<PAGE>   1
                                  United States
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended:     October 31, 1998
                                       OR
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
     EXCHANGE ACT OF 1934

For the transition period from __________________ to ________________.

                           Commission File No. 0-21597

                               MAZEL STORES, INC.
                           ---------------------------
             (Exact name of Registrant as specified in its charter)

            Ohio                                                34-1830097
-------------------------------                             -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                              Identification No.)

                                31000 Aurora Road
                                Solon, Ohio 44139
                    ----------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                  440-248-5200
                                ----------------
              (Registrant's telephone number, including area code)

                    ----------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

     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
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  *   No
                                      -----   -----

         Indicate the number of shares outstanding of each of the issuer's
common stock, as of the latest practical date.

Common Shares, no par value, outstanding as of November 27, 1998: 9,140,400.

                                     1 of 18

<PAGE>   2





                       MAZEL STORES, INC. AND SUBSIDIARIES


                                      INDEX


<TABLE>
<CAPTION>
                                                                             Page No.
                                                                             --------

<S>                                                                              <C>
         PART I - FINANCIAL INFORMATION

         Item 1.   Consolidated Financial Statements (unaudited)

                   Consolidated Balance Sheets -
                   October 31, 1998 and January 31, 1998                           4

                   Consolidated Statements of Operations -
                   for the 13 and 39 week periods ended
                   October 31, 1998 and October 25, 1997                           5

                   Consolidated Statements of Cash Flows -
                   for the 39 week periods ended
                   October 31, 1998 and October 25, 1997                           6

                   Notes to Consolidated Financial Statements                      7

         Item 2.   Management's Discussion and Analysis of Financial               9
                   Condition and Results of Operations


                   PART II - OTHER INFORMATION

         Item 6.                                                                  17


         Signatures                                                               18
</TABLE>


                                     2 of 18

<PAGE>   3


                         PART I - FINANCIAL INFORMATION

ITEM 1.           CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

      The Registrant's Consolidated Financial Statements follow this page.









                                     3 of 18

<PAGE>   4



                               MAZEL STORES, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                     October 31,  January 31,
                                                                        1998        1998
                                                                    ----------    ----------
<S>                                                                 <C>            <C>  
ASSETS                                                               (Unaudited)

Current assets
     Cash and cash equivalents                                      $    2,253         1,240
     Accounts receivable-trade, less allowance for doubtful
        accounts of $195 in both periods presented                      16,793        15,507
     Notes and other receivables                                           408           334
     Inventories                                                        72,168        53,676
     Prepaid expenses                                                    3,587         1,194
     Deferred income taxes                                               2,837         2,837
                                                                    ----------    ----------

             Total current assets                                       98,046        74,788

     Equipment, furniture, and leasehold improvements, net              16,553        10,889
     Other assets                                                        4,254         3,183
     Investment in VCM, Ltd. (note 2)                                    7,168         8,879
     Notes and accounts receivable-related parties                       5,551         3,952
     Goodwill, net                                                      10,466        10,701
     Deferred income taxes                                               1,492         1,492
                                                                    ----------    ----------

                                                                    $  143,530       113,884
                                                                    ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
     Long-term debt, current portion                                $    2,017            17
     Accounts payable                                                   24,006        14,362
     Accrued expenses                                                    3,229         4,036
     Other current liabilities                                             938           511
                                                                    ----------    ----------

             Total current liabilities                                  30,190        18,926

     Revolving line of credit                                           28,765        19,716
     Long-term debt, net of current portion                              7,039            48
     Other liabilities                                                   2,850         2,355
                                                                    ----------    ----------
             Total liabilities                                          68,844        41,045
Stockholders' equity
     Preferred stock, no par value; 2,000,000 shares authorized;
        no shares issued or outstanding                                     --            --
     Common stock, no par value; 14,000,000 shares authorized;
        9,140,400 and 9,144,200 shares issued and
        outstanding, respectively                                       64,320        64,302
     Retained earnings                                                  10,366         8,537
                                                                    ----------    ----------

