<PAGE>   1
                                   FORM 10-QA2

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   (Mark one)

              (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended August 1, 1997

                                       OR

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                           Commission File No. 0-13076

                               LOT$OFF CORPORATION


<TABLE>
<S>                                                                         <C>
                     DELAWARE                                                                 74-2640559
----------------------------------------------------                        -------------------------------------------------
 (State or other jurisdiction of incorporation or                                           (I.R.S. Employer
                   organization                                                           Identification No.)

       8750 Tesoro Drive, San Antonio, Texas                                                   78217-0555
----------------------------------------------------                        -------------------------------------------------
     (Address of principal executive offices)                                                  (Zip Code)
</TABLE>

                            Telephone: (210) 805-9300
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No:
                                             ----

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

856,080 shares of the Registrant's common stock were outstanding at August 1,
1997. On June 15, 1997, the date immediately preceding the Effective Date of the
Registrant's Plan of Reorganization, as amended and modified, there were
12,200,915 shares of the Registrant's old common stock outstanding, all of which
were cancelled on the Effective Date.

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

There are 22 pages in the sequentially numbered, manually signed original. The
exhibit index is located on page 21




<PAGE>   2


                                 FORM 10-Q INDEX

                                     PART I

<TABLE>
<CAPTION>
                                                                                                                         PAGE

<S>              <C>                                                                                                     <C>
ITEM 1.          Financial Statements............................................................................         3

                 Condensed Consolidated Balance Sheets:  August 1, 1997 (unaudited);
                 January 31, 1997; and August 2, 1996 (unaudited)................................................         3

                 Condensed Consolidated Statements of Operations:  thirteen and twenty-six weeks
                 ended August 1, 1997 (unaudited); and  thirteen and twenty-six weeks ended August 2, 1996                5
                 (unaudited).....................................................................................

                 Condensed Consolidated Statements of Cash Flows:  twenty-six weeks
                 ended August 1, 1997 (unaudited); and twenty-six weeks ended August 2, 1996 (unaudited).........         6

                 Notes to Condensed Consolidated Financial Statements (unaudited)................................         8

ITEM 2.          Management's Discussion and Analysis of Financial Condition
                 and Results of Operations.......................................................................        14

                                                              PART II

ITEM 1.          Legal Proceedings ..............................................................................        18

ITEM 2.          Changes in Securities...........................................................................        18

ITEM 3.          Defaults Upon Senior Securities.................................................................        19

ITEM 4.          Submission of Matters to a Vote of Security Holders.............................................        19

ITEM 5.          Other Information ..............................................................................        19

ITEM 6.          Exhibits and Reports on Form 8-K ...............................................................        19

                 Signatures .....................................................................................        20

                 Exhibit Index...................................................................................        21
</TABLE>



<PAGE>   3


                                     PART I


ITEM 1.  FINANCIAL STATEMENTS


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                                     ASSETS


<TABLE>
<CAPTION>
                                          August 1, 1997    January 31, 1997    August 2, 1996
                                          --------------    ----------------    --------------

CURRENT ASSETS:
<S>                                        <C>                 <C>                 <C>        
Cash and cash equivalents                  $   453,388         $   491,297         $   592,931
Cash in escrow                                    --               330,000                --
Accounts receivable                            616,469             717,852             712,593
Merchandise inventories                     11,075,402          12,974,958          28,915,488
Prepaid and other current assets               548,792             393,526             942,334
                                           -----------         -----------         -----------
TOTAL CURRENT ASSETS                        12,694,051          14,907,633          31,163,346
                                           -----------         -----------         -----------

PROPERTY AND
 EQUIPMENT-NET                               3,816,739           3,988,760          10,821,292

OTHER ASSETS                                   431,184             358,343           1,203,941
                                           -----------         -----------         -----------

TOTAL ASSETS                               $16,941,974         $19,254,736         $43,188,579
                                           ===========         ===========         ===========
</TABLE>















  See accompanying notes to these condensed consolidated financial statements.

                                      -3-


<PAGE>   4


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY


<TABLE>
<CAPTION>

                                         August 1, 1997   January 31, 1997   August 2, 1996
                                         --------------   ----------------   --------------
<S>                                       <C>               <C>               <C>         
CURRENT LIABILITIES:
   Credit facility                        $  3,400,369      $  5,396,580      $ 16,967,884
   Accounts payable-trade                    1,483,017         1,381,708        14,542,527
   Accounts payable-other                    2,858,546         2,032,512         3,089,379
   Accrued expenses and
      other current liabilities              1,855,394         1,757,468         3,609,661
   Current portion of closed store
      costs                                       --                --             899,196
   Current portion of long-term debt              --             266,667         4,770,798
                                          ------------      ------------      ------------

TOTAL CURRENT LIABILITIES                    9,597,326        10,834,935        43,879,445

LONG-TERM DEBT, less
   current portion                           1,444,762              --                --

LIABILITIES SUBJECT TO
   COMPROMISE                                     --          30,250,544              --

STOCKHOLDERS' (DEFICIT)
   EQUITY:
   Series A preferred stock                  4,280,400              --                --
   Series B preferred stock                  3,991,050              --                --
   Common stock                                  8,561           122,009           122,009
   Additional paid-in capital               56,147,275        36,022,264        36,022,264
   Subscription receivable                        --          (3,991,050)       (3,991,050)
   Accumulated deficit                     (58,527,400)      (53,983,966)      (32,844,089)
                                          ------------      ------------      ------------
TOTAL STOCKHOLDERS' EQUITY                   5,899,886       (21,830,743)         (690,886)
                                          ------------      ------------      ------------

TOTAL LIABILITIES AND
   STOCKHOLDERS' EQUITY                   $ 16,941,974      $ 19,254,736      $ 43,188,579
                                          ============      ============      ============
</TABLE>






  See accompanying notes to these condensed consolidated financial statements.

