SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-K

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

                    For the fiscal year ended March 31, 2000

                         Commission file number 1-12046

                          Levitz Furniture Incorporated
             (Exact name of registrant as specified in its charter)

          Delaware                                             23-2351830
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                            Identification No.)

7887 North Federal Highway, Boca Raton, FL                          33487-1613
 (Address of Principal Executive Offices)                           (Zip Code)

                                 (561) 994-6006
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(b) of the Act:
                      Common Stock par value $.01 per share

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]

On June 12, 2000, there were 30,071,621 shares of the registrant's Common Stock
outstanding of which 26,497,959 shares were Voting Common Stock and 3,573,662
shares were Non-Voting Common Stock, with 249,007 shares held by the registrant
in its treasury. As of that date the aggregate value of the registrant's voting
stock held by non-affiliates, as calculated at $0.16 per share, was $3,708.429.

                      Documents Incorporated by Reference:
                                      None


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                                     PART I

ITEM 1.  BUSINESS

THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "BUSINESS" AND "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE
FORWARD-LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE
CAN BE GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS INCLUDE, AMONG OTHERS: (1) BANKRUPTCY COURT ACTIONS
OR PROCEEDINGS RELATED TO THE BANKRUPTCY OF LFI AND ITS SUBSIDIARIES; (2)
COMPETITIVE PRESSURE IN LFI'S INDUSTRY; (3) GENERAL ECONOMIC CONDITIONS; (4)
CHANGES IN THE FINANCIAL MARKETS AFFECTING LFI'S FINANCIAL STRUCTURE AND LFI'S
COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE TO CHANGES IN MARKET
DEMAND OR LFI'S BUSINESS STRATEGIES; (6) CHANGES IN EFFECTIVE TAX RATES; AND (7)
THE UNCERTAINTIES INHERENT IN LFI'S OPERATIONS. LFI HAS NO DUTY UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE FORWARD-LOOKING
STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K.

Chapter 11 Filing

On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI" or the "Company"), and 11 of its subsidiaries
(collectively, the "Debtors"), including, Levitz Furniture Corporation, a
Florida corporation and wholly-owned subsidiary of LFI ("Levitz"), filed
voluntary petitions for relief under Chapter 11, Title 11 of the United States
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware (the "Court") under Case No.
97-1842(MFW). Pursuant to Sections 1107 and 1108 of the Bankruptcy Code, LFI, as
debtor and debtor-in-possession, has continued to manage and operate its assets
and businesses pending the confirmation of a reorganization plan or plans and
subject to the supervision and orders of the Court. Because LFI is operating as
debtor-in-possession under Chapter 11 of the Bankruptcy Code, the existing
directors and officers of LFI continue to manage the operations of LFI subject
to the supervision and orders of the Court.

On May 25, 2000, the Debtors filed a "Disclosure Statement" and a "Second
Amended Joint Plan of Reorganization" ("Plan of Reorganization" or "Plan"),
pursuant to Section 1125 of the Bankruptcy Code with the Court. The Disclosure
Statement sets forth certain information regarding, among other things,
significant events that have occurred during the Debtors' Chapter 11 cases and
the anticipated organization, operation and financings of "Reorganized Levitz".
The Disclosure Statement describes the Plan of Reorganization, certain effects
of Plan confirmation, certain risk factors associated with securities to be
issued under the Plan, and the manner in which distribution will be made under
the Plan. In addition, the Disclosure Statement discusses the confirmation
process and the voting procedures that holders of claims in impaired classes
must follow for their votes to be counted. The Plan of Reorganization sets forth
certain information, among other things, the classification and treatment of
claims and interests, means for implementation of the Plan, acceptance or
rejection of the Plan and effect of rejection by one or more classes of claims
or interests, provisions for governing distributions, the treatment of executory
contracts and leases, conditions precedent to confirmation of the Plan and the
occurrence of the effective date of the Plan. The foundation of the Plan is (i)
a management agreement between Seaman Furniture Company, Inc. ("Seaman") and LFI
(the "Management Agreement") and (ii) a shared services agreement between Seaman
and LFI (the "Shared Services Agreement").

Under the Management Agreement, Seaman would perform the general day to day
management of Levitz's stores located on the East Coast. Levitz would perform
the day to day management of its stores on the West Coast. Under the Shared

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Services Agreement, Seaman would provide certain services to Levitz, including:
(i) accounting, (ii) finance, (iii) advertising support, (iv) MIS and
telecommunications, (v) human resources, (vi) insurance, (vii) inventory control
and merchandise loss protection, (vii) real estate, (ix) legal and (x) logistic
support of the merchandise program. The agreements would provide the Debtors
with, among other things, cost savings, streamlined operations, and economies of
scale with respect to purchasing inventory.

The Plan of Reorganization as filed provides, among other things, that as of the
Plan effective date:

(1)         All holders of an allowed administrative and priority tax claim are
            unimpaired and unclassified, are not entitled to vote on the Plan
            and will receive cash or such other treatment as to which LFI and
            such creditor shall have agreed in writing.
(2)         All holders of an allowed other priority claim (Class 1), setoff
            claim (Class 2) and miscellaneous secured claim (Class 3) are
            unimpaired, are deemed to have accepted the Plan and, therefore not
            entitled to vote on the Plan and will receive cash or setoff or
            reinstatement or such other treatment as to which LFI and such
            creditor shall have agreed in writing.
(3)         All holders of a small unsecured claim (less than $20,000, Class 4)
            are impaired and are entitled to vote on the Plan and shall receive
            in cash 30% of the allowed amount of the claim.
(4)         All holders of an allowed general unsecured claim (Class 5) are
            impaired, are entitled to vote on the Plan and shall receive their
            pro rata share of the new common stock distribution of "Levitz Home
            Furnishings, Inc." ("LFHI"). A beneficial holder of more than one
            Allowed Class 5 General Unsecured Claim may elect to reduce the
            aggregate amount of such Claim to $20,000 and receive a single
            distribution as a holder of an Allowed Class 4 Small Unsecured
            Claim.
(5)         All holders of an allowed subordinated claim (Class 6) are impaired,
            are deemed to have rejected the Plan and, therefore, not entitled to
            vote on the Plan, and shall not receive or retain any property or
            interest in property on account of their subordinated claim.
(6)         All intercompany claims (Class 7) shall be cancelled, and their
            holders shall not receive or retain any property or interest in
            property on account of their intercompany claims.
(7)         All holders of Interests (the rights of any current or former holder
            or owner of "old equity securities" authorized and issued prior to
            the Plan confirmation date, Class 8) are impaired, are deemed to
            have rejected the Plan and, therefore, are not entitled to vote on
            the Plan. All Interests shall be cancelled and the Interest holders
            shall not receive or retain any property or interest in property on
            account of their Interests.

On June 23, 2000 the Chancery Court of Delaware issued a preliminary injunction
prohibiting Seaman from performing or taking any further action with respect to
the performance of the aforementioned Management and Shared Services agreements.
While Levitz is not a party to the Chancery Court Action, this decision makes it
unlikely that the Company will be able to implement the Plan of Reorganization
as filed by the Company on May 25, 2000.