             Total stockholders' equity                                 74,686        72,839

Commitments and contingencies
                                                                    ----------    ----------
                                                                    $  143,530       113,884
                                                                    ==========    ==========
</TABLE>


           See accompanying notes to consolidated financial statements


                                     4 of 18

<PAGE>   5





                               MAZEL STORES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                               13 Weeks Ended                       39 Weeks Ended
                                                        -------------------------------     -------------------------------
                                                         October 31,       October 25,       October 31,       October 25,
                                                             1998              1997              1998              1997
                                                        -------------     -------------     -------------     -------------

<S>                                                     <C>                   <C>               <C>               <C>    
Net sales                                               $      60,324            48,820           162,564           141,001

Cost of sales                                                  39,468            31,478           105,316            92,655
                                                        -------------     -------------     -------------     -------------
     Gross profit                                              20,856            17,342            57,248            48,346

Selling, general and administrative expense (note 4)           17,700            13,097            49,513            37,839

Special charge (note 4)                                         1,387                --             1,387                --
                                                        -------------     -------------     -------------     -------------
     Operating profit                                           1,769             4,245             6,348            10,507

Other

     Interest expense, net                                       (624)             (395)           (1,591)             (570)

     Other expense, net (note 2)                               (1,102)           (1,117)           (1,710)           (1,010)
                                                        -------------     -------------     -------------     -------------

     Income before income taxes                                    43             2,733             3,047             8,927

Income tax expense                                                 17             1,175             1,218             3,839
                                                        -------------     -------------     -------------     -------------

     Net income                                         $          26             1,558             1,829             5,088
                                                        =============     =============     =============     =============

Net income per common share:

     Basic                                              $        0.00              0.17              0.20              0.56

     Diluted                                            $        0.00              0.17              0.20              0.55

Weighted average common shares outstanding:

     Basic                                                  9,140,400         9,160,600         9,140,600         9,167,000

     Diluted                                                9,140,400         9,361,500         9,163,300         9,309,600
</TABLE>



           See accompanying notes to consolidated financial statements

                                     5 of 18

<PAGE>   6
 
                               MAZEL STORES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                      39 Weeks Ended
                                                                  ------------------------
                                                                   October 31,   October 25,
                                                                      1998         1997
                                                                    --------     --------
<S>                                                                 <C>             <C>  
Cash flows from operating activities
     Net income                                                     $  1,829        5,088
     Adjustments to reconcile net income to net
       cash used in operating activities
         Depreciation and amortization                                 1,993        1,017
         Equity in net loss from VCM, Ltd.                             1,711        1,117
         Changes in operating assets and liabilities
           Accounts receivable - trade                                (1,286)      (6,341)
           Notes and other receivables                                   (74)      (1,310)
           Inventories                                               (18,492)     (18,267)
           Prepaid expenses                                           (2,393)        (306)
           Other assets                                               (1,700)         141
           Accounts payable                                            9,644        2,509
           Accrued expenses and other liabilities                        115         (117)

                                                                    --------     --------
             Net cash used in operating activities                    (8,653)     (16,469)
                                                                    --------     --------

Cash flows from investing activities
     Capital expenditures                                             (7,122)      (3,353)
     Cash paid for lease acquisitions                                 (1,270)          --
     Investment in VCM, Ltd.                                              --       (9,637)

                                                                    --------     --------
             Net cash used in investing activities                    (8,392)     (12,990)
                                                                    --------     --------

Cash flows from financing activities
     Repayment of debt                                                (1,009)          --
     Borrowings under term debt                                       10,000           --
     Repayments under credit facility                                (38,832)     (35,250)
     Borrowings under credit facility                                 47,881       58,195
     Sale of common shares                                                18           --

                                                                    --------     --------
             Net cash provided by financing activities                18,058       22,945
                                                                    --------     --------

