated)
</TABLE>

II-4

HOLT'S
CIGAR COMPANY

SINCE 1898

NUMBER SHARES
HCH

COMMON STOCK CUSIP 436598 10 6
SEE REVERSE FOR
CERTAIN DEFINITIONS

HOLT'S CIGAR HOLDINGS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

This Certifies that

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001
EACH OF THE COMMON STOCK OF

- ------------------------- HOLT'S CIGAR HOLDINGS, INC. -------------------------

transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to all of
the provisions of the Certificate of Incorporation and of any amendments thereto
(copies of which are on file at the office of the Transfer Agent), to all of
which the holder, by acceptance hereof, assents. This certificate is not valid
unless countersigned by the Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.

Dated

/s/ Michael Pitkow /s/ Robert G. Levin
SECRETARY PRESIDENT

HOLT'S CIGAR HOLDINGS, INC.
CORPORATE
SEAL
1993
DELAWARE
*

COUNTERSIGNED:

CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(JERSEY CITY, N.J.)

TRANSFER AGENT
AND REGISTRAR

AUTHORIZED OFFICER

<PAGE>

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common

TEN ENT - as tenants by the entireties

JT TEN - as joint tenants with right
of survivorship and not as tenants
in common

UNIF GIFT MIN ACT-____________ Custodian ____________
(Cost) (Minor)

under Uniform Gifts to Minors

Act ____________
(State)

Additional abbreviations may also be used though not in the above list.

For value received, _____________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

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

- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- ------------------------------------------------------------------------ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- ---------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named corporation with
full power of substitution in the premises.

Dated
---------------------------

-----------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed:

- --------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION
TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

<PAGE>

THIS OPTION HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND THIS OPTION MAY NOT BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT, OR, IF AN EXEMPTION
SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

OPTION TO PURCHASE COMMON STOCK
OF
HOLT'S CIGAR HOLDINGS, INC.

This is to certify that, in exchange for a previously granted option,
MICHAEL PITKOW (hereinafter referred to as the "Holder") is hereby granted an
option to purchase, subject to the provisions hereof, from Holt's Cigar
Holdings, Inc. (the "Company") TWO HUNDRED ONE THOUSAND (201,000) SHARES of the
no par value common stock of the Company (hereinafter referred to as the "Common
Stock") at any time and from time to time at an exercise price of FIFTY CENTS
($.50) per share. The shares of Common Stock deliverable upon the exercise of
this Option described above are sometimes hereinafter referred to as the "Option
Shares". The exercise price for the purchase of the Option Shares as described
above is sometimes hereinafter referred to as the "Exercise Price".

1. Exercise and Vesting of Option. This Option, which may be
transferred or assigned subject to the provisions of the Securities Act of 1933,
as amended, shall vest immediately upon issuance, in full. This Option may be
exercised in whole or in part, from time to time on or after the date
hereof until December 31, 2005. Upon receipt by the Company of this Option at
its offices, or by the stock transfer agent of the Company at its offices, in
proper form for exercise, the Holder shall be deemed to be the Holder of record
of the shares of Common Stock issuable upon such exercise notwithstanding that
the certificates representing such shares of Common Stock shall not then be
actually delivered to the Holder. Upon the exercise in whole of this Option,
the Company shall issue, or shall cause the stock transfer agent to issue
certificates for the total number of shares of Common Stock purchased, in such
names and denominations as are required by the Holder, and the Company shall, or
shall direct the stock transfer agent to deliver such certificates to or in
accordance with the written instructions of the Holder.

2. Reservation of Shares. The Company hereby agrees that at all times
during the term of this Option, there shall be reserved for issuance and/or
delivery upon the exercise hereof such number of shares of its Common Stock as
may be required for issuance and delivery upon the exercise in full of this
Option.