As a result of the Chancery Court decision, the Company is currently in the
process of developing a new "stand-alone" plan of reorganization. Such plan
will include measures for obtaining a working capital financing facility to
replace the current revolver facility under the DIP Agreement and sources of
additional capital from existing creditors and vendors which would be required
to finance the Company's "stand-alone" plan. The proceeds of these arrangements
would be used to support future operations. The exclusivity period for the
Company to propose a Plan of Reorganization expires on September 29, 2000.

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See Item 7-"Management's Discussion and Analysis of Results of Operations and
Financial Condition" for a discussion of factors to be considered prior to the
acceptance and confirmation of a new plan of reorganization.

The Company

LFI was incorporated in Delaware in 1984 under the name LFC Holding Corporation
for the purpose of acquiring Levitz Furniture Corporation. LFI changed its name
to Levitz Furniture Incorporated in 1993. LFI's only material asset is the
common stock of Levitz Furniture Corporation and it conducts no business other
than holding the common stock of Levitz Furniture Corporation. The principal
executive offices of LFI are located at 7887 North Federal Highway, Boca Raton,
FL 33487-1613, and its telephone number is (561) 994-6006.

Levitz Furniture Corporation (which together with its subsidiaries are
collectively referred to as "Levitz"), was organized in 1965 as a Florida
corporation, is the successor to a business originally commenced in 1910 and was
acquired by LFI in 1985. Levitz is one of the largest specialty retailers of
furniture in the United States with, as of March 31, 2000, a chain of 64 stores
serviced by 21 warehouses located in major metropolitan areas in 13 states.
Levitz pioneered the warehouse-showroom concept by opening the first
warehouse-showroom in 1963 in Allentown, Pennsylvania. Levitz stores generated
revenues of $535.1 million in the year ended March 31, 2000 ("Fiscal 2000").
Management believes the Levitz name to be one of the most recognized in
furniture retailing.

Levitz stores offer a wide selection primarily of brand-name furniture and
accessories including living room, bedroom, dining room, kitchen and occasional
furniture and bedding. Some of the well known, nationally advertised brands
offered by Levitz stores include Ashley, Bassett, Benchcraft, Berkline, Douglas,
Klaussner, Lane, Lea Industries, Rowe, Sealy, Simmons, Stanley, and Universal.
Levitz does not manufacture any of the merchandise sold in its stores but
instead devotes all of its resources to the retail sale of furniture.

Levitz has experienced declining profitability and cash flows over the past
several fiscal years. Reference is made to "Restructuring Activities" and Item 7
- "Management's Discussion and Analysis of Results of Operations and Financial
Condition" for a discussion of action taken with an intent to restore profitable
operations.

Business Strategy

Levitz's retailing concept targets value-conscious consumers by offering:

                  -        broad selections of furniture and accessories;
                  -        nationally advertised brands;
                  -        competitive prices; and
                  -        immediate availability of merchandise.

Levitz offers one of America's largest selection of quality brand name furniture
at guaranteed low prices. The Company's large stores facilitate the display of a
broad selection of furniture and accessories. Levitz's sales volumes create a
key channel of distribution for its principal vendors. Management has developed
strong partnerships with these principal vendors from whom it purchases large
quantities of quality merchandise, often at substantial savings. This buying
power enables Levitz to price its merchandise very competitively.

Merchandising

Levitz targets value-conscious consumers between 18 and 44 years of age with a
family income between $45,000 and $65,000 per year. Its customers seek

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moderately priced merchandise to upper moderately priced merchandise, appreciate
style and recognize value.

Levitz offers a wide array of choices to the value-conscious consumer. The large
product selection is an inducement for consumers to purchase at Levitz and
differentiates Levitz from its competitors. The merchandise sales mix among
product line groupings for Fiscal 2000 was upholstery/seating 45.3%, bedroom
18.2%, occasional 10.8%, dining room (formal and casual) 11.9%, bedding 10.4%,
and other 3.4%. Percentage breakdowns have been relatively consistent for the
past several years.

To attract consumers who prefer more customized merchandise, Levitz can special
order fabrics on upholstered products from a wide variety of preselected
patterns ("Choices Program"). Moreover, Levitz has enhanced its special order
leather program, which allows customers to receive their merchandise generally
within four weeks of purchase. During Fiscal 2000 the Choices Program
represented approximately ten percent of upholstery sales for continuing stores.

Advertising and Promotion

Levitz retains independent advertising firms for creative and production
services in connection with its print, radio and television advertisements. For
Fiscal 2000, Levitz's advertising expenditures amounted to $88.2 million or
16.5% of net sales, as compared to $93.4 million or 14.3% of net sales, for
Fiscal 1999. Advertising expenditures include promotional finance fees of $30.1
million and $28.4 million in Fiscal 2000 and 1999, respectively. Levitz's
advertising seeks to attract a broader customer segment and emphasize the
difference between shopping at Levitz and at other stores.

Levitz continues to promote its stores through newspaper inserts and circulars
distributed through the mail ("Preprints"). These Preprint promotions reflect
(i) the great styles offered at Levitz, (ii) the wide array of choices, (iii)
Levitz's low prices and (iv) fast delivery.

Customer Service

Levitz is committed to providing high-quality customer service in all phases of
its business, including instant store credit and prompt delivery. Levitz offers
its customers instant credit at the time of purchase using point-of-sale
terminals on the showroom floors. In the case of any damaged or defective
merchandise Levitz will repair or replace the item or, if impracticable to
repair or replace, will offer a refund to the customer. Management believes its
commitment to customer service has contributed to the substantial percentage of
repeat purchases by Levitz's customers.

Store Operations

Stores

Each of Levitz's sixty-four stores feature selling space of 18,000 to 112,000
square feet. Merchandise is typically displayed in model room settings of which
approximately 240 to 330 are located in each facility containing 50,000 or more
square feet of selling space. Smaller facilities feature approximately 110 to
230 model room settings. Levitz's customers typically have the option to receive
their merchandise at the store immediately upon purchase or within a few days or
to have their merchandise delivered to their homes for a modest delivery charge.
Levitz's stores are typically located within easy access of expressway
interchanges or major highways and have adjacent parking facilities. Levitz
opened one new store in May 1999 and relocated one store in November 1998.
Levitz expects to relocate two to three additional stores in Fiscal 2001. See
"Properties" for information regarding the locations of Levitz's stores.

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Levitz's retail facilities are generally open Monday through Saturday from 10:00
a.m. to 9:00 p.m., and on Sundays from 12:00 noon to 6:00 p.m.

Sales Support Centers

Levitz's twenty-one Sales Support Centers (formerly known as warehouses) provide
the selling support for all sixty-four stores. The support provided includes the
warehousing of merchandise, customer service, data processing, inventory control
and delivery. Each Sales Support Center is currently attached to a store and is
in close proximity to other detached stores that it services.