                                      -4-


<PAGE>   5


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                           Thirteen Weeks Ended                  Twenty-six Weeks Ended
                                     ---------------------------------     ----------------------------------
                                     August 1, 1997     August 2, 1996     August 1, 1997      August 2, 1996
                                     --------------     --------------     --------------      --------------

<S>                                   <C>                <C>                <C>                <C>         
NET SALES                             $ 10,381,017       $ 31,708,019       $ 22,300,169       $ 64,123,428
COST OF SALES                            7,213,237         22,349,660         14,933,784         45,583,056
                                      ------------       ------------       ------------       ------------

GROSS PROFIT                             3,167,780          9,358,359          7,366,385         18,540,372
                                      ------------       ------------       ------------       ------------

OPERATING EXPENSES:
  Selling, advertising, general
      and administrative                 4,980,380         12,787,621         10,785,809         25,548,943
  Depreciation and  amortization           177,285            966,597            354,570          1,937,074
  Reorganization items                     200,000         12,570,090            500,000         12,570,090
                                      ------------       ------------       ------------       ------------
TOTAL OPERATING EXPENSES                 5,357,665         26,324,308         11,640,379         40,056,107
                                      ------------       ------------       ------------       ------------

OPERATING INCOME (LOSS)                 (2,189,885)       (16,965,949)        (4,273,994)       (21,515,735)

OTHER EXPENSE (INCOME):
   Interest income                         (17,476)           (20,573)           (42,190)           (40,239)
   Interest expense                        144,701            623,081            311,629            994,235
                                      ------------       ------------       ------------       ------------
TOTAL OTHER EXPENSE
 (INCOME)                                  127,225            602,508            269,439            953,996
                                      ------------       ------------       ------------       ------------

INCOME (LOSS) BEFORE  INCOME
  TAXES                                 (2,317,110)       (17,568,457)        (4,543,433)       (22,469,731)

(BENEFIT FROM)  INCOME TAXES                  --                 --                 --                 --
                                      ------------       ------------       ------------       ------------


NET INCOME (LOSS)                       (2,317,110)       (17,568,457)        (4,543,433)       (22,469,731)

PREFERRED DIVIDENDS                        (30,315)              --              (30,315)              --
                                      ------------       ------------       ------------       ------------

EARNINGS APPLICABLE TO
  COMMON STOCK                        $ (2,347,425)      $(17,568,457)      $ (4,573,748)      $(22,469,731)
                                      ============       ============       ============       ============

INCOME (LOSS) PER SHARE OF
  COMMON STOCK                        $      (0.37)      $      (1.44)      $      (0.49)      $      (1.84)
                                      ============       ============       ============       ============

WEIGHTED AVERAGE SHARES                  6,341,495         12,200,915          9,271,205         12,200,915
                                      ============       ============       ============       ============

</TABLE>


  See accompanying notes to these condensed consolidated financial statements.

                                      -5-

<PAGE>   6


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                               Twenty-six Weeks Ended
                                                          ----------------------------------
                                                          August 1, 1997      August 2, 1996
                                                          --------------      --------------
CASH FLOWS FROM OPERATING
  ACTIVITIES:
<S>                                                        <C>                <C>          
Net income (loss)                                          $ (4,543,433)      $(22,469,731)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                 354,570          1,937,074
  Reorganization items                                          500,000         12,570,090
  Non-cash interest expense on long-term debt                      --              117,981
Changes in assets and liabilities:
  Accounts receivable                                           101,383            417,011
  Merchandise inventories                                     1,899,556         (1,161,523)
  Prepaid and other current assets                             (155,266)          (505,108)
  Other assets                                                  (72,841)          (311,698)
  Accounts payable-trade                                        101,309          5,947,281
  Accounts payable-other                                       (300,469)        (1,148,744)
  Accrued expenses and other
    current liabilities                                          97,926            329,568
  Closed store costs                                               --             (269,017)
                                                           ------------       ------------ 

Net cash provided by (used in) operating
    activities                                               (2,017,265)        (4,546,816)
                                                           ------------       ------------ 

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Capital expenditures                                           (182,549)          (433,350)
                                                           ------------       ------------ 
Net cash provided by (used in) investing activities            (182,549)          (433,350)
                                                           ------------       ------------ 
</TABLE>









  See accompanying notes to these condensed consolidated financial statements.

                                      -6-


<PAGE>   7


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                   (CONTINUED)

<TABLE>
<CAPTION>
                                                                   Twenty-six Weeks Ended
                                                              ---------------------------------
                                                              August 1, 1997     August 2, 1996
                                                              --------------     --------------
CASH FLOWS FROM FINANCING
  ACTIVITIES:
<S>                                                             <C>                <C>       
Proceeds from credit facility                                   28,251,967         47,791,460
Payments on credit facility                                    (30,248,178)       (42,041,627)
Payments on long-term debt                                        (266,667)          (518,070)
Net proceeds from sale of common and preferred
  stock                                                          4,094,783               --
Cash in escrow                                                     330,000               --
                                                              ------------       ------------

Net cash provided by (used in) financing
  activities                                                     2,161,905          5,231,763
                                                              ------------       ------------

Increase (decrease) in cash and cash equivalents              $    (37,909)      $    251,597
Cash and cash equivalents at
  beginning of period                                              491,297            341,334
                                                              ------------       ------------

Cash and cash equivalents at
  end of period                                               $    453,388       $    592,931
                                                              ============       ============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
Cash paid during the period for:
   Interest                                                   $    311,629       $    876,254
   Income taxes                                                       --                 --

SUPPLEMENTAL SCHEDULE OF NON-CASH  FINANCIAL ACTIVITIES:
Conversion of liabilities subject to compromise to
   long-term debt                                             $  1,444,762               --
Conversion of liabilities subject to compromise to
   accounts payable-other                                     $    626,503               --
Conversion of liabilities subject to compromise to
   Series B preferred stock                                   $  3,991,050               --
Conversion of liabilities subject to compromise to
   additional paid in capital                                 $ 24,188,229               --

</TABLE>


  See accompanying notes to these condensed consolidated financial statements.

                                      -7-
<PAGE>   8
                      LOT$OFF CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

NOTE 1:           The condensed consolidated balance sheet at January 31, 1997 
                  has been condensed from the audited consolidated balance
                  sheet of 50-OFF Stores, Inc. (debtor-in-possession) at
                  January 31, 1997.

                  The condensed consolidated balance sheets at August 1, 1997
                  and August 2, 1996 and the condensed consolidated statements
                  of operations and cash flows for the thirteen and twenty-six
                  weeks ended August 1, 1997 and the thirteen and twenty-six
                  weeks ended August 2, 1996 have been prepared by the Company
                  without audit. In the opinion of management, all adjustments
                  necessary to present fairly the condensed consolidated
                  financial position, results of operations and cash flows have
                  been made. The results of operations for the twenty-six week
                  period ended August 1, 1997 are not necessarily indicative of
                  the operating results for a full year or of future operations.