Net increase (decrease) in cash and cash equivalents                   1,013       (6,514)
Cash and cash equivalents at beginning of period                       1,240        8,010

                                                                    --------     --------
Cash and cash equivalents at end of period                          $  2,253        1,496
                                                                    ========     ========
</TABLE>





           See accompanying notes to consolidated financial statements

                                     6 of 18

<PAGE>   7



                               MAZEL STORES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED
                      OCTOBER 31, 1998 AND OCTOBER 25, 1997
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(1)  Basis of Presentation

The consolidated financial statements for the thirteen (fiscal third quarters)
and thirty-nine (fiscal nine months) week periods ended October 31, 1998 and
October 25, 1997, respectively, represent the consolidated retail and wholesale
operations of Mazel Stores, Inc. All significant intercompany accounts and
transactions are eliminated in the consolidated financial statements.

In the opinion of management, this information includes all adjustments that are
normal and recurring in nature and necessary to present fairly the results of
the interim periods shown in accordance with generally accepted accounting
principles. Operating results for the interim period are not necessarily
indicative of the results that may be expected for the full fiscal year.

The unaudited interim consolidated financial statements have been prepared using
the same accounting principles that were used in the preparation of the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1998
and should be read in conjunction with the consolidated financial statements and
the notes thereto.

(2) Investment in VCM, Ltd.

On August 3, 1997, the Company commenced the operation of VCM, Ltd. ("VCM"), a
50 percent owned joint venture with Value City Department Stores, whereby VCM
operates the toy, sporting goods, and expanded health and beauty care
departments for the Value City Department Stores chain. The Company coordinates
merchandise purchasing on behalf of VCM, some of which is sourced from the      
Company's wholesale segment. The Company's original investment in VCM, which is
accounted for under the equity method, was $9,637. In addition to its 50
percent equity share of VCM's net profit or loss, the Company receives a
management fee equal to three percent of net sales.



                                     7 of 18

<PAGE>   8




(3) Earnings Per Share

During 1997, the FASB issued SFAS No. 128, Earnings per Share, which changed the
computation and presentation of earnings per share information. SFAS No. 128 was
adopted for the fiscal year ended January 31, 1998. The following data shows the
amounts used in computing earnings per share and the effect on the
weighted-average number of shares of dilutive potential common stock.

<TABLE>
<CAPTION>
                                                            13 Weeks Ended             39 Weeks Ended
                                                       ------------------------    ------------------------
                                                       October 31,   October 25,   October 31,   October 25,
                                                          1998          1997          1998          1997
                                                       ----------    ----------    ----------    ----------

<S>                                                    <C>           <C>           <C>           <C>      
NUMERATOR:
Net income available to Common shareholders used
   in basic and diluted net income per share           $       26         1,558         1,829         5,088

DENOMINATOR:
Weighted-average number of Common Shares used
   in basic earnings per share                          9,140,400     9,160,600     9,140,600     9,167,000
Net dilutive effect of stock options                           --       200,900        22,700       142,600
                                                       ----------    ----------    ----------    ----------

Weighted-average number of Common Shares and
   dilutive potential Common Shares used in diluted
   net income per share                                 9,140,400     9,361,500     9,163,300     9,309,600
                                                       ==========    ==========    ==========    ==========

Basic net income per share                             $     0.00          0.17          0.20          0.56
Diluted net income per share                           $     0.00          0.17          0.20          0.55
</TABLE>


(4) Warehouse Relocation Charges

In September 1998, the Board of Directors authorized the relocation of the
Company's retail warehouse from Englewood, New Jersey to a larger facility in
South Plainfield, New Jersey. The warehouse relocation resulted in charges
totaling $1.8 million pre-tax, $1.1 million after-tax, or $0.12 per diluted
share. The pre-tax components include: $389,000 of additional selling, general,
and administrative expenses, representing the costs of moving the inventory and 
office, and a $1.4 million special charge, representing the estimated continued
lease costs of the former warehouse facility, net of expected sublease revenue,
fixed asset write-offs, and employee severance.