Customer Credit Policies

Levitz sells its merchandise either for cash, or through bank credit cards and a
private label credit card program. During Fiscal 2000 and 1999, approximately
47% and 48%, respectively, of sales at Levitz's facilities were for cash
(including bank credit cards), and approximately 53% and 52%, respectively, of
sales were under customer credit plans. The availability of a "private label"
credit-financing program is critical to Levitz's business. Private label credit
supports marketing programs and offers a convenient way for Levitz customers to
spread over time the cost of furniture purchases.

Levitz's private label credit card program is offered under an agreement with
Household Bank (SB), N.A. ("Household"). Under the program, Household approves
the credit application and pays Levitz for the sale. Levitz pays Household a fee
for servicing the accounts and an amount intended to compensate Household for
its invested capital. Levitz receives all income and pays all expenses relating
to the financing of the portfolio. Levitz is also responsible for any bad debts
associated with the portfolio up to 15% of average outstanding receivables in
any contract year. Any amounts in excess of 15% are to be shared equally by
Levitz and Household.

In the event Household denies credit approval to a customer, Levitz endeavors to
obtain credit approval from other third-party finance companies. Under such
arrangements, Levitz sells the sale transaction to the finance company for a
discount and on a non-recourse basis.

Vendor Partnerships/Inventory

Management has established strong partnerships with its principal vendors to
review new merchandise and plan promotions and marketing strategies, as well as
manage inventory levels. Substantially all manufacturers have cooperative
advertising budgets with Levitz. Electronic data interchange ("EDI") is an
important aspect of these partnerships. Ninety-nine manufacturers currently
participate in Levitz's EDI system which enables manufacturers to plan and
produce goods more efficiently while making it possible for Levitz to maintain
an in-stock position with less inventory. The EDI system includes the daily
electronic transmission of purchase orders and bar code data to vendors and
returned receipt of acknowledgements of the purchase orders from vendors. The
acknowledgement authenticates, among other things, price, items and expected
shipment date. The use of EDI combined with the newly implemented demand
forecasting and inventory replenishment system will streamline the merchandise
re-ordering process and allow Levitz to be in a better in-stock position with
less inventory investment. During May 2000, 99% of all furniture purchases were
made through the EDI system, as compared to 96.0% for the same month of the
prior year. Levitz has eleven vendors that send invoices through EDI
representing approximately 43% of all merchandise invoices sent to Levitz. This
process is integrated with the accounts payable system. Levitz intends to
continue working with vendors to increase the number of vendors that use EDI for
invoices and also to introduce additional EDI features such as advance ship
notices which are expected to enhance relations and improve efficiencies for the
Company.

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Levitz currently purchases merchandise from over 120 independent manufacturers.
For Fiscal 2000, Levitz's top ten vendors accounted for 58.3% and 50.3% of
purchases for Fiscal 2000 and 1999, respectively. Levitz has no long-term
contractual commitments with any of its manufacturers, and with the exception of
the disruption caused by its 1997 Chapter 11 filing, has had no difficulty in
the past in obtaining merchandise for sale.

Levitz is concentrating its vendor relations on key vendors, which account for
approximately eighty percent of net sales. These enhanced relationships involve
regular assessment reports and periodic strategy planning meetings.

Management Information Systems

Levitz maintains an IBM AS/400 computer in each Sales Support Center to track
all inventory and sales activity for the stores that the Sales Support Center
services.

When merchandise arrives at the Sales Support Center, it has been or is
immediately bar coded, enabling scanning by hand-held readers. This information
is directly loaded into the AS/400 thereby eliminating clerical errors,
increasing available inventory for sale and minimizing inventory shrinkage. The
sales floors in all stores are equipped with on-line point-of-sale terminals
enabling sales persons to access inventory status, reserve inventory, schedule
delivery and begin the credit approval process for customers. All data is
transmitted to corporate headquarters each night. Management at corporate
headquarters and at the store level monitor inventory composition, age and
condition.

Levitz has completed development of the software for its radio-frequency ("RF")
system which will track all merchandise movement in and out of its stores and
Sales Support Centers. All furniture movement will be scanned and updated
immediately in the inventory files. Testing and implementation of the software
has been deferred pending consideration of changes to information systems that
may arise from the Management and Shared Services Agreements with Seaman.

Competition

The home furnishings industry is a highly competitive and fragmented market with
sales for furniture, bedding and decorative accessories by furniture stores in
the United States estimated at $37.2 billion in 1999. According to a leading
industry publication, the nation's 100 largest furniture retailers accounted for
approximately 53% of all furniture sales by furniture stores in the United
States in 1999. According to the same publication, in 1999 Levitz represented
1.4% of total domestic furniture sales, and was the eleventh largest specialty
retailer of furniture in the United States.

Levitz's competition varies significantly according to geographic areas.
Levitz's principal competitors consist of local independent specialty furniture
retailers. Levitz also competes with national and regional specialty furniture
retailers, general merchandisers, internet and "800" number based retailers and,
in certain limited categories, wholesale clubs. In the future Levitz may have
increasing competition from other major retail operations, some of which may
have greater financial and other resources than Levitz and may derive revenues
from sales of products other than household furnishings.

Employees

As of March 31, 2000, Levitz had 3,140 employees, of whom 989 were engaged in
sales, 382 in merchandising and display, 917 in warehouse and maintenance
functions and 852 in office and administrative work. As of March 31, 2000, 2,432
of Levitz's employees were full-time and 708 were part-time. Sales personnel are
paid primarily on a commission basis. Levitz's store managers and key marketing,
distribution and operations personnel may receive, in

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addition to their base salaries, bonus compensation based upon achieving planned
sales and operating performance for the location or locations for which the
employee has responsibility. Certain of Levitz's national staff personnel,
including officers, may receive bonuses based upon favorable operating results
during the fiscal year.

Levitz maintains one facility in the state of Washington which its sales
employees are covered by a collective bargaining agreement with a local of the
United Food and Commercial Workers Union ("UFCW"). This collective bargaining
agreement expires in December 2000.

In 1995, Levitz withdrew recognition of a UFCW local as bargaining agent for the
employees at a facility in California. That decision was upheld by the NLRB
Regional Director and the local has appealed the matter to the NLRB.

In the past, a number of petitions were received from various unions, including
affiliates of the UFCW and the Teamsters Union, for organization of some or all
of the employees in certain other of Levitz's facilities. Except as noted above,
none of these petitions or other union activities has resulted in a current
collective bargaining agreement. Levitz has not experienced a material work
stoppage due to union activity in the past 10 years.

Levitz expects that union efforts to organize the employees at its facilities
will continue from time to time, but cannot predict what effect these activities
may have on Levitz's business operations, employee relations or income from
operations. Although nationwide organizational campaigns may be instituted by
one or more unions, all union activities to date have been confined to the local
or regional level.