3. Exchange, Transfer, Assignment or Loss of Option. This Option is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company, at its offices, or to the stock transfer
agent, at its offices, for other Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Option is not transferable, except with
respect to the parents, siblings, spouse or children of the original holder, or
trusts for any of their benefit, and is subject to compliance with the
Securities Act of 1933, as amended (hereinafter referred to as the "Act"),
Section 14 of this Option, and any applicable state securities or blue-sky laws.
Upon surrender of this Option to the Company at its offices, or to the stock
transfer agent, if any, at its offices, together with the Assignment Form
annexed hereto duly executed and funds sufficient to pay any transfer tax, the
Company shall, without further charge or

<PAGE>

costs, execute and deliver a new Option in the name of the permitted assignee
named in the Assignment Form, and this Option shall promptly be canceled. This
Option may be divided or combined with other Options which carry the same rights
upon presentation hereof at the offices of the Company, or at the offices of the
stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Options are to be issued, and signed by the
holder thereof. The term "Option", as used herein includes any Options into
which this Option may be divided or exchanged. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Option, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Option, if mutilated, the Company will execute and deliver a new Option of like
tenor and date. Any such new Option executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Option is lost, stolen, destroyed or mutilated, and shall be at any time
enforceable by anyone.

4. Rights of the Holder. The Holder shall not, by virtue hereof, be
entitled to any rights of a stockholder in the Company, either at law or in
equity, and the rights of the Holder hereunder are limited to those expressed in
this Option.

5. Covenants of the Company. The Company hereby covenants that: (a) it
will take no corporate action the effect of which would be to render the par
value of the Option Shares issuable hereunder greater than the Exercise Price;
and (b) such Option Shares as may be issued pursuant to the exercise of this
Option will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all liens, charges and encumbrances with respect to
the issuance thereof.

6. Registration Rights. If (but without obligation to do so) the
Company proposes to register any of its stock or other securities in connection
with a public offering (excluding the initial public offering of its Common
Stock currently contemplated pursuant to the Registration Statement on Form S-1
on file with the Securities and Exchange Commission), the Company shall, each
such time, promptly give the Holder hereof written notice of such registration
and the Company hereby agrees to grant to the Holder the right to cause the
Option Shares or the shares of Common Stock which may be issuable pursuant to
this Option, to be included in the proposed registration. The Holder shall also
have the right to demand the registration of the shares of Common Stock
purchasable upon the exercise of this Option at any time commencing nine (9)
months following the effective date of the Company's Registration Statement with
respect to the aforedescribed initial public offering.

7. Adjustment of Shares Purchasable. The number of shares of the Common
Stock of the Company purchasable hereunder and the Exercise Price per share are
subject to adjustment from time to time as specified in this Option.

8. Recognition of Registered Owner. Prior to the due presentment for
registration of transfer of assignment of this Option, the Company may treat the
registered owner as the party exclusively entitled to receive notices and
otherwise to exercise the rights and entitlements hereunder.

9. Effect of Recapitalization.

(a) Adjustment of Exercise Price and Number of Shares of Common Stock
Purchasable. The Exercise Price and the number of shares of Common
Stock which shall be purchasable upon the exercise of this Option
shall be subject to adjustment from time to time upon the
occurrence of certain events

<PAGE>

described below an subsection 9(b). Upon each adjustment of the
Exercise Price, the holder of this Option shall thereafter be
entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock obtained by
multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock purchasable
pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Exercise Price resulting from such
adjustment.

(b) Recapitalization. In case the Company shall at any time subdivide
its outstanding shares of Common Stock into a greater number of
shares of Common Stock, the Exercise Price in effect immediately
prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares of Common Stock, the
Exercise Price in effect immediately prior to such combination
shall be proportionately increased. In case the Company shall at
any time declare a dividend upon its Common Stock payable solely
in shares of Common Stock, the Exercise Price in effect immediately
prior to such dividend shall be proportionately reduced. In the
case of the issuance of additional shares of Common Stock as a
dividend, the aggregate number of shares of the Common Stock issued
in payment of such dividend shall be deemed to have been issued
at the close of business on the record date fixed for such for the
determination of the shareholders entitled to such dividend, and
shall be deemed to have been issued without consideration;
provided however, that if the Company, after fixing such record
date, shall legally abandon its plan to so issue Common Stock as a
dividend, no adjustment of Exercise Price and number of shares
of Common Stock purchasable hereunder shall be required by reason
of the fixing of such record date.