                                     8 of 18

<PAGE>   9



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

Overview

The Company consists of two complementary operations: (i) a major regional
closeout retail business; and (ii) the nation's largest closeout wholesale
business. The Company sells quality, value-oriented consumer products at a broad
range of price points offered at a substantial discount to the original retail
or wholesale price. The Company's merchandise consists primarily of new,
frequently brand-name products that are available to the Company for a variety
of reasons, including overstock positions of a manufacturer, wholesaler or
retailer; the discontinuance of merchandise due to a change in style, color,
shape or repackaging; a decrease in demand for a product through traditional
channels; or the termination of business by a manufacturer, wholesaler or
retailer.

The Company was founded in 1975 as a wholesaler of closeout merchandise. In
fiscal 1996, the Company purchased the established Odd Job retail business,
consisting of 12 retail stores and a warehouse and distribution facility, from a
shareholder of the Company. At the end of the fiscal 1998 third quarter, the
Company operated 44 closeout retail stores, including 24 in New York (seven of
which are in Manhattan), 16 in New Jersey, and two each in Pennsylvania and
Connecticut. The Company opened 12 new stores during fiscal 1998 through the end
of the third quarter, and with three additional stores opened early in the
fourth quarter, will close fiscal 1998 with 15 new stores.

Management's business strategy has expanded from a primary focus on wholesale
operations to an emphasis on the growth of its Odd Job retail business. The
execution of this strategy coupled with the fiscal 1997 investment in VCM, Ltd.
has transformed the Company into a "retailer", with quarterly sales and earnings
patterns similar to other retail operations. The Company's Odd Job expansion
plan is to open at least 17 stores in fiscal 1999. In support of the retail
expansion, the Company has nearly completed a relocation of its retail warehouse
to a larger facility located in South Plainfield, New Jersey.


MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS

The results of operations set forth below describe the Company's retail and
wholesale segments and the Company's combined corporate structure.

                                     9 of 18

<PAGE>   10




                               MAZEL STORES, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



<TABLE>
<CAPTION>
                                                   13 Weeks Ended                      
                               ----------------------------------------------------    
                               October 31,                  October 25,                
                                  1998             %           1997            %       
                               ----------------------------------------------------    

<S>                            <C>               <C>          <C>            <C>       
Net Sales
  Retail                       $  36,307         60.19%       26,088         53.44%    
  Wholesale                       24,017         39.81%       22,732         46.56%    
                               ---------     ---------     ---------     ---------     
                                  60,324        100.00%       48,820        100.00%    
Gross profit
  Retail                          13,930         38.37%       10,027         38.44%    
  Wholesale                        6,926         28.84%        7,315         32.18%    
                               ---------     ---------     ---------     ---------     
                                  20,856         34.57%       17,342         35.52%    
Segment operating profit
  Retail                            (596)        (1.64%)         208          0.80%    
  Wholesale                        3,690         15.36%        4,098         18.03%    
  Corporate                           62          0.10%          (61)        (0.12%)   
  Special charge                  (1,387)        (2.30%)        --            --       
                               ---------     ---------     ---------     ---------     
                                   1,769          2.93%        4,245          8.70%    

Interest expense, net                624          1.03%          395          0.81%    
Other expense, net                 1,102          1.83%        1,117          2.29%    
Income tax expense                    17          0.03%        1,175          2.41%    
                               ---------     ---------     ---------     ---------     
Net income                     $      26          0.04%        1,558          3.19%    
                               =========     =========     =========     =========     

Net income per common share:
  Basic                        $    0.00                        0.17                   
  Diluted                      $    0.00                        0.17                   

<CAPTION>
                                                   39 Weeks Ended
                               ----------------------------------------------------
                               October 31,                 October 25,
                                  1998             %          1997             %
                               ----------------------------------------------------