                  Certain information and footnote disclosures normally included
                  in financial statements prepared in accordance with generally
                  accepted accounting principles have been condensed or omitted.
                  These condensed consolidated financial statements should be
                  read in conjunction with the consolidated financial statements
                  and notes thereto included in the Registrant's annual report
                  on Form 10-K for the year ended January 31, 1997.

                  On October 9, 1996 (the "Petition Date"), the Company and its
                  significant subsidiaries filed petitions (the "Filing") for
                  relief under Chapter 11 of the Bankruptcy Code ("Chapter 11")
                  in the United States Bankruptcy Court for the Western District
                  of Texas (the "Bankruptcy Court"). The Filing was precipitated
                  by the notification from the Company's then asset based
                  lenders that it was in violation of certain financial
                  covenants of their credit agreement and that such breaches
                  constituted events of default under the loan documents. See
                  Note 3. The lenders subsequently established additional
                  availability reserves, imposed certain increased fees and
                  other charges and accelerated fees deemed earned at the
                  initial closing, which, individually and together,
                  substantially impacted the Company's financial liquidity and,
                  therefore, its ability to acquire and maintain much needed
                  inventory for its stores. The Company was unable to secure the
                  resources required to cure the defaults under the loan
                  documents and to implement its business plan and effect the
                  changes believed necessary to improve operations and reverse
                  the Company's disappointing operating results without the
                  protections afforded under the Bankruptcy Code. The Company
                  continued to manage its affairs and operate its business under
                  Chapter 11 as a debtor-in-possession while a plan of
                  reorganization was formulated.

                  A plan of reorganization ("the Plan" or "Plan of
                  Reorganization") was filed on February 26, 1997, amended on
                  March 27, 1997, confirmed by the Bankruptcy Court on June 3,
                  1997 and implemented on June 16, 1997 (the "Effective Date").
                  See Note 2. Through the reorganization, management has
                  restructured the operations and capitalization of the Company
                  in order to strengthen the Company's financial position and
                  implement its business plan.


                                      -8-
<PAGE>   9

NOTE 2:           On the Effective Date, certain key elements of the Plan were 
                  implemented, including the changing of the Company's corporate
                  name from 50-OFF Stores, Inc. to LOT$OFF Corporation
                  ("LOT$OFF") and the cancellation of all common stock in 50-OFF
                  Stores, Inc. The Plan provided for the recapitalization of the
                  Company, partially through cash raised from the Company's
                  existing common stockholders. Specifically, the Plan provided
                  for the issuance to existing common stockholders of rights to
                  purchase units, consisting of 20 shares of LOT$OFF Series A
                  Preferred Stock and 20 shares of LOT$OFF Common Stock, with a
                  minimum aggregate purchase amount of $3,050,000.
                  Contemporaneously with filing the Plan, the Company filed a
                  related disclosure statement ("the Disclosure Statement")
                  setting forth more detailed information regarding the Company
                  and the Plan. Under applicable Bankruptcy Court rules and
                  procedures, a hearing was held to review and approve the
                  Disclosure Statement which was approved March 20, 1997. Upon
                  approval of the Disclosure Statement by the Bankruptcy Court,
                  the Plan and Disclosure Statement were furnished to creditors
                  and stockholders, and votes in support of the Plan were
                  solicited. The Plan was approved by both creditors and
                  stockholders, and a Bankruptcy Court order confirming the Plan
                  was entered on June 3, 1997. At the confirmation hearing on
                  June 3, 1997, the Company announced it had received more than
                  enough subscriptions for the required minimum to be met. On
                  June 16, 1997, the Plan went effective, and the Company issued
                  856,080 shares of LOT$OFF Series A Preferred Stock (each such
                  share has a liquidation preference of $5.00, is convertible
                  into two shares of LOT$OFF Common Stock and is entitled to a
                  5.5%, $0.275, cumulative annual dividend; LOTSP: CUSIP
                  #545674202) and 856,080 shares of LOT$OFF Common Stock (LOTS:
                  CUSIP # 545674103) to subscribers to its rights offering for
                  gross proceeds of $4,280,400.

                  On the Effective Date, LOT$OFF also entered into a $15,000,000
                  revolving credit agreement maturing on June 16, 2000 with
                  General Electric Capital Corporation ("GECC"). The proceeds of
                  the facility, together with the net proceeds from the rights
                  offering, were used to refinance the Company's
                  debtor-in-possession facility, also with GECC, and to provide
                  post-confirmation working capital for increased inventories
                  for its 41 continuing stores and selected other general
                  corporate purposes, including financing LOT$OFF's exit from
                  bankruptcy. See Note 3.

                  The Company's Plan of Reorganization also provided for the
                  cancellation of all non-priority unsecured indebtedness of the
                  Company. Such cancellation caused the elimination of
                  approximately $24.9 million of unsecured debt and $3.3 million
                  of collateralized debt, which was initially converted to an
                  unsecured claim, from the Company's balance sheet. Each holder
                  of an allowed general unsecured claim will, in cancellation of
                  its claim, receive a pro rata share of LOT$OFF's Series B
                  Preferred Stock (798,210 shares, having a liquidation
                  preference of $3,991,050, in the aggregate). Each share of
                  Series B Preferred Stock is convertible into two shares of
                  LOT$OFF Common Stock. Certain obligations of the Company to
                  such holders of Series B Preferred Stock will be secured by
                  two liens against potential net lawsuit proceeds from
                  significant litigation being prosecuted by the Company. See
                  Note 4. As net proceeds (net of certain items set forth in the
                  Plan) from such litigation are received by the Company,
                  holders of Series B Preferred Stock will receive (i) Series A
                  Conversion Rights, which provide for the conversion of Series
                  B Preferred Stock to Series A Preferred Stock, until net
                  proceeds reach $3,991,050 and (ii) Series A Preferred Stock or
                  cash for net proceeds in excess of $3,991,050 (as described in
                  the Plan) up to the full face amount of the allowed general
                  unsecured claims. The receipt of Series A Conversion Rights,
                  Series A Preferred Stock and/or cash by holders of Series B
                  Preferred Stock will result in a proportionate release of the
                  liens. By issuing such Series B Preferred Stock to general
                  unsecured creditors, such creditors are essentially receiving
                  the net value of the Company's litigation (up to the full face
                  amount of the allowed general unsecured claims) which was
                  pending pre-Petition Date. 