(c) Notice of Adjustment. Upon any adjustment of the Exercise Price,
any increase or decrease in the number of shares of Common Stock
purchasable upon the exercise of this Option, the Company shall
give written notice thereof to the Holder. The notice shall be
signed by the Company's chief executive or chief financial officer
and shall state the Exercise Price resulting from such adjustment,
the increase or decrease, if any, in the number of shares of Common
Stock purchasable at such price upon the exercise of this Option,
and setting forth in reasonable detail the method of calculation
and the facts upon the calculation is based.

<PAGE>

provisions of this Option shall thereafter be applicable to any securities or
other consideration so deliverable upon the exercise of this Option. The Company
shall not consolidate or merge unless, prior to consummation, the successor
corporation (if other than the Company) assumes the obligations of this Section
10 by written instrument executed and mailed to the registered owner at the
address of the owner on the books of the Company. A sale or lease of all or
substantially all of the assets of the Company for a consideration (apart from
the assumption of obligations) consisting primarily of securities is deemed a
consolidation or merger for the purposes of this Section 10.

11. Notice of Adjustment. On the happening of any event requiring an
adjustment of the Exercise Price or the number of shares purchasable hereunder,
the Company shall forthwith give written notice to the registered owner stating
the adjusted Exercise Price and/or the adjusted number and kind of securities or
other property purchasable hereunder resulting from the event, and setting forth
in reasonable detail the method of calculation and the facts upon which the
calculations were based. The Board of Directors of the Company, acting in good
faith, shall determine such calculations.

12. Notice and Effect of Dissolution. In the event a voluntary or
involuntary dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger contemplated in Section 10, above), is
at any time proposed, the Company shall give at least thirty (30) days prior
written notice to the registered owner of this Option. Such notice shall set
forth: (a) the record date (which shall be at least thirty (30) days after the
giving of notice) as of which holders of Common Shares will be entitled to
receive distributions as a result of the transaction; (b) a reasonably detailed
description of the transaction; (c) a reasonably detailed description of the
distributions to be made to the holders of the Common Shares as a result of the
transaction; and (e) an estimate of the fair value of the distributions. On the
date of the transaction, if it actually occurs, this Option and all rights
hereunder shall terminate.

13. Notices. Notices shall be given by postage pre-paid registered
mail, return receipt requested, and shall be addressed to the address of the
registered owner on the books of the Company. Notices shall be deemed given
three (3) days after deposit of the foregoing with the United States Postal
Service.

14. Compliance with the Act. Unless a current registration statement
under the Act shall be in effect with respect to the securities to be issued
upon the exercise of this Option, the Holder hereof, by accepting this Option,
covenants and agrees that at the time of exercise hereof, such Holder shall
deliver to the Company a written statement that the securities acquired by the
Holder upon the exercise of the Option are for the account of the Holder for
investment purposes, and are not acquired with a view to, or for sale in
connection with any public distribution thereof.

Attest: Holt's Cigar Holdings, Inc.

____________________________ By:______________________________
Michael Pitkow, Secretary Robert Levin, President

OPTION TO PURCHASE COMMON STOCK
OF
HOLT'S CIGAR HOLDINGS, INC.

This is to certify that, in exchange for a previously granted option,
MARVIN B. SHARFSTEIN (hereinafter referred to as the "Holder") is hereby granted
an option to purchase, subject to the provisions hereof, from Holt's Cigar
Holdings, Inc. (the "Company") TWO HUNDRED ONE THOUSAND (201,000) SHARES of the
no par value common stock of the Company (hereinafter referred to as the "Common
Stock") at any time and from time to time at an exercise price of FIFTY CENTS
($.50) per share. The shares of Common Stock deliverable upon the exercise of
this Option described above are sometimes hereinafter referred to as the "Option
Shares". The exercise price for the purchase of the Option Shares as described
above is sometimes hereinafter referred to as the "Exercise Price".