<S>                            <C>               <C>          <C>            <C>   
Net Sales
  Retail                       $  99,612         61.28%       70,350         49.89%
  Wholesale                       62,952         38.72%       70,651         50.11%
                               ---------     ---------     ---------     ---------
                                 162,564        100.00%      141,001        100.00%
Gross profit
  Retail                          39,178         39.33%       27,692         39.36%
  Wholesale                       18,070         28.70%       20,654         29.23%
                               ---------     ---------     ---------     ---------
                                  57,248         35.22%       48,346         34.29%
Segment operating profit
  Retail                             276          0.28%        1,856          2.64%
  Wholesale                        8,201         13.03%       10,704         15.15%
  Corporate                         (742)        (0.46%)      (2,053)        (1.46%)
  Special charge                  (1,387)        (0.85%)        --            --
                               ---------     ---------     ---------     ---------
                                   6,348          3.90%       10,507          7.45%

Interest expense, net              1,591          0.98%          570          0.40%
Other expense, net                 1,710          1.05%        1,010          0.72%
Income tax expense                 1,218          0.75%        3,839          2.72%
                               ---------     ---------     ---------     ---------
Net income                         1,829          1.12%        5,088          3.61%
                               =========     =========     =========     =========

Net income per common share:
  Basic                            0.20                         0.56
  Diluted                          0.20                         0.55
</TABLE>


                                    10 of 18

<PAGE>   11



RETAIL SEGMENT

Thirteen Weeks 1998 versus Thirteen Weeks 1997 (Fiscal Third Quarters)

Net sales were $36.3 million in the third quarter 1998, compared to $26.1
million in the third quarter 1997, an increase of $10.2 million, or 39.2%. The
sales increase resulted from sales in the nine stores opened during fiscal 1997
and from the 12 stores opened during the fiscal 1998 nine months. Comparable
store net sales decreased 2.7%, or $627,000, on a base of 23 stores. The 10
stores opened in fiscal 1996 reported a low single-digit comparable store
increase.

Third quarter 1998 gross profit was $13.9 million, compared to $10.0 million in
the third quarter 1997, an increase of $3.9 million, or 38.9%, The dollar
increase was primarily due to the higher sales level. Gross margin was mostly
unchanged at 38.4%.

Selling, general and administrative expense was $14.5 million in the third
quarter 1998, compared to $9.8 million in the third quarter 1997, an increase
of $4.7 million, or 48.0%. The dollar increase resulted primarily from a $3.9
million increase in store level expenses, the majority of which related to the
higher number of stores in operation. Selling, general and administrative       
expense also included an increase in advertising expense related to an expanded
circular program, new store preopening costs, expensed as incurred, of $263,000
for the third quarter 1998, compared to $461,000 in the third quarter 1997,
administrative support expenses related to the addition of key retail
management positions that had no comparable offset in the 1997 third quarter,
and one-time charges of $389,000 related to the relocation of the warehouse and
distribution center during the third quarter 1998. Selling, general and
administrative expense as a percentage of net sales increased to 40.0% in the
third quarter 1998, from 37.6% in the third quarter 1997.

The retail operation incurred an operating loss of $596,000 for the third
quarter 1998, compared to operating profit of $208,000 for the third quarter
1997. As a percentage of net sales, operating margin decreased to (1.6%), from
0.8%. This decrease was primarily due to the factors described above.

A special charge of $1.4 million was recorded during third quarter 1998,        
reflecting the estimated costs of exiting the former retail warehouse located
in Englewood, New Jersey, and related fixed asset write-offs and employee
severance.

Thirty-nine Weeks 1998 versus Thirty-nine Weeks 1997 (Fiscal Nine Months)

Net sales were $99.6 million in fiscal 1998 nine months, compared to $70.3
million in fiscal 1997 nine months, an increase of $29.3 million, or 41.6%. The
net sales increase was due to sales at stores opened during fiscal 1997 and
fiscal 1998 nine months. Comparable store net sales decreased 0.2%, or $139,000.