                                      -9-
<PAGE>   10

                  Management has been redirecting the Company's retail
                  activities from 50-OFF's off-price retailing concept to
                  LOT$OFF's close-out retailing concept. Coincident and
                  consistent with this change has been a change in the mix of
                  products, historically a majority in family apparel, to a
                  majority in non-apparel merchandise, principally through the
                  addition of new product categories to the Company's historical
                  non-apparel offerings which include cosmetics, housewares and
                  giftware, home furnishings, shelf-stable food products, toys,
                  luggage, footwear, stationery and health and beauty aids. New
                  categories include sporting goods, automotive, greeting cards,
                  jewelry, books, party goods, seasonal, pet supplies and
                  hardware, among others. The Company will continue to maintain
                  a healthy showing of basic family apparel products in the
                  LOT$OFF stores. The actual merchandise mix will fluctuate by
                  category, by season and by store based on customer needs and
                  buying trends, demographics and the availability of products
                  at close-out prices. This merchandise concept is designed to
                  appeal to value-conscious shoppers and other "bargain
                  hunters," and management is hopeful its continued
                  implementation will lead to higher initial mark-ups, less
                  promotional pricing, fewer markdowns, low inventory shrinkage,
                  increased store traffic and improved operating results.

                  The Company's ability to continue as a going concern will be
                  affected by a number of factors, including, but not limited
                  to, the need to comply with the terms, covenants and
                  conditions of its post-confirmation credit facility, the
                  degree of success in reversing the Company's recent business
                  trends (by increasing sales and operating profits) and the
                  ability to alleviate trade credit concerns and restore
                  merchandise flows to adequate levels. While management
                  believes that the recent closings of stores and the
                  implementation of expense cuts commensurate with the
                  downsizing of the total stores in operation (from 101 to 41
                  stores) facilitates its efforts to improve the Company's
                  operating performance and that the recapitalization
                  implemented on the Effective Date of its Plan of
                  Reorganization should strengthen its financial position and
                  alleviate concerns of credit and merchandise suppliers [the
                  anticipated judgment and receipt of proceeds from the
                  Company's lawsuits (see Note 4) should further strengthen its
                  financial position], no assurance can be given that the
                  Company will be successful in its continuing efforts to
                  reverse negative business trends, which have continued through
                  August 1997, and return to profitability. For this reason, any
                  investment in LOT$OFF's Common and Series A Preferred Stocks
                  should be considered speculative.

                  If the Company's plans to improve operations are not
                  successful, management will consider, among other
                  alternatives, strategic and/or financial alliances with third
                  parties and the merger, sale or liquidation of all or a part
                  of the Company.

NOTE 3:           On May 13, 1996, the Company entered into a credit facility 
                  with two financial corporations providing the Company with a
                  line of credit through May 1998 of up to $22,500,000. The line
                  of credit was collateralized by inventory, accounts receivable
                  and other assets. The credit agreement contained various
                  restrictive covenants, including financial covenants. On
                  August 8, 1996, the Company was notified that it was in
                  violation of the minimum gross margin (disputed) and the
                  minimum working capital financial covenants and that such
                  breaches constituted events of default under the loan
                  documents. The Company was unable to secure the resources
                  required to cure the defaults under the loan documents without
                  the protections afforded under Chapter 11. As of November 1,
                  1996, the Company had approximately $7,335,000 outstanding
                  under the credit facility and, with the support and by order
                  of the Bankruptcy Court, was using cash collateral for working
                  capital needs. This facility was paid off in November 1996
                  (after the Company's Filing).


                                      -10-
<PAGE>   11

                  On November 18, 1996, the Company, with the approval of the
                  Bankruptcy Court, entered into a credit agreement with GECC
                  providing the Company with a line of credit through November
                  1997 of up to $15,000,000. The line of credit was
                  collateralized by inventory, accounts receivable and other
                  assets. The credit agreement contained various restrictive
                  covenants, including financial covenants. This facility was
                  paid off on June 16, 1997 (the Effective Date of the Plan).

                  On June 16, 1997, LOT$OFF, with the approval of the Bankruptcy
                  Court, entered into a credit agreement with GECC (amended
                  August 28, 1997) providing LOT$OFF with a revolving credit
                  facility through June 16, 2000 of up to $15,000,000. The new
                  credit facility bears interest at a floating rate equal to the
                  published rate for thirty-day commercial paper issued by major
                  corporations (5.58% at August 1, 1997) plus 3% per annum and
                  provides for an unused facility fee of 0.5% per annum.
                  Borrowings under the facility are available in aggregate
                  amounts up to 65% of LOT$OFF's eligible inventory at cost for
                  the period from August 15 through December 15 and up to 60%
                  for the period from December 16 through August 14, subject to
                  certain required reserves. The line of credit is
                  collateralized by inventory, accounts receivable and other
                  assets. The credit agreement contains various restrictive
                  covenants, including restrictions on the payment of dividends
                  on common stock. The agreement also contains minimum gross
                  margin, minimum EBITDA, minimum inventory, minimum working
                  capital and maximum capital expenditure financial covenants.
                  As of August 1, 1997, LOT$OFF had approximately $5,530,000
                  available for borrowings under the line (after reserves of
                  approximately $899,000), of which approximately $3,400,000 was
                  committed, leaving a net availability of approximately
                  $2,130,000.

NOTE 4:           The following table shows performa earning per share 
                  calculated assuming that the Company's emergence from
                  bankruptcy and the resulting recapitalization discussed in 
                  Note 2 occurred as of the beginning of each period.

<TABLE>
<CAPTION>
                                                 13 Weeks          13 Weeks           26 Weeks         26 Weeks
                                               Aug. 1, 1997      Aug. 2, 1996       Aug. 1, 1997     Aug. 2, 1996
                                               ------------      -------------      ------------     ------------

<S>                             <C>              <C>                <C>              <C>          
                  Net Loss                     $ (2,317,110)      $(17,568,457)      $ (4,543,433)      $(22,469,731)
                  Preferred Dividends               (58,694)           (58,694)          (117,389)          (117,389)
                                               ------------       ------------       ------------       ------------
                  Earnings Applicable
                    to Common Stock            $ (2,375,804)      $(17,627,151)      $ (4,660,822)      $(22,587,120)
                                               ============       ============       ============       ============

                  Weighted Average Shares           856,080            856,080            856,080            856,080

                  Earnings Per Share           $      (2.78)      $     (20.59)      $      (5.44)      $     (26.38)
                                               ============       ============       ============       ============
</TABLE>


                                      -11-

<PAGE>   12


NOTE 5:           The Company has restated previously reported numbers for
                  the thirteen and twenty-six week periods ended August 2, 1996
                  for certain asset writedowns that were previously recorded in
                  the thirteen week periods ended November 1, 1996 and January
                  31, 1997. A fixed asset impairment of $12.6 million related to
                  the 37 stores which began to be closed in September 1996 has
                  been recorded as of August 1, 1996. Although the decision to
                  close the 37 stores was not approved by the Board of Directors
                  until the third quarter of fiscal 97, the decision was made
                  prior to the issuance of the Company's August 2, 1996
                  financial statements, resulting in an impairment recognized in
                  the Company's August 2, 1996 financial statements.