Restructuring Activities

Since the Petition Date, management of the Company and its advisors in the
bankruptcy proceedings have conducted an extensive analysis of business
operations with the objective of making the changes necessary to improve
operating performance. Levitz has devised a comprehensive strategy to focus and
increase its presence in its most productive markets, streamline its warehousing
and delivery systems, and improve its internal operations and selling functions.
The major restructuring initiatives that have been implemented or are currently
underway include the following:

Focus on Markets with Strong Competitive Positioning

Management has studied each of the market areas in which Levitz stores operate.
This study compared the operating performance of Levitz's stores against key
competitors in each market. Levitz determined that a key determinant of the
ability of Levitz to profitably compete was for Levitz to be one of the dominant
furniture retailers, in terms of number of stores and sales revenues, within
each geographic market. The conclusion was based upon the significant
advertising and promotional expenses required to operate in the furniture retail
business and the ability to leverage fixed expenses across a greater sales base
within each market. Accordingly, management decided to close selected markets in
which Levitz did not have sufficient market presence and to refocus those assets
into other core markets by opening new stores or by remodeling existing stores.
Levitz has closed a total of sixty-six stores since the Petition Date, enabling
it to concentrate resources on the remaining core stores, primarily in the
Northeast and on the West Coast. As part of their efforts to increase market
share and to improve profitability, Levitz plans to relocate selected existing
stores and to open additional stores over the next three to five years within
core markets, dependent on general business conditions and Levitz's ability to
finance the openings.

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Distribution System Rationalization

Levitz is implementing a "warehouse rationalization program," aimed at limiting
the number of warehouses serving each market. This initiative should provide the
following benefits: (i) reduced in-bound freight costs; (ii) reduced warehouse
operating costs; (iii) lower inventory investments; (iv) improved merchandise
in-stock position; (v) better ability to clear discontinued merchandise; and
(vi) overall logistics simplification. In addition, the warehouse
rationalization program may provide Levitz the opportunity to relocate certain
existing stores into more favorable retail locations.

The warehouse rationalization program is being implemented in several phases.
The first phase, begun in June 1998 with the closure of the warehouse facility
in the Paramus, New Jersey store was completed in June 1999. Also, during this
time, 15 other warehouse facilities were shut down and the warehousing and home
delivery activities for attached stores were transferred to other
warehouse-showroom stores within the same or adjacent markets. At the completion
of this initial phase, Levitz is operating 64 stores, which are supported by
twenty-one warehouse facilities (Sales Support Centers).

Levitz is analyzing the opportunity to further improve its logistic practices
through the introduction of regional distribution centers in future years. It is
believed such a program would provide significant savings related to in-bound
freight expense, lower the required inventory investment levels and also create
the opportunity to introduce further economies in merchandise buying practices.

Improved Sales Force Staffing and Management Techniques

Levitz has implemented several initiatives to improve the performance of its
sales force, including: (i) hiring additional sales people at its ongoing stores
since the Petition Date, increasing the number of sales people (net of
terminations); (ii) reorganizing the field management structure to provide for
more frequent and detailed store visits; (iii) strengthening individual store
sales management; (iv) installing sophisticated sales force performance
measurement tools designed to identify "best practices" within the stores and to
set benchmarks for performance; and (v) testing various sales force compensation
structures.

Creation of New Store Prototypes

Levitz has created a new store design prototype which features a "race-track"
floor layout, as compared to the traditional "alley" design, and a more open,
brighter feeling store environment with higher ceilings and more lighting. To
date, the prototype has been implemented in the remodeling of stores in King of
Prussia, PA, Paramus, NJ and Garden City, NY and at a relocated store in
Phoenix, Arizona. The performance of these stores has improved significantly as
compared to periods immediately before the implementation of the new prototype
design. In addition, in May 1999 Levitz opened a new store in Valencia,
California with this new design. Levitz intends to introduce additional stores
in the new prototype layout over the next several years, either as new stores or
as remodels of existing stores. Levitz's ability to complete such plans may be
subject to Court approval and is dependent on general business conditions and
the ability to finance the required capital expenditures.

More Focused Vendor Relationships

Since the Petition Date, Levitz has undertaken a comprehensive review of their
merchandise vendor structure and have determined to significantly reduce the
number of vendors that they deal with and increase the strength of their
remaining vendor relationships. As part of a more focused relationship with

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ongoing vendors, Levitz is exploring opportunities to: (i) increase frequency
and shorten lead times for deliveries; (ii) improve operational and financial
performance of the vendor-merchant relationship for both parties; (iii) develop
special promotions and financing opportunities; and (iv) improve dating.

Improved Inventory Planning Systems

Levitz has added specialized employees and dedicated software systems designed
to increase the ability to forecast inventory levels and purchasing requirements
and to allocate inventory to stores so as to improve the in-stock levels at the
stores. The ability to better plan inventory provides Levitz significant
advantages in the following ways: (i) by improving in-stock position, fewer
opportunities are missed to generate sales when a customer wants to purchase an
item but it is unavailable; (ii) by giving vendors more lead time on expected
purchases, Levitz can realize cost savings because of the more orderly
production schedules the vendors can run; and (iii) by implementing tighter
controls on inventory Levitz can operate with a lower inventory investment in
the stores and to transition out of discontinued items with lower mark-downs.

Merchandising Assortment Planning

Levitz is employing new planning techniques to evaluate the appropriateness of
current merchandise assortment. Every category of merchandise has been evaluated
to ensure the assortment achieves the desired breadth of selection considering
quality, style and price and local market differentiation. The assortment plans
incorporate consideration of the availability options to be provided to
customers. Vendors will be selected based on their capability to most
efficiently support the vendor assortment programs.

Improved Advertising Programs

Levitz has adopted a longer time horizon into planning advertising campaigns in
order to better integrate merchandising planning and marketing efforts. New
themes have been developed and a "new look" adopted to improve the clarity of
the message to the customer on why to shop at Levitz. Research is being
conducted to better understand customer profiles in markets where stores are
located. This research will impact the merchandise assortment, pricing and
methods Levitz will use to communicate with customers from market to market.

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ITEM 2.  PROPERTIES

On March 31, 2000, Levitz operated 64 retail stores, and 21 Sales Support
Centers located in major metropolitan areas in 13 states, with a concentration
in California. The following table sets forth the number of retail facilities
owned or leased by Levitz on March 31, 2000:

                                                             Owned        Leased
                                                             -----        ------
Stores with attached Sales Support Centers................     -            21
Stores that are detached or freestanding..................     -            43

On March 31, 2000, these facilities contained a total of approximately 7,000,000
square feet, including approximately 3,100,000 square feet of selling space.
Levitz also leases a 45,000 square feet facility for its corporate offices in
Boca Raton, Florida and owns a 35,000 square foot facility in Pottstown,
Pennsylvania which is used for accounting offices.