Fiscal 1998 nine month gross profit was $39.2 million, compared to $27.7 million
in fiscal 1997 nine months, an increase of $11.5 million, or 41.5%. The dollar
increase was primarily due to the higher sales level. Gross margin was unchanged
at 39.3%.

                                    11 of 18

<PAGE>   12



Selling, general and administrative expense was $38.9 million in fiscal 1998
nine months, compared to $25.8 million in fiscal 1997 nine months, an increase
of $13.1 million, or 50.5%. The dollar increase resulted primarily from an
$11.4 million increase in store level expenses, the majority of which related
to the higher number of stores in operation. Selling, general and
administrative expense also included an increase in advertising expense related 
to an expanded circular program, new store preopening costs, expensed as
incurred, of $1.3 million for fiscal 1998 nine months, compared to $537,000 in
fiscal 1997 nine months, administrative support expenses related to the
addition of key retail management positions that had no comparable offset in
fiscal 1997 nine months, and one-time charges of $389,000 related to the
relocation of the warehouse and distribution center during the third quarter
1998. Selling, general and administrative expense as a percentage of net sales
increased to 39.0% in the fiscal 1998 nine months, from 36.7% in the fiscal
1997 nine months.

Operating profit decreased to $276,000 for the fiscal 1998 nine months, compared
to $1.9 million for fiscal 1997 nine months. As a percentage of net sales,
operating margin decreased to 0.3%, from 2.6%. This decrease was primarily due
to the factors described above.

A special charge of $1.4 million was recorded during third quarter 1998,        
reflecting the estimated costs of exiting the former retail warehouse located
in Englewood, New Jersey, and related fixed asset write-offs and employee
severance.


WHOLESALE SEGMENT

Thirteen Weeks 1998 versus Thirteen Weeks 1997 (Fiscal Third Quarters)

Net sales were $24.0 million in the third quarter 1998, compared to $22.7
million in the third quarter 1997, an increase of $1.3 million, or 5.7%. The
increase was due to higher stock sales to new and existing customers, partially
offset by a $4 million decrease in sales to the division's largest customer that
was acquired by a competitor earlier this year.

Third quarter 1998 gross profit was $6.9 million, compared to $7.3 million in
the third quarter 1997, a decrease of $389,000, or 5.3%. Gross margin declined  
to 28.8%, from 32.2% in the third quarter 1997. The percentage decrease can be
attributed to the margin impact of lower intercompany sales eliminated in       
consolidation and a reduction in stock sales margin.

Selling, general and administrative expense was unchanged at $3.2 million in the
third quarter 1998. As a percentage of sales, selling, general and
administrative expense decreased to 13.5% in third quarter 1998, from 14.2% in
third quarter 1997, reflecting improved operating efficiencies.

Operating profit was $3.7 million for the third quarter 1998, compared to $4.1
million for the third quarter 1997. As a percentage of net sales, operating
margin decreased to 15.4%, from 18.0%. This decrease was primarily due to the
factors described above.



                                    12 of 18

<PAGE>   13



Thirty-nine Weeks 1998 versus Thirty-nine Weeks 1997 (Fiscal Nine Months)

Net sales were $63.0 million in fiscal 1998 nine months, compared to $70.6
million in fiscal 1997 nine months, a decrease of $7.6 million, or 10.9%. The
decrease was due primarily to an $11 million decrease in sales to the division's
largest customer, partially offset by sales to new customers and higher sales
levels to existing customers.

Fiscal 1998 nine month gross profit was $18.1 million, compared to $20.7
million in fiscal 1997 nine months, a decrease of $2.6 million, or 12.5%. Gross
margin declined to 28.7%, from 29.2% in the fiscal 1997 due to the margin       
impact of lower intercompany sales eliminated in consolidation and a softening
of stock sales margins.