<TABLE>
<CAPTION>

                                                        Thirteen Weeks      Twenty-Six Weeks
                                                          Aug. 2, 1996        Aug. 2, 1996
                                                       ---------------      ----------------

                  <S>                                  <C>                  <C>            
                  Net Loss as Previously Reported      $   (4,998,367)      $   (9,899,641)
                  Adjustment                              (12,570,090)         (12,570,090)
                                                       --------------       -------------- 
                  Restated Net Loss                    $  (17,568,457)      $  (22,469,731)
                                                       ==============       ============== 


                  Loss Per Share of Common Stock
                    as Previously Reported             $        (0.41)      $        (0.81)
                  Adjustment                           $        (1.03)      $        (1.03)
                                                       --------------       -------------- 

                  Restated Loss Per Share of
                    Common Stock                       $        (1.44)      $        (1.84)
                                                       --------------       -------------- 
</TABLE>


NOTE 6:           On February 21, 1995, the Company filed a lawsuit [50-Off 
                  Stores, Inc. v. Banque Paribas (Suisse), S.A., Betafid, S.A.,
                  Yanni Koutsoubos, Andalucian Villas (Forty Eight) Limited,
                  Arnass Limited, Brocimast Enterprises Ltd., Dennis Morris,
                  Howard White, Chase Manhattan Bank, N.A. and Aries Peak, Inc.,
                  Case No. SA-95-CA-0159] in the United States District Court in
                  San Antonio, Texas against Banque Paribas (Suisse) S.A.
                  ("Paribas"), Betafid S.A., Chase Manhattan Bank, N.A.
                  ("Chase") and certain affiliated individuals and companies in
                  connection with the theft of 1,500,000 shares of the Company's
                  old common stock which certain of the defendants had agreed to
                  purchase. Among other counts, the lawsuit alleges securities
                  fraud, conspiracy and conversion. The conversion claim relates
                  to actions of the defendants in transferring, selling and
                  trading the shares even though the defendants have never paid
                  for such shares. The Company seeks recovery of actual and
                  punitive damages, pre- and post-judgment interest, attorneys'
                  fees and such other remedies to which the company may show
                  itself entitled.

                  Paribas, Chase, Morris and White answered the complaint.
                  Defaults were entered against Arnass, Andalucian Villas,
                  Brocimast, Betafid and Koutsoubos for failure to appear or
                  answer.

                  Paribas moved to dismiss the action for lack of personal
                  jurisdiction, failure to state a claim and for forum non
                  conveniens. The District Court referred all pre-trial matters
                  to U.S. Magistrate Judge John W. Primomo, who denied each of
                  Paribas' motions to dismiss. U.S. District Judge H.F. Garcia
                  has adopted Judge Primomo's rulings in their entirety.


                                      -12-
<PAGE>   13

On March 20, 1997, Paribas answered the Company's complaint asserting a number
of affirmative defenses, including contributory negligence. Paribas also
asserted a counterclaim against the Company for defamation. The Company has
moved to dismiss this counterclaim and strike Paribas' affirmative defenses.
Judge Primomo has recommended such dismissal and the striking of the affirmative
defenses. Judge Garcia again adopted Judge Primomo's rulings in their entirety.

On June 23, 1997, Paribas moved for summary judgment. Judge Primomo recently
recommended that the Company be permitted to proceed against Paribas on counts
of securities fraud, conversion and conspiracy. The Court also recommended that
the Company be permitted to proceed against Chase for conversion. The parties
have largely completed all discovery and are currently preparing a joint
pretrial order. This matter is currently set for jury trial on October 14, 1997.

On January 9, 1996, the Company filed another lawsuit [50-OFF Stores, Inc.
v. Jefferies & Company, Inc. and Jefferies International, Ltd., Cause No.
96-CI-00349] in Bexar County District Court in San Antonio, Texas against the
Company's placement agents in the securities offering referenced in the lawsuit
discussed above. Among other things, the suit alleges that the defendants
breached their contracts with the Company and breached their fiduciary duties to
the Company in failing to investigate properly the qualifications of the
purchasers they introduced to the Company. The Company seeks to recover actual
and exemplary damages in excess of $10,000,000, pre- and post-judgment interest,
costs and attorney's fees. Both defendants have answered the petition and raised
the affirmative defense of contributory negligence. Additionally, Jefferies &
Company filed a cross-claim against Howard White. Discovery is proceeding.

Soon after the Company filed for protection under the Bankruptcy Code,
Jefferies and White removed this case to the Bankruptcy Court. The United States
District Court granted the Company's motion to abstain from hearing the case and
remanded the case back to the Bexar County District Court.

On June 26, 1997, the defendants moved for summary judgment on all claims.
Judge Peeples denied the defendant motion as to the Company's breach of contract
and breach of fiduciary duty claims.

This matter has been specially set for jury trial on March 23, 1998. The Bexar
County District Court ordered the parties to conduct mediation of the case. On
August 9, 1997, the parties in both lawsuits conducted a mediation. Although the
parties were unable to resolve the lawsuits at that time, settlement discussions
have continued among the parties.

The Company will continue to prosecute these cases vigorously. The Company
believes its claims against these defendants are meritorious. The Company, based
upon advice of counsel, believes that it will obtain a favorable judgment
against one or more of the defendants referenced in the preceding two lawsuits.
The Company intends to vigorously pursue all remedies to collect the sums owing
to the Company as per any judgment obtained against one or more of the
defendants.

The Company is party to certain other legal proceedings arising in the ordinary
course of business, none of which are believed to be material.



                                      -13-

<PAGE>   14


ITEM 2.   MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

Results of Operations

The following tables set forth (i) certain items in the Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods indicated,
and (ii) the percentage change in such items from the comparable period of the
prior year.