The following sets forth, as of March 31, 2000, the retail premises operated by
Levitz:

<TABLE>
<CAPTION>
      Leased Premises (2)                                               Leased Premises (Cont'd.) (2)
------------------------------------------------------------       -----------------------------------------------------
                                   Month and       Store                                       Month and       Store
Location                          Year Opened    Type (1)          Location                   Year Opened    Type (1)
------------------------------------------------------------       -----------------------------------------------------
<S>                                 <C>             <C>            <C>                          <C>             <C>
Allentown, PA                       Sep-63          ST             Lynnwood, WA (3)             Jun-80          ST
Santa Clara, CA                     Sep-68          WS             La Puente, CA (3)            Jan-81          ST
Wilmington, DE                      Jun-69          WS             Woodbridge, NJ (3)           Jan-81          WS
San Bernardino, CA                  Aug-69          ST             Modesto, CA (3)              Nov-81          ST
Huntington Beach, CA                Nov-69          WS             Anaheim, CA                  Nov-81          ST
Sacramento, CA (3)                  Sep-70          WS             Laguna Hills, CA             Apr-83          ST
Seattle, WA                         Nov-70          WS             Pleasanton, CA               Jan-84          ST
Los Angeles, CA                     Dec-70          WS             San Carlos, CA               Apr-84          ST
Oxnard, CA (3)                      Jan-71          WS             Stockton, CA                 Jun-85          ST
San Leandro, CA (3)                 Aug-71          WS             Cerritos, CA                 Jun-85          ST
So. San Francisco, CA (3)           Aug-71          ST             Phoenix, AZ                  Nov-85          ST
Cherry Hill, NJ (3)                 Sep-71          ST             Milford, CT                  Apr-86          ST
Portland, OR (3)                    Nov-71          WS             Portland, OR (3)             Jul-86          ST
St. Paul, MN (3)                    Dec-71          WS             Reading, PA                  Jan-87          ST
Willowbrook, NJ (3)                 Dec-71          WS             Bakersfield, CA              Mar-87          ST
Minneapolis, MN (3)                 Dec-71          ST             Pinole, CA                   Dec-87          ST
San Dimas, CA                       May-72          WS             Tacoma, WA                   Jan-88          ST
Northridge, CA (3)                  Jun-72          ST             Smithtown, NY                Aug-89          ST
Fresno, CA (3)                      Aug-72          WS             Brooklyn Park, MN            Nov-89          ST
Redondo Beach, CA (3)               Aug-72          ST             Corona, CA                   Nov-89          ST
King of Prussia, PA                 Aug-72          ST             Nashua, NH                   Nov-90          ST
Mesa, AZ (3)                        Mar-73          WS             Las Vegas, NV                Aug-91          WS
Farmingdale, NY (3)                 Apr-73          WS             Glendale, AZ                 Nov-92          ST
Langhorne, PA                       May-73          WS             Victorville, CA              Dec-92          ST
Southington, CT (3)                 Aug-75          ST             Rohnert Park, CA             Mar-94          ST
Paramus, NJ (3)                     Aug-77          ST             Arroyo Grande, CA            Apr-94          ST
Garden City, NY (3)                 Aug-77          ST             Cathedral City, CA           Apr-94          ST
Dedham, MA                          Aug-77          ST             Tempe, AZ                    Jun-94          ST
Danvers, MA                         Aug-77          ST             Fremont, CA                  Aug-94          ST
Westboro, MA                        Aug-77          WS             Middle Village, NY           Oct-94          WS
Enfield, CT                         Aug-77          WS             Phoenix, AZ                  Nov-98          ST
Concord, CA                         Dec-78          ST             Valencia, CA                 May-99          ST

<FN>
----------
(1)      The column refers to stores with attached Sales Support Centers ("WS")
         or to detached or freestanding stores ("ST").
(2)      The remaining terms of the leases range from 6 months to 39 years,
         including renewal options. Lease payments are either fixed or fixed
         minimums coupled with contingent rentals based on the Consumer Price
         Index or a percentage of net sales.
(3)      Subject to Unitary Lease described in Note 8 to the consolidated
         financial statements.
</FN>
</TABLE>

                                       11
<PAGE>

In addition to the above properties, as of March 31, 2000 Levitz had available
for disposition one owned and five leased properties formerly operated as retail
stores.

ITEM 3.  LEGAL PROCEEDINGS

Chapter 11 Filing

On September 5, 1997, LFI and 11 of its subsidiaries, including Levitz, filed
voluntary petitions for relief under the Bankruptcy Code, Chapter 11, Title 11
of the United States Code, with the United States Bankruptcy Court for the
District of Delaware, Wilmington, Delaware 19801 under Case No. 97-1842(MFW).

Under section 362 of the Bankruptcy Code, during a Chapter 11 case, creditors
and other parties in interest may not, without Court approval: (i) commence or
continue judicial, administrative or other proceedings against the Debtors that
were or could have been commenced prior to commencement of the Chapter 11 case,
or recover a claim that arose prior to commencement of the case; (ii) enforce
any pre-petition judgments against the Debtors; (iii) take any action to obtain
possession of or exercise control over property of the Debtors or their estates;
(iv) create, perfect or enforce any lien against the property of the Debtors;
(v) collect, assess or recover claims against the Debtors that arose before the
commencement of the case; or (vi) set off any debt owing to the Debtors that
arose prior to the commencement of the case against a claim of such creditor or
party in interest against the Debtors that arose before the commencement of the
case.

Although the Debtors are authorized to operate their businesses and manage their
properties as debtors-in-possession, they may not engage in transactions outside
of the ordinary course of business without complying with the notice and hearing
provisions of the Bankruptcy Code and obtaining Court approval.

As debtors-in-possession, the Debtors have the right, subject to Court approval
and certain other limitations, to assume or reject executory, pre-petition
contracts and unexpired leases. In this context, "assumption" requires the
Debtors to perform their obligations and cure all existing defaults under the
assumed contract or lease and "rejection" means that the Debtors are relieved
from their obligations to perform further under the rejected contract or lease,
but are subject to a claim for damages for the breach thereof subject to certain
limitations contained in the Bankruptcy Code. Any damages resulting from
rejection are treated as general unsecured claims in the reorganization cases.

Under the Bankruptcy Code, a creditor's claim is treated as secured only to the
extent of the value of such creditor's collateral, and the balance of such
creditor's claim is treated as unsecured. Generally, unsecured and undersecured
debt does not accrue interest after the Petition Date.

Pre-petition claims that were contingent or unliquidated at the commencement of
the Chapter 11 cases are generally allowable against the Debtors in amounts to
be fixed by the Court or otherwise agreed upon. These claims, including, without
limitation, those which arise in connection with the rejection of executory
contracts and leases, are expected to be substantial. The Debtors have
established reserves approximating what the Debtors believe will be its
liability under these claims. The Court fixed August 10, 1998 as the last date
by which most creditors of the Debtors could file proofs of claim for claims
that arose prior to the Petition Date.

Plan of Reorganization Procedures

For 120 days after the date of the filing of a voluntary Chapter 11 petition, a
debtor has the exclusive right to propose and file a reorganization plan with
the Court and an additional 60 days within which to solicit acceptances to any
plan so filed (the "Exclusive Period"). The Court may increase or

                                       12
<PAGE>

decrease the Exclusive Period for cause shown, and as long as the Exclusive
Period continues, no other party may file a reorganization plan. The Debtors
currently retain the exclusive right to propose and solicit acceptances of a
plan or plans of reorganization until September 29, 2000 and December 31, 2000,
respectively.

If Levitz fails to obtain acceptance of such plan from impaired classes of
creditors during the exclusive solicitation period, any party in interest,
including a creditor, an equity security holder or a committee of creditors, may
file a reorganization plan for such Chapter 11 debtor.

Inherent in a successful plan of reorganization is a capital structure which
permits the Debtors to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Debtors. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of the Chapter 11 case on the business of the Debtors or on the
interests of creditors.