Selling, general and administrative expense was mostly unchanged at $9.9 million
in fiscal 1998 nine months. As a percentage of sales, selling, general and
administrative expense increased to 15.7% in fiscal 1998 nine months, from 14.1%
in fiscal 1997 nine months. The percentage increase is reflective of a lower
sales base, partially offset by improved operating efficiencies.

Operating profit was $8.2 million for fiscal 1998 nine months, compared to $10.7
million for fiscal 1997 nine months. As a percentage of net sales, operating
margin decreased to 13.0%, from 15.1%. This decrease was primarily due to the
factors described above.


CORPORATE EXPENSES

Thirteen Weeks 1998 versus Thirteen Weeks 1997 (Fiscal Third Quarters)

Corporate expenses consist of the cost of senior management and shared
administrative resources that are utilized by both segments of the business.
Corporate expenses for the third quarter 1998 were ($62,000), compared to
$61,000 for the third quarter 1997, or a decrease of $123,000. The decrease was
due to the change in estimate of incentive based compensation, partially offset
by lower management fee income from VCM, Ltd., to $576,000 in third quarter 1998
from $638,000 in third quarter 1997.

Thirty-nine Weeks 1998 versus Thirty-nine Weeks 1997 (Fiscal Nine Months)

Corporate expenses for the fiscal 1998 nine months were $742,000, compared to
$2.1 million in fiscal 1997 nine months, a decrease of $1.3 million, or 63.9%.
The decrease was due to the inclusion of VCM, Ltd. management fee income for a
full nine months versus three months in fiscal 1997, and the change in estimate
of incentive based compensation. VCM, Ltd. management fee income was $1.8
million in fiscal 1998 nine months compared to $638,000 in fiscal 1997 nine
months.



                                    13 of 18

<PAGE>   14



LIQUIDITY AND CAPITAL RESOURCES

The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, and other
working capital needs. The Company takes advantage of closeout and other special
situation purchasing opportunities that frequently result in large volume
purchases, and as a consequence, its cash requirements are not constant or
predictable during the year and can be affected by the timing and size of its
purchases. The Company's high level of committed credit allows it to take
immediate advantage of special situation purchasing opportunities. Having such
credit availability provides the Company with a competitive advantage measured
against many of its competitors.

Historically, the Company's growth has been financed through cash flow from
operations, borrowings under its revolving credit facility and the extension of
trade credit. In March 1998, the Company entered into a new $60.0 million credit
facility that expires on November 15, 2002. This facility is comprised of a
$50.0 million revolving line of credit and a $10.0 million term loan. Borrowings
under the facility bear interest, at the Company's option, at either the Bank's
prime rate less 50 basis points or Libor plus a spread. Availability on the
facility is the lesser of the total credit commitment or a borrowing base
calculation based upon the Company's accounts receivable and inventories. The
facility contains restrictive covenants that require minimum net worth levels,
maintenance of certain financial ratios, and limitations on capital expenditures
and investments.

Cash used by consolidated operating activities was $8.7 million for fiscal 1998
nine months and $16.5 million for fiscal 1997 nine months. Increases in accounts
receivable and inventories, mostly attributable to the new retail stores,
partially offset by an increase in trade payables, comprised the majority of
cash used by operating activities for both fiscal 1998 and fiscal 1997 nine
months. Cash used in investing activities decreased to $8.4 million for fiscal
1998 nine months, representing capital expenditures of $7.1 million and cash
paid for lease acquisitions of $1.3 million. Cash used in investing activities
for fiscal 1997 nine months consisted of capital expenditures of $3.4 million
and the investment in VCM, Ltd. of $9.6 million. Cash generated by financing
activities of $18.1 million and $22.9 million for fiscal 1998 and 1997 nine
months, respectively, was the result of additional borrowings from the Company's
credit facility.