<TABLE>
<CAPTION>
                                                                          Percentage of Sales
                                                   -----------------------------------------------------------
                                                       Thirteen Weeks Ended           Twenty-six Weeks Ended
                                                   ----------------------------     --------------------------
                                                     August 1,        August 2,      August 1,       August 2,
                                                       1997             1996           1997            1996
                                                   -----------       ----------      ---------       ---------

<S>                                                   <C>             <C>             <C>             <C>   
Net Sales ........................................   100.0%            100.0%         100.0%          100.0%
Cost of sales ....................................    69.5              70.5           67.0            71.1
Selling, advertising, general and
  administrative .................................    48.0              40.4           48.4            39.9
Depreciation and amortization ....................     1.7               3.0            1.6             3.0
                                                     -----             -----          -----           -----  
Operating income (loss) before
   reorganization items ..........................   (19.2)            (13.9)         (17.0)          (13.9)
Reorganization items .............................     1.9              39.6            2.2            19.6
Operating income (loss) ..........................   (21.1)            (53.5)         (19.2)          (33.5)
Other expense, net ...............................     1.2               1.9            1.2             1.5
                                                     -----             -----          -----           -----  
Total expenses ...................................   122.3             155.4          120.4           135.0
                                                     -----             -----          -----           -----  
Income (loss) before income taxes ................   (22.3)            (55.4)         (20.4)          (35.0)
(Benefit from) income taxes ......................      --                --             --              --
                                                     -----             -----          -----           -----  

Net income (loss) ................................   (22.3)%           (55.4)%        (20.4)%         (35.0)%
                                                     =====             =====          =====           =====  
</TABLE>

<TABLE>
<CAPTION>
                                                                                  Percentage Change
                                                  ----------------------------------------------------------------------------------
                                                           Thirteen Weeks Ended                     Twenty-six Weeks Ended
                                                        August 1, 1997 compared to                August 1, 1997 compared to
                                                           Thirteen Weeks Ended                     Twenty-six Weeks Ended
                                                              August 2, 1996                            August 2, 1996
                                                  ---------------------------------------   ----------------------------------------

<S>                                                     <C>                                       <C>      
Net sales ........................................              (67.3)%                                       (65.2)% 
Cost of sales ....................................              (67.7)                                        (67.2)  
Selling, advertising, general                                                                                         
   and administrative ............................              (61.2)                                        (57.8)  
Depreciation and amortization ....................              (81.7)                                        (81.7)  
Operating income (loss) before                                                                                        
   reorganization items ..........................              (45.6)                                        (42.2)  
Reorganization items .............................               N/A                                           N/A    
Operating income (loss) ..........................              (87.1)                                        (80.1)  
Other expense, net ...............................              (78.9)                                        (71.8)  
Income (loss) before income taxes ................              (86.8)                                        (79.8)  
(Benefit from) income taxes ......................                --                                            --    
Net income (loss) ................................              (86.8)%                                       (79.8)% 
</TABLE>


                                      -14-
<PAGE>   15

Thirteen weeks ended August 1, 1997 compared to thirteen weeks ended August 2,
1996:

The net sales decrease of 67.3% for the thirteen weeks ended August 1, 1997
compared to the thirteen weeks ended August 2, 1996 is attributable to a 59.1%
decrease in the weighted average number of stores in operation (from 100.3
stores to 41.0 stores) and a decrease in comparable store sales (due primarily
to inventory imbalances among the 41 continuing stores and the lack of resources
to effectively promote customer traffic to such stores). Also contributing to
this decrease were the increased net sales pertaining to liquidations of
inventory at thirteen 50-OFF stores in the process of converting to LOT$OFF
stores during the thirteen weeks ended August 2, 1996.

Cost of sales as a percentage of net sales decreased from 70.5% for the thirteen
weeks ended August 2, 1996 to 69.5% for the thirteen weeks ended August 1, 1997,
due primarily to lower markdowns as a percentage of net sales as compared to the
comparable period of the prior year when an approximately $2,218,000 write-down
of inventories in anticipation of 37 store liquidations scheduled to begin in
September was taken.

Selling, advertising, general and administrative expenses increased from 40.4%
of net sales for the thirteen weeks ended August 2, 1996 to 48.0% of net sales
for the thirteen weeks ended August 1, 1997 due primarily to lower sales. The
61.2% decrease in the amount of selling, advertising, general and administrative
expense compared to the thirteen weeks ended August 2, 1996 was the result of
the 59.1% decrease in the weighted average number of stores in operation.

Depreciation and amortization decreased by 81.7% in the thirteen weeks ended
August 1, 1997 compared to the comparable period of the prior year, due
primarily to the substantial decrease in the number of stores in operation and
to substantial prior write-downs of fixed assets. In connection with the Filing,
the Company recorded as a reorganization expense $12,570,000 in the second
quarter and additional amount in later periods of fiscal 1997 for the write-down
to fair value, as determined by the Company's lender based on the value of
certain assets liquidated by the lender and on the Company's, the lender's and
an independent party's strategic review, of certain equipment and leasehold
improvements.

Other expense, net, decreased to approximately $127,000 in the thirteen weeks
ended August 1, 1997 compared to approximately $603,000 in the comparable period
of the prior year, due primarily to decreased interest expense attributable to
decreased borrowings under the Company's line of credit, a substantially lower
effective interest rate on such borrowings and the Company's discontinuing the
accrual of interest on certain of its other obligations through June 16, 1997.

The decrease in the Company's loss before income taxes for the thirteen weeks
ended August 1, 1997 compared to the thirteen weeks ended August 2, 1996 is
primarily due to higher maintained margins (higher initial markups, less
promotional pricing, fewer markdowns and less inventory shrinkage) and lower
depreciation, amortization, interest expenses and reorganization expenses.

Income tax benefits related to the losses for the thirteen weeks ended August 1,
1997 and August 2, 1996 were not recognized because the utilization of such
benefits is not assured. Such benefits, if any, remaining after the Company's
reorganization, are available for recognition in future years.