1. Exercise and Vesting of Option. This Option, which may be
transferred or assigned subject to the provisions of the Securities Act of 1933,
as amended, shall vest immediately upon issuance, in full. This Option may be
exercised in whole or in part, from time to time on or after the date hereof
until December 31, 2005. Upon receipt by the Company of this Option at its
offices, or by the stock transfer agent of the Company at its offices, in proper
form for exercise, the Holder shall be deemed to be the Holder of record of the
shares of Common Stock issuable upon such exercise notwithstanding that the
certificates representing such shares of Common Stock shall not then be actually
delivered to the Holder. Upon the exercise in whole of this Option, the Company
shall issue, or shall cause the stock transfer agent to issue certificates for
the total number of shares of Common Stock purchased, in such names and
denominations as are required by the Holder, and the Company shall, or shall
direct the stock transfer agent to deliver such certificates to or in accordance
with the written instructions of the Holder.

<PAGE>

9. Effect of Recapitalization.

(a) Adjustment of Exercise Price and Number of Shares of Common
Stock Purchasable. The Exercise Price and the number of shares
of Common Stock which shall be purchasable upon the exercise of
this Option shall be subject to adjustment form time to time
upon the occurence of certain events

<PAGE>

described below in subsection 9(b). Upon each adjustment of the
Exercise Price, the holder of this Option shall thereafter be
entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock obtained by
multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock
purchasable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the Exercise
Price resulting from such adjustment.

(b) Recapitalization. In case the Company shall at any time
subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares
of Common Stock, the Exercise price in effect immediately prior
to such combination shall be proportionately increased. In case
the Company shall at any time declare a dividend upon its
Common Stock payable solely in shares of Common Stock, the
Exercise Price in effect immediately prior to such dividend
shall be proportionately reduced. In the case of the issuance
of additional shares of Common Stock as a dividend, the
aggregate number of shares of the Common Stock issued in
payment of such dividend shall be deemed to have been issued at
the close of business on the record date fixed for such for the
determination of the shareholders entitled to such dividend,
and shall be deemed to have been issued without consideration;
provided however, that if the Company, after fixing such record
date, shall legally abandon its plan to so issue Common Stock
as a dividend, no adjustment of Exercise Price and number of
shares of Common Stock purchasable hereunder shall be required
by reason of the fixing of such record date.

(c) Notice of Adjustment. Upon any adjustment of the Exercise
Price, any increase or decrease in the number of shares of
Common Stock purchasable upon the exercise of this Option, the
Company shall give written notice thereof to the Holder. The
notice shall be signed by the Company's chief executive or
chief financial officer and shall state the Exercise Price
resulting from such adjustment, the increase or decrease, if
any, in the number of shares of Common Stock purchasable at
such price upon the exercise of this Option, and setting forth
in reasonable detail the method of calculation and the facts
upon the calculation is based.

10. Effect of Merger. If at any time or from time to time while this
Option is outstanding in whole or in part, the Company effects any consolidation
or merger with any other corporation or entity, the Holder shall thereafter be
entitled upon exercise to purchase, with respect to each share of Common Stock
purchasable hereunder immediately before such consolidation or merger becomes
effective, the securities or other consideration to which a holder of one (1)
share of Common Stock is entitled to in such consolidation or merger without any
change in or payment in addition to the Exercise Price in effect immediately
prior to any such merger or consolidation. The Company shall take any necessary
steps in connection with any consolidation or merger to assure that all the
provisions of this Option shall thereafter be applicable to any securities or
other consideration so deliverable upon the exercise of this Option. The Company
shall not consolidate or merge unless, prior to consummation, the successor
corporation (if other than the Company) assumes the obligations of this Section
10 by written instrument executed and mailed to the registered owner at the
address of the owner on the books of the

<PAGE>

Company. A sale or lease of all or substantially all of the assets of the
Company for a consideration (apart from the assumption of obligations)
consisting primarily of securities is deemed a consolidation or merger for the
purposes of this Section 10.