Generally, after a plan has been filed with the Court, it will be sent, with a
disclosure statement approved by the Court following a hearing, to members of
all classes of impaired creditors for acceptance or rejection. Following
acceptance or rejection of any such plan by impaired classes of creditors, the
Court, after notice and a hearing, would consider whether to confirm the plan.
Among other things, to confirm a plan the Court is required to find that (i)
each impaired class of creditors and equity security holders will, pursuant to
the plan, receive at least as much as the class would have received in a
liquidation of the debtor and (ii) confirmation of the plan is not likely to be
followed by the liquidation or need for further financial reorganization of the
debtor or any successor to the debtor, unless the plan proposes such liquidation
or reorganization.

To confirm a plan, the Court generally is also required to find that each
impaired class of creditors has accepted the plan by the requisite vote. If any
impaired class of creditors does not accept a plan but all of the other
requirements of the Bankruptcy Code are met, the proponent of the plan may
invoke the so-called "cram down" provisions of the Bankruptcy Code. Under these
provisions, the Court may confirm a plan notwithstanding the non-acceptance of
the plan by an impaired class of creditors if certain requirements of the
Bankruptcy Code are met, including that (i) at least one impaired class of
claims has accepted the plan, (ii) the plan "does not discriminate unfairly" and
(iii) the plan "is fair and equitable with respect to each class of claims or
interests that is impaired under, and has not accepted, the plan." As used by
the Bankruptcy Code, the phrases "discriminate unfairly" and "fair and
equitable" have meanings unique to bankruptcy law.

Litigation Regarding the Management and Shared Services Agreements

On April 26, 2000, the holders of approximately 42% of the fully diluted common
stock of Seaman, commenced an action (the "Chancery Court Action") in the Court
of Chancery of the State of Delaware in and for New Castle County against James
Rubin, M.D. Sass Associates, Inc., Resurgence Asset Management, L.L.C., M.D.
Sass Corporate Resurgence Partners, L.P., M.D. Sass Corporate Resurgence
International, Ltd., Robert Symington, Byron Haney, Alan Rosenberg, Steven H.
Halper, and Peter McGeough, as defendants, and against Seaman Furniture Co.,
Inc. as nominal defendant.

                                       13
<PAGE>

The Chancery Court Action seeks, among other things, an injunction against the
Management Agreement and Shared Services Agreement between Seaman and LFI (see
sections VII.C.5 and C.6 for a discussion of this agreement). Alternatively, the
Chancery Court Action seeks to rescind the transactions and/or recover damages
in the event that the transactions are consummated.

In response to the Chancery Court Action, on May 11, 2000, Levitz filed a
complaint, initiating an adversary proceeding in the Bankruptcy Court, seeking
to enjoin the Chancery Court Action. Levitz's motion to preliminary enjoin the
Chancery Court Action was denied by the Bankruptcy Court after a June 6, 2000
hearing.

On June 23, 2000 the Chancery Court of Delaware issued a preliminary injunction
prohibiting Seaman from performing or taking any further action with respect to
the performance of the aforementioned Management and Shared Services agreements.
While Levitz is not a party to the Chancery Court Action, this decision makes it
unlikely that the Company will be able to implement the Plan of Reorganization
as filed by the Company on May 25, 2000.

As a result of the Chancery Court decision, the Company is currently in the
process of developing a new "stand-alone" plan of reorganization. Such a plan
will include measures for obtaining a working capital financing facility to
replace the current revolver facility under the DIP Agreement and sources of
additional capital from existing creditors and vendors which would be required
to finance the Company's "stand-alone" plan. The proceeds of these arrangements
would be used to support future operations. The exclusivity period for the
Company to propose a Plan of Reorganization expires on September 29, 2000.

Other Legal Proceedings

In the ordinary course of business, Levitz is party to various legal actions
which it believes are routine in nature and incidental to the operation of its
business. In the opinion of management, the outcome of the proceedings to which
Levitz is currently party will not have a material adverse effect upon its
operations or financial condition.

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

         None.

                                       14
<PAGE>

                                     PART II

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

Prior to September 24, 1997, LFI's Common Stock was traded on the New York Stock
Exchange ("NYSE"). Effective at the opening of the trading session on December
3, 1997, the NYSE formally removed from listing and registration the Common
Stock of LFI pursuant to an Order, dated December 2, 1997, of the Securities and
Exchange Commission granting the application for removal by the NYSE. As of June
12, 2000, there were 738 holders of record of Voting Common Stock and 7 holders
of record of Non-Voting Common Stock.

LFI has not paid dividends on any class of its Common Stock since 1987 and does
not intend to pay dividends in the foreseeable future. LFI's only material asset
is the common stock of Levitz and, therefore, its ability to pay cash dividends,
interest and principal is dependent upon dividends and other payments from
Levitz. LFI's ability to obtain cash from Levitz is restricted by the Bankruptcy
Court, the DIP Facility, the indentures relating to Levitz's outstanding
indebtedness and Florida law.

The Plan of Reorganization as filed with the Bankruptcy Court on May 25, 2000
provides that all holders of equity securities and/or interests shall not be
entitled to, and shall not, receive any property or interest in property on
account of such equity or equity interest.

The range of high and low sales prices for LFI's Common Stock as reported in the
New York Stock Exchange Composite Index through September 24, 1997 and as
reported by the OTC Bulletin Board (OTCBB), which is a regulated quotation
service, for each quarterly period after September 24, 1997 within the two most
recent fiscal years, is as follows:

                  Quarter Ended                           High              Low
                  -------------                           ----             ----
                  June 30, 1998                           0.470            0.440
                  September 30, 1998                      0.260            0.250
                  December 31, 1998                       0.210            0.188
                  March 31, 1999                          0.210            0.190
                  June 30, 1999                           0.734            0.203
                  September 30, 1999                      0.297            0.094
                  December 31, 1999                       0.094            0.031
                  March 31, 2000                          0.344            0.031

                                       15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data has been derived from, and should be read
in conjunction with, the Consolidated Financial Statements of LFI and the Notes
thereto included elsewhere in this document. The only material asset of LFI is
the common stock of Levitz, and it conducts no business other than holding the
common stock of Levitz. See Item 7 - "Management's Discussion and Analysis of
Results of Operations and Financial Condition" and Item 8 - "Financial
Statements and Supplementary Data".