                                      -15-
<PAGE>   16


Twenty-six weeks ended August 1, 1997 compared to twenty-six weeks ended August
2, 1996:

The net sales decrease of 65.2% for the twenty-six weeks ended August 1, 1997
compared to the twenty-six weeks ended August 2, 1996 is attributable to a 58.9%
decrease in the weighted average number of stores in operation (from 100.4
stores to 41.3) and a decrease in comparable store sales (due primarily to
inventory imbalances among the 41 continuing stores and the lack of resources to
effectively promote customer traffic to such stores). Also contributing to this
decrease were the increased net sales pertaining to liquidations of inventory at
Oklahoma and Dallas area 50-OFF stores in the process of converting to LOT$OFF
stores during the thirteen weeks ended August 2, 1996.

Cost of sales as a percentage of net sales decreased from 71.1% for the
twenty-six weeks ended August 2, 1996 to 67.0% for the twenty-six weeks ended
August 1, 1997, due primarily to lower markdowns as a percentage of net sales
(i.e., higher maintained margins) as compared to the comparable period of the
prior year when substantial write-downs of inventories in the stores liquidated
in connection with the conversions discussed above and scheduled for late May
1996 through early July 1996 or in the 37 stores scheduled to be liquidated and
closed in September 1996 were taken.

Selling, advertising, general and administrative expenses increased to 48.4% of
net sales for the twenty-six weeks ended August 1, 1997 from 39.9% of net sales
for the twenty-six weeks ended August 2, 1996 due primarily to lower sales. The
57.8% decrease in the amount of selling, advertising, general and administrative
expense compared to the twenty-six weeks ended August 2, 1996 was the result of
the 58.9% decrease in the weighted average number of stores in operation.

Depreciation and amortization decreased by 81.7% in the twenty-six weeks ended
August 1, 1997 compared to the comparable period of the prior year, due to the
substantial decrease in the number of stores in operation and to substantial
prior write-downs of fixed assets. In connection with the Filing, the Company
recorded as a reorganization expense $12,570,000 in the second quarter and
additional amounts in later periods of fiscal 1997 for the write-down to fair
value, as determined by the Company's lender based on the value of certain
assets liquidated by the lender and on the Company's, the lender's and an
independent party's strategic review, of certain equipment and leasehold
improvements.

Other expense, net decreased to approximately $269,000 in the twenty-six weeks
ended August 2, 1996 compared to approximately $954,000 in the comparable period
of the prior year, due primarily to decreased interest expense attributable to
decreased borrowings under the Company's line of credit, a substantially lower
effective interest rate on such borrowings and the Company's discontinuing the
accrual of interest on certain of its other obligations through June 16, 1997.

The decrease in the Company's loss before income taxes for the twenty-six weeks
ended August 1, 1997 compared to the twenty-six weeks ended August 2, 1996 is
primarily due to higher maintained margins (higher initial markups, less
promotional pricing, fewer markdowns and less inventory shrinkage) and lower
depreciation, amortization, interest expenses and reorganization expenses.

Income tax benefits related to the losses for the twenty-six weeks ended August
1, 1997 and August 2, 1996 were not recognized because the utilization of such
benefits is not assured. Such benefits, if any, remaining after the Company's
reorganization, are available for recognition in future years. As of August 1,
1997, the Company had federal tax net operating loss carryforwards of
approximately $52,875,000 expiring through 2013, alternative minimum tax credit
carryforwards of approximately $337,000 which are available to offset regular
federal income taxes in the future until fully utilized, and targeted jobs
credit carryforwards of approximately $178,000 expiring in 2006 through 2009. As
a result of the Chapter 11 proceedings and the related Plan of Reorganization,
the net operating loss (NOL) carryforwards, tax credit carryforwards and other
tax attributes of



                                      -16-
<PAGE>   17

the Company will be reduced (perhaps significantly) as a result of debt
forgiveness income in accordance with section 108(b) of the Internal Revenue
Code (IRC). In addition, IRC section 382 limits NOL and tax credit carryforwards
when an ownership change of more than fifty percent of the value of stock in a
loss corporation occurs within a three year testing period. Under the Plan of
Reorganization, the ownership of the Company may be deemed to have changed by
more than fifty percent. Accordingly, to the extent NOL and tax credit
carryforwards remain after reduction under IRC section 108(b), the ability to
utilize such remaining NOL and tax credit carryforwards may be significantly
restricted.

Store Conversion Program

The Company is proceeding with its store conversion program, from an off-price
("50-OFF") to a close-out ("LOT$OFF") retailing concept, at 17 store locations
in 13 markets. The week of August 25, 1997, such conversions were implemented at
the Company's store locations in Brownsville, Harlingen, Pharr, McAllen, Roma
and Laredo, Texas with "Grand Re-Openings" on Saturday, August 30, and running
through Labor Day weekend. The balance of the conversions (in Albuquerque, Baton
Rouge, Bossier City, El Paso, Memphis, New Orleans and Shreveport) are scheduled
for the week of September 28 with "Grand Re-Openings" planned for Saturday,
October 4. Upon completion of these conversions, the Company will have all 41 of
its stores (Texas, Louisiana, Oklahoma, New Mexico and Tennessee) converted to
the Company's new store name ("LOT$OFF") and retailing concept.

Liquidity and Capital Resources

The Company began fiscal 1998 with cash of $491,297. During the twenty-six weeks
ended August 1, 1997, the Company decreased borrowings by a net of $1,932,878,
used $2,017,265 in operating activities, used $182,549 for capital expenditures
in refurbishing existing stores and converting ten 50-OFF stores to LOT$OFF
stores, received net proceeds of $4,094,783 from its rights offering and ended
the period with cash on hand of $453,388.

On June 16, 1997, LOT$OFF, as part of its Plan of Reorganization and with the
approval of the Bankruptcy Court, entered into a credit agreement with GECC
(amended August 28, 1997) providing LOT$OFF with a revolving credit facility
through June 16, 2000 of up to $15,000,000. See Note 3 of "Notes to Condensed
Consolidated Financial Statements," above. As of September 8, 1997, LOT$OFF had
approximately $6,270,000 available for borrowings under the line (after reserves
of approximately $895,000), of which approximately $4,361,000 was committed,
leaving a net availability of approximately $1,909,000.

The Company believes borrowings available under its revolving credit facility,
trade credit, its restructuring of certain obligations under the Plan, its
operating cash flow and its cash on hand, together with the net proceeds from
the rights offering (see Note 1 of "Notes to Condensed Consolidated Financial
Statements," above), will be adequate to finance its operations, including
increased inventories for its 41 continuing stores, to convert the remaining 17
50-OFF stores to LOT$OFF stores and for other general corporate purposes,
including financing the balance of the Company's exit from bankruptcy (estimated
to require, as of September 8, 1997, approximately $735,000, approximately
$500,000 of which will be paid over approximately four months) through the
remainder of fiscal 1998. No assurance can be given, however, that such sources
of capital will be sufficient or that the Company will be successful in its
continuing efforts to reverse recent business trends and return to
profitability. The receipt of proceeds from the significant litigation brought
by the Company could add significantly to the Company's capital resources and
liquidity (see "Significant Litigation," below).