12. Notice and Effect of Dissolution. In the event a voluntary or
involuntary dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger contemplated in Section 10, above), is
at any time proposed, the Company shall give at least thirty (30) days prior
written notice to the registered owner of this Option. Such notice shall set
forth: (a) the record date (which shall be at least thirty (30) days after the
giving of notice) as of which holders of Common Shares will be entitled to
receive distributions as a result of the transaction; (b) a reasonably detailed
description of the transaction; (c) a reasonably detailed description of the
distributions to be made to the holders of the Common Shares as a result of the
transaction; and (d) an estimate of the fair value of the distributions. On the
date of the transaction, if it actually occurs, this Option and all rights
hereunder shall terminate.

Attest: Holt's Cigar Holdings, Inc.

____________________________ By:______________________________
Michael Pitkow, Secretary Robert Levin, President

OPTION TO PURCHASE COMMON STOCK
OF
HOLT'S CIGAR HOLDINGS, INC.

This is to certify that, in exchange for a previously granted option,
CAROLE COHN (hereinafter referred to as the "Holder") is hereby granted an
option to purchase, subject to the provisions hereof, from Holt's Cigar
Holdings, Inc. (the "Company") EIGHTY THOUSAND FOUR HUNDRED (80,400) SHARES of
the no par value common stock of the Company (hereinafter referred to as the
"Common Stock") at any time and from time to time at an exercise price of FIFTY
CENTS ($.50) per share. The shares of Common Stock deliverable upon the exercise
of this Option described above are sometimes hereinafter referred to as the
"Option Shares". The exercise price for the purchase of the Option Shares as
described above is sometimes hereinafter referred to as the "Exercise Price".

1. Exercise and Vesting of Option. This Option, which may be transferred or
assigned subject to the provisions of the Securities Act of 1933, as amended,
shall vest immediately upon issuance, in full. This Option may be exercised in
whole or in part, from time to time on or after the date hereof until December
31, 2005. Upon receipt by the Company of this Option at its offices, or by the
stock transfer agent of the Company at its offices, in proper form for exercise,
the Holder shall be deemed to be the Holder of record of the shares of Common
Stock issuable upon such exercise notwithstanding that the certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Upon the exercise in whole of this Option, the Company shall issue,
or shall cause the stock transfer agent to issue certificates for the total
number of shares of Common Stock purchased, in such names and denominations as
are required by the Holder, and the Company shall, or shall direct the stock
transfer agent to deliver such certificates to or in accordance with the written
instructions of the Holder.

<PAGE>

5. Covenants of the Company. The Company hereby covenants that: (a) it will
take no corporate action the effect of which would be to render the par value of
the Option Shares issuable hereunder greater than the Exercise Price; and (b)
such Option Shares as may be issued pursuant to the exercise of this Option
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all liens, charges and encumbrances with respect to the issuance
thereof.

6. Registration Rights. If (but without obligation to do so) the Company
proposes to register any of its stock or other securities in connection with a
public offering (excluding the initial public offering of its Common Stock
currently contemplated pursuant to the Registration Statement on Form S-1 on
file with the Securities and Exchange Commission), the Company shall, each such
time, promptly give the Holder hereof written notice of such registration and
the Company hereby agrees to grant to the Holder the right to cause the Option
Shares or the shares of Common Stock which may be issuable pursuant to this
Option, to be included in the proposed registration. The Holder shall also have
the right to demand the registration of the shares of Common Stock purchasable
upon the exercise of this Option at any time commencing nine (9) months
following the effective date of the Company's Registration Statement with
respect to the aforedescribed initial public offering.

9. Effect of Recapitalization.

<PAGE>

described below in subsection 9(b). Upon each adjustment of the
Exercise Price, the holder of this Option shall thereafter be entitled
to purchase, at the Exercise Price resulting from such adjustment, the
number of shares of Common Stock obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of
shares of Common Stock purchasable pursuant hereto immediately prior
to such adjustment, and dividing the product thereof by the Exercise
Price resulting from such adjustment.

(b) Recapitalization. In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares of
Common Stock, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately
increased. In case the Company shall at any time declare a dividend
upon its Common Stock payable solely in shares of Common Stock, the
Exercise Price in effect immediately prior to such dividend shall be
proportionately reduced. In the case of the issuance of additional
shares of Common Stock as a dividend, the aggregate number of shares
of the Common Stock issued in payment of such dividend shall be deemed
to have been issued at the close of business on the record date fixed
for such for the determination of the shareholders entitled to such
dividend, and shall be deemed to have been issued without
consideration; provided however, that if the Company, after fixing
such record date, shall legally abandon its plan to so issue Common
Stock as a dividend, no adjustment of Exercise Price and number of
shares of Common Stock purchasable hereunder shall be required by
reason of the fixing of such record date.