Working capital increased to $67.9 million at October 31, 1998, from $55.9
million at January 31, 1998, primarily as a result of increases in accounts
receivable and inventory, partially offset by an increase in trade payables. The
current ratio was 3.25 at October 31, 1998, compared to 3.95 at January 31,
1998.

The Company currently anticipates opening new stores in each of the next few
years. In addition to new store openings, the Company may increase the number of
stores it operates through acquisitions. Management believes that, from time to
time, acquisition opportunities will arise. Possible acquisitions will vary in
size and the Company will consider large acquisitions that 

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could be material to the Company. In order to finance any such possible
acquisitions, the Company may use cash flow from operations, may borrow
additional amounts under its revolving credit facility, may seek to obtain
additional debt or equity financing or may use its equity securities as
consideration. The availability and attractiveness of any outside sources of
financing will depend on a number of factors, some of which will relate to the
financial condition and performance of the Company, and some of which will be
beyond the Company's control, such as prevailing interest rates and general
economic conditions.


SEASONALITY

The Company, with the growth of the retail operations and the retail orientation
of the VCM, Ltd. joint venture, has shifted its business mix more toward retail.
This shift will also effect the net sales and earnings pattern of the Company,
with a greater weighting toward the second half of the fiscal year.


YEAR 2000 DISCLOSURE

The Company has completed a review of its internal management information
systems regarding Year 2000 issues. The Company's planned systems initiatives
will resolve the majority of the issues as current systems are converted to year
2000 compliant systems. For other legacy systems, the Company has developed an
action plan and begun implementing remedial measures. All internal management
information systems are expected to be in year 2000 compliance by mid-fiscal
1999. The Company estimates that costs associated with making internal
management information systems year 2000 compliant will not be material, and
thus will not have a material impact on the Company's financial position,
results of operations, and cash flows. The Company also relies, directly and
indirectly, on external systems of business enterprises such as suppliers,
creditors, and financial organizations, both domestic and international. The
Company's operations could also be effected if its external business partners do
not successfully implement year 2000 compliant systems.


NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 131 requires public business
enterprises to report certain information about operating segments, as well as
certain information about products and services, geographic areas in which an
enterprise operates, and any major customers. SFAS No. 131 is effective for
fiscal years beginning after December 15, 1997.

In February 1998, the FASB issued SFAS No. 132, Employers' Disclosure about
Pensions and Other Postretirement Benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. In June, 1998, the FASB issued SFAS No.
133, Accounting for Derivative

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Instruments and Hedging Activities. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. SFAS No. 132 and SFAS No. 133 are currently not
applicable to the Company.


FORWARD LOOKING STATEMENTS

Forward looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include, but are not limited to: the successful implementation and
timing of the Company's retail expansion plans; the ability to purchase quality
closeout merchandise at prices that allow the Company to maintain or exceed
expected margins on sales; the effect of comparable store sales on the small
platform of stores and the disproportionate impact caused by individual buying
transactions; any unanticipated problems at the Company's distribution
facilities or in transportation of merchandise in general; the operating and
financial results of the Value City joint venture; and the continued adverse
effect of the Consolidated Stores/Mac Frugal merger on wholesale sales. Please
refer to the Company's subsequent SEC filings under the Securities Exchange Act
of 1934, as amended, for further information.


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                                     PART II
                                OTHER INFORMATION


ITEM 6.        EXHIBITS AND REPORTS ON FORM 8K
               Exhibit 27 - Financial Data Schedule






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                                   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.


                                       MAZEL STORES, INC.
                                       (Registrant)


  12/15/98                             /s/ Reuven Dessler
--------------                         --------------------------------------
Date                                   Reuven Dessler
                                       Chairman and Chief Executive Officer



  12/15/98                             /s/ Sue Atkinson
--------------                         --------------------------------------
Date                                   Sue Atkinson
                                       Senior Vice President -
                                       Chief Financial Officer and Treasurer