If the Company's plans to improve operations are not successful, management will
consider, among other alternatives, strategic and/or financial alliances with
third parties and the merger, sale or liquidation of all or a part of the
Company. See Note 2 of "Notes to Condensed Consolidated Financial Statements,"
above.



                                      -17-
<PAGE>   18

Significant Litigation

The Company has filed a lawsuit related to certain parties' breaches of
contractual obligations to purchase 1,500,000 shares of the Company's old common
stock and actions in misappropriating and removing these shares from an escrow
account prior to payment for such shares. The Company intends to vigorously
prosecute this matter and to pursue all available avenues to effect the receipt
of payment for such shares, plus actual and punitive damages. The Company, based
upon advice of counsel, believes that it will obtain a favorable judgment or
result in this court action. See Note 4 of "Notes to Condensed Consolidated
Financial Statements," above, for further discussion of this matter and
information pertaining to a related lawsuit filed by the Company against the
placement agents. Both suits are being handled by counsel on a contingency
basis.

Seasonality

Historically (excluding fiscal 1997), the Company's highest net sales and
operating income have been experienced during the fourth fiscal quarter, which
includes the holiday selling season. Any adverse trend in sales or shortage of
merchandise during such period could have a material adverse effect upon the
Company's overall profitability and adversely affect its results of operations
for the entire fiscal year.

                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

See Note 4 of "Notes to Condensed Consolidated Financial Statements," herein,
regarding lawsuits filed in February 1995 and January 1996. Such lawsuits were
also reported in the Company's annual reports on Form 10-K for the fiscal years
ended February 3, 1995, February 2, 1996 and January 31, 1997.

The Company is a party to certain other legal proceedings arising in the
ordinary course of business, none of which are believed to be material.

 ITEM 2. CHANGES IN SECURITIES

On October 9, 1996 (the "Petition Date"), the Company and its significant
subsidiaries filed petitions (the "Filing") for relief under Chapter 11 of the
Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the
Western District of Texas (the "Bankruptcy Court"). A plan of reorganization
("the Plan" or "Plan of Reorganization") was filed on February 26, 1997, amended
on March 27, 1997, confirmed by the Bankruptcy Court on June 3, 1997 and
implemented on June 16, 1997 (the "Effective Date"). On the Effective Date
certain key elements of the Plan were implemented, including the changing of the
Company's corporate name from 50-OFF Stores, Inc. to LOT$OFF Corporation
("LOT$OFF") and the cancellation of all common stock in 50-OFF Stores, Inc. The
Plan provided for the recapitalization of the Company, partially through cash
raised from the Company's existing common stockholders. On June 16, 1997, the
Plan went effective, and the Company issued 856,080 shares of LOT$OFF Series A
Preferred Stock (each such share has a liquidation preference of $5.00, is
convertible into two shares of LOT$OFF Common Stock and is entitled to a 5.5%,
$0.275, cumulative annual dividend; LOTSP: CUSIP #545674202) and 856,080 shares
of LOT$OFF Common Stock (LOTS: CUSIP # 545674103) to subscribers in its rights
offering for gross proceeds of $4,280,400. The Company's Plan of Reorganization
also provided for the cancellation of all non-priority unsecured indebtedness of
the Company. Such cancellation caused the elimination of approximately $24.9
million of unsecured debt and $3.3 million of collateralized debt, which was
initially converted to an unsecured claim, from the Company's balance sheet.
Each holder of an allowed general unsecured claim will, in cancellation of its
claim, receive a pro rata share of LOT$OFF's Series B Preferred Stock (798,210
shares, having a liquidation preference of $3,991,050, in the aggregate). Each
share of Series B Preferred Stock is convertible into two shares of



                                      -18-
<PAGE>   19

LOT$OFF Common Stock. Certain obligations of the Company to such holders of
Series B Preferred Stock will be secured by two liens against potential net
lawsuit proceeds from significant litigation being prosecuted by the Company.
See Note 4 to "Notes to Condensed Consolidated Financial Statements," herein. As
net proceeds (net of certain items set forth in the Plan) from such litigation
are received by the Company, holders of Series B Preferred Stock will receive
(i) Series A Conversion Rights, which provide for the conversion of Series B
Preferred Stock to Series A Preferred Stock, until net proceeds reach $3,991,050
and (ii) Series A Preferred Stock or cash for net proceeds in excess of
$3,991,050 (as described in the Plan) up to the full face amount of the allowed
general unsecured claims. The receipt of Series A Conversion Rights, Series A
Preferred Stock and/or cash by holders of Series B Preferred Stock will result
in a proportionate release of the liens.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.  OTHER INFORMATION

On October 9, 1996, the Company and its significant subsidiaries filed petitions
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Western District of Texas. A Plan of Reorganization was filed on
February 26, 1997, amended on March 27, 1997, confirmed by the Bankruptcy Court
on June 3, 1997 and implemented on June 16, 1997.

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

                    Exhibit 10.6 - General Electric Capital Corporation
                                   Revolving Credit Agreement 
                    Exhibit 10.7 - First Amendment to General Electric Capital 
                                   Corporation Revolving Credit Agreement
                    Exhibit 27.0 - Financial Data Schedule

No other exhibits are required to be filed by the Registrant under Item 601 of
Regulation S-K with this report on Form 10-Q.

(b)      Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended August 1, 1997.



                                      -19-
<PAGE>   20

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:


                                        LOT$OFF CORPORATION


                                        By:  /s/ Charles J. Fuhrmann II
                                             ----------------------------------
                                             Charles J. Fuhrmann II, Chairman, 
                                             President and Chief Executive and 
                                             Financial Officer


                                        By:  /s/ Jeff Seidel
                                             ----------------------------------
                                             Jeff Seidel, Vice-President,
                                             Chief Accounting Officer, Treasurer
                                             and Secretary


                                        Date: December 9, 1997



                                      -20-
<PAGE>   21

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                  Page

<S>                                                               <C>
Exhibit 27.0 - Financial Data Schedule......................      22
</TABLE>




                                       -21-