(c) Notice of Adjustment. Upon any adjustment of the Exercise Price, any
increase or decrease in the number of shares of Common Stock
purchasable upon the exercise of this Option, the Company shall give
written notice thereof to the Holder. The notice shall be signed by
the Company's chief executive or chief financial officer and shall
state the Exercise Price resulting from such adjustment, the increase
or decrease, if any, in the number of shares of Common Stock
purchasable at such price upon the exercise of this Option, and
setting forth in reasonable detail the method of calculation and the
facts upon the calculation is based.

10. Effect of Merger. If at any time or from time to time while this Option
is outstanding in whole or in part, the Company effects any consolidation or
merger with any other corporation or entity, the Holder shall thereafter be
entitled upon exercise to purchase, with respect to each share of Common Stock
purchasable hereunder immediately before such consolidation or merger becomes
effective, the securities or other consideration to which a holder of one (1)
share of Common Stock is entitled to in such consolidation or merger without any
change in or payment in addition to the Exercise Price in effect immediately
prior to any such merger or consolidation. The Company shall take any necessary
steps in connection with any consolidation or merger to assure that all the
provisions of this Option shall thereafter be applicable to any securities or
other consideration so deliverable upon the exercise of this Option. The Company
shall not consolidate or merge unless, prior to consummation, the successor
corporation (if other than the Company) assumes the obligations of this Section
10 by written instrument executed and mailed to the registered owner at the
address of the owner on the books of the

<PAGE>

12. Notice and Effect of Dissolution. In the event a voluntary or
involuntary dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger contemplated in Section 10, above), is
at any time proposed, the Company shall give at least thirty (30) days prior
written notice to the registered owner of this Option. Such notice shall set
forth: (a) the record date (which shall be at least thirty (30) days after the
giving of notice) as of which holders of Common Shares will be entitled to
receive distributions as a result of the transaction; (b) a reasonably detailed
description of the transaction; (c) a reasonably detailed description of the
distributions to be made to the holders of the Common Shares as a result of the
transaction; and (d) an estimate of the fair value of the distributions. On the
date of the transaction, if it actually occurs, this Option and all rights
hereunder shall terminate.

13. Notices. Notices shall be given by postage pre-paid registered mail,
return receipt requested, and shall be addressed to the address of the
registered owner on the books of the Company. Notices shall be deemed given
three (3) days after deposit of the foregoing with the United States Postal
Service.

14. Compliance with the Act. Unless a current registration statement under
the Act shall be in effect with respect to the securities to be issued upon the
exercise of this Option, the Holder hereof, by accepting this Option, covenants
and agrees that at the time of exercise hereof, such Holder shall deliver to the
Company a written statement that the securities acquired by the Holder upon the
exercise of the Option are for the account of the Holder for investment
purposes, and are not acquired with a view to, or for sale in connection with
any public distribution thereof.

Attest: Holt's Cigar Holdings, Inc.

By:
- ---------------------------------- -------------------------------
Michael Pitkow, Secretary Robert Levin, President

EXHIBIT 21

Name of Subsidiary
and Name Under Which
Business is Conducted State of Incorporation
--------------------- ----------------------

Ashton Distributors, Inc. Pennsylvania

Holt's Cigar Company Inc. Pennsylvania

Holt's Company Delaware

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to the Registration Statement on Form S-1 of our report dated August 13,
1996, relating to the combined financial statements of Holt's Cigar Holdings,
Inc. and Affiliates, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

Schmeltzer o Master Group, P.C.

Wyncote, Pennsylvania
November 20, 1997

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of Amendment
No. 2 to the Registration Statement on Form S-1 of our report dated July 2,
1997, relating to the combined financial statements of Holt's Cigar Holdings,
Inc. and Affiliates, which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
November 20, 1997