<TABLE>
<CAPTION>
                                                                   Years Ended March 31, (1)
                                      -------------------------------------------------------------------------------
                                                         (Amounts in thousands, except per share data)
                                       2000 (2)        1999 (2)           1998             1997              1996
                                      ------------    ------------    -------------     ------------      -----------
<S>                                     <C>             <C>              <C>              <C>              <C>
Income Statement Data:
  Net sales                             $ 535,052       $ 653,100        $ 812,948        $ 941,878        $ 961,869
  Gross profit                            232,036         276,773          345,357          408,323          426,916
  Selling, general and administrative
    expenses                              245,819         280,810          337,278          357,018          372,288 (17)
  Unusual operating expenses                    -               -           16,151 (9)            -                -
  Charge for store closings                     -               -                -            8,295 (13)           -
  Restructuring expense                         -               -                -                -            9,000 (18)
  Depreciation and amortization             8,862          17,948           24,093           26,993           29,272
  Operating income (loss)                 (22,645)        (21,985)         (32,165)(10)      16,017           16,356
  Interest expense, net                    16,822 (3)      29,477 (3)       39,592 (3)       55,522           53,035
  Reorganization items                     27,394 (4)      42,982 (4)       55,512 (4)            -                -
  Income (loss) before extraordinary
    items                                 (66,861)        (94,444)        (127,269)         (39,505)         (23,753)
  Extraordinary items, net of tax benefit       -               -           (5,805)(11)      (2,002)(14)   -
  Net income (loss) available to common
    stockholders                          (66,861)        (94,444)         (93,387)         (27,586)         (23,753)
  Net income (loss) per common share        (2.22)          (3.15)           (3.12)           (0.93)           (0.80)
  Weighted average number of shares
    outstanding                            30,072          30,023           29,924           29,655           29,621

<CAPTION>
                                      As of March 31,                           As of March 31,
                                      -------------------------------------------------------------------------------
                                         2000            1999             1998             1997              1996
                                      ------------    ------------    -------------     ------------      -----------
<S>                                     <C>             <C>             <C>
Balance Sheet Data:
  Property and equipment, net           $  61,847       $  72,170 (5)   $  235,970 (12)   $ 333,703        $ 360,453
  Total assets                            199,382 (5)     333,642 (6)    1,006,804          934,368 (15)     606,887
  Noncurrent portion of capital lease
    obligations                            25,946 (7)      29,368 (7)            - (7)       74,466           82,922
  Noncurrent portion of long-term debt          - (7)           - (7)        5,702 (7)      282,084 (16)     293,433 (19)
  Liabilities subject to compromise       302,424 (8)     301,326 (8)      369,692 (8)            -                -
  Stockholders' deficit                  (347,081)       (280,220)        (186,061)         (94,072)         (67,652)(20)
</TABLE>

(1)      Effective March 31, 1999, LFI elected to reclassify certain revenues in
         its consolidated statements of operations. As a result, net sales,
         gross profit and selling, general and administrative ("SG&A") expenses
         have been restated for the fiscal years ended March 31, 1999, 1998,
         1997 and 1996. LFI now reflects delivery income and miscellaneous
         revenue in SG&A expenses. Previously, these revenues were included in
         net sales. The effect of this reclassification was to reduce net sales,
         gross profit and SG&A expenses by $19.8 million, $23.9 million, $25.0
         million and $24.8 million for the fiscal years ended March 31, 1999,
         1998, 1997 and 1996, respectively.

(2)      The reduction in net sales, gross profit and SG&A expenses in Fiscal
         2000 and Fiscal 1999 is primarily due to the closing of forty-two
         stores in June 1998 and January 1999.

(3)      As a result of the Chapter 11 filing on September 5, 1997, no principal
         or interest payments will be made on most prepetition debt without
         Court approval or until a plan of reorganization providing for
         repayment terms has been confirmed by the Court and becomes effective.
         Interest on prepetition unsecured obligations has not been accrued
         after the Petition Date except that interest expense and principal
         payments will continue to be recorded on capital lease obligations
         unless the leases are rejected by the Debtors. If a capital lease is
         rejected the obligation will be limited to the lease rejection claim.
         Contractual interest expense of $23.1 million was not recorded on
         certain pre-petition debt for Fiscal years ended 2000 and 1999.
         Contractual interest expense of $13.3 million was not recorded for the
         period from September 5, 1997 through March 31, 1998.

                                       16
<PAGE>

 (4)     Reorganization items represent the costs to restructure the Company
         during the Chapter 11 proceedings. Store closing charges include the
         write-down of assets to their net realizable value, severance pay and
         continuing expenses. See Note 4 to Consolidated Financial Statements.

 (5)     In Fiscal 1999, property, including capital lease assets, with a net
         book value of $16.9 million was classified as property held for sale
         and $91.9 million was classified as current assets, property under
         agreement of sale. Subsequently, in Fiscal 2000, such assets were sold
         and are no longer recorded on the Company's books. Also in Fiscal 1999,
         assets in the amount of $30.1 million were written down to their net
         realizable value due to store closings and property. Lease assets with
         a net book value of $14.7 million were sold.

(6)      In Fiscal 1999, total assets decreased by $673.2 million to $333.6
         million from $1,006.8 million in Fiscal 1999 due to the removal from
         the consolidated balance sheets of the receivable under account
         purchase agreement and related obligations of $554.3 million, the sale
         of property held for resale with net book value of $14.5 million and
         the reduction of inventory of $58.4 million.

(7)      In Fiscal 1998, all capital lease obligations and all non-current
         long-term debt obligations with the exception of mortgages were
         reclassified as liabilities subject to compromise. In Fiscal 1999,
         capital lease obligations for continuing stores were reclassified on
         the consolidated balance sheets.

(8)      Liabilities subject to compromise represent all unsecured liabilities
         of the Debtor as of the Petition Date. See Note 3 to the consolidated
         financial statements for the types of liabilities included as subject
         to compromise.

(9)      During Fiscal 1998, LFI incurred unusual operating expense of $16.1
         million which included the write-off of $2.8 million in goodwill, the
         write-off of $5.9 million of the future service revenue receivable
         under the GECC Agreement during which period Levitz was not able to
         account for a portion of the transactions as a sale, accrual of
         severance cost of $1.3 million upon the resignation of an officer and
         $6.1 million charge reflecting an adjustment to record inventory at its
         estimated net realizable value due to the substantial change in
         merchandising assortment. The changes increased net loss by $11.1
         million or $0.37 per share.

(10)     Operating income declined significantly from prior periods due to the
         unusual operating expenses, increase in SG&A expenses as a percentage
         of net sales, and the continued decline in total sales and comparable
         store sales from the prior fiscal years.

(11)     On the Petition Date, Levitz incurred a before-tax extraordinary loss
         of $8.4 million due to the write-off of the pre-petition senior secured
         facilities deferred financing fees. The after-tax loss was $5.8 million
         or $0.19 per share.

(12)     Property and equipment, net of accumulated depreciation decreased $97.7
         million during Fiscal 1998 primarily due to the write-down to net
         realizable value of closed stores, property and equipment of $20.0
         million, the sale of assets with book value of $51.5 million,
         reclassification of property to property held for disposal of $17.0
         million, amortization and depreciation of $23.0 million less capital
         expenditures of $14.1 million.

(13)     On October 31, 1996, five satellite stores were closed resulting in a
         pre-tax charge for store closings of $8.3 million. The charge includes

                                       17
<PAGE>

         the reduction of the carrying value of the store assets to their
         estimated fair value net of selling expenses as well as reserves for
         future rental payments under operating lease agreements. Included in
         the store closing charge is a $2.4 million charge from the adoption of
         SFAS No. 121 effective April 1, 1996 for one of the closed stores. The
         charge increased net loss by $5.4 million or $0.18 per share.

(14)     As a result of the July 1996 refinancing, in June 1996, LFI incurred a
         before-tax extraordinary loss of $3.1 million on the write-off of
         deferred financing fees related to the termination of Levitz's previous
         bank credit agreement. The after-tax loss was $2.0 million or $0.07 per
         share.

(15)     Effective January 1, 1997 Levitz was required to account for the
         purchase of Levitz's customer credit obligations by General Electric
         Capital Corporation (GECC) under an Account Purchase and Credit Card
         Agreement (the "GECC Agreement") in accordance with Financial
         Accounting Standards Board (FASB) Statement of Financial Accounting
         Standards No. 125 (SFAS No. 125), "Accounting for Transfers and
         Servicing of Financial Assets and Extinguishments of Liabilities".
         Based on facts and circumstances at that date, Levitz was required by
         SFAS No. 125 to account for these transactions as a secured borrowing
         with a pledge of collateral rather than as a sale for financial
         reporting purposes. Consequently, Levitz recorded $327.0 million as a
         Receivable Under Account Purchase Agreement and as an Obligation Under
         Account Purchase Agreement in its March 31, 1997 financial statements.

(16)     On July 1, 1996, Levitz entered into new senior secured credit
         facilities providing for up to $190.0 million of availability. The
         proceeds of the senior secured facilities were used to refinance
         indebtedness incurred under the Credit Agreement, to provide liquidity
         for working capital needs and for other general corporate purposes.

(17)     In March 1996, Levitz amended its non-contributory, defined benefit
         pension plan to provide that no benefits would accrue under the plan
         after March 31, 1996. The amendment resulted in a curtailment gain of
         $8.3 million. No plan assets were withdrawn from the pension plan as a
         result of this gain. The curtailment gain decreased net loss $5.4
         million or $0.18 per share.

(18)     LFI recorded in Fiscal 1996 restructuring charges totaling $9.0
         million. The restructuring plans included the elimination of six
         regional/division offices and certain support positions. A total of 142
         employees including five senior executives were terminated. The charges
         include $7.8 million of severance pay and related employee benefit
         costs and $1.2 million of idle facility and other costs. The
         restructuring plans increased net loss by $5.8 million or $0.20 per
         share.

(19)     In March 1996, LFI and Levitz consummated an exchange offer in which
         Levitz issued $91.6 million principal amount of 13.375% Senior Notes
         due October 15, 1998 and LFI issued warrants to purchase 283,972 shares
         of LFI Common Stock in exchange for $91.6 million principal amount of
         12.375% Senior Notes due April 15, 1997 (the Exchange Offer). The
         Exchange Offer redeemed 93.8% of the 12.375% Senior Notes leaving an
         aggregate principal amount of $6.0 million outstanding. Capital in
         excess of par has been increased and the principal amount of the
         13.375% Senior Notes have been decreased by the fair value of the
         warrants of $0.7 million. The issuance costs of $1.3 million had been
         charged to interest expense.

(20)     During Fiscal 1996, LFI contracted to issue 700,000 shares of
         restricted stock to certain key employees. These shares were issued in
         Fiscal 1997. The total market value at the effective date of grant was
         recorded as deferred compensation, a separate component of
         stockholders'

                                       18
<PAGE>

         deficit. The deferred compensation was charged to selling, general and
         administrative expenses over the three year vesting period.

                                       19
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
         FINANCIAL CONDITION

The following discussion should be read in conjunction with the "Selected
Financial Data" and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this document.

General

On September 5, 1997, the Debtors filed voluntary petitions for relief under
Chapter 11 of the United States Bankruptcy Code and are presently operating
their business as debtors-in-possession subject to the jurisdiction of the
United States Bankruptcy Court for the District of Delaware. For further
discussion of Chapter 11 proceedings, see "Item 1. Business-Chapter 11 Filing",
"Item 3. Legal Proceedings" and Note 1 to Notes to Consolidated Financial
Statements.

The Company's consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities and commitments in the normal course of
business. The Chapter 11 filing, related circumstances and the losses from
operations, raise substantial doubt about the Company's ability to continue as a
going concern. The appropriateness of reporting on the going concern basis is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, and the ability to generate sufficient cash from
operations and financing sources to meet obligations (see "Liquidity and Capital
Resources" and Note 1 to "Notes to Consolidated Financial Statements"). As a
result of the filing and related circumstances, however, such realization of
assets and liquidation of liabilities is subject to significant uncertainty.
While under the protection of Chapter 11, the Debtors may sell or otherwise
dispose of assets, and liquidate or settle liabilities, for amounts other than
those reflected in the accompanying consolidated financial statements. Further,
a plan of reorganization could materially change the amounts reported in the
accompanying consolidated financial statements. The consolidated financial
statements do not include any adjustments relating to the recoverability of the
value of recorded asset amounts or the amounts and classification of liabilities
that might be necessary as a consequence of a plan of reorganization.

Comparable store sales have increased by 2.8% for the fiscal year ended March
31, 2000 as compared to the prior year. Comparable store sales had declined 0.1%
and 6.4% for the fiscal years ended March 31, 1999 and 1998, respectively.
Comparable store sales increased 9.3%, 4.7% and 6.4% in April, May and June
2000, respectively.

Operating loss was $22.6 million in Fiscal 2000, $22.0 million in Fiscal 1999
and $32.2 million in Fiscal 1998.

                                       20
<PAGE>

The following table sets forth LFI's results of operations expressed as a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>
                                                          Percent of Net Sales
                                                  -------------------------------------
                                                         Years Ended March 31,
                                                  -------------------------------------
                                                    2000          1999         1998
                                                  ----------   -----------   ----------
<S>                                                   <C>           <C>          <C>
Net sales                                             100.0 %       100.0 %      100.0 %
Cost of sales                                          56.6          57.6         57.5
                                                  ----------   -----------   ----------
Gross profit                                           43.4          42.4         42.5
Selling, general and administrative expenses           45.9          43.0         41.5
Unusual operating expenses                                -             -          2.0
Depreciation and amortization                           1.7           2.7          3.0
Interest expense, net                                   3.1           4.5          4.9
Reorganization items                                    5.1           6.6          6.8
                                                  ----------   -----------   ----------
Loss before income taxes                              (12.4)        (14.4)       (15.7)
Income tax benefit                                        -             -          4.9
                                                  ----------   -----------   ----------
Loss before extraordinary items                       (12.4)        (14.4)       (10.8)
Extraordinary items                                       -             -         (0.7)
                                                  ----------   -----------   ----------
Net loss                                              (12.4)        (14.4)       (11.5)
                                                  ==========   ===========   ==========
Comparable store sales increase/(decrease) (1)          2.8 %        (0.1)%       (6.4)%
                                                  ==========   ===========   ==========

<FN>
--------------
(1)    Comparable store sales are calculated by excluding the net sales of a
       store for any full month of one period if the store was not open during
       the same full month of the prior period.
</FN>
</TABLE>

Comparison of Operations for Fiscal 2000 to Fiscal 1999

Net sales for Fiscal 2000 decreased to $535.1 million or 18.1% from $653.1
million for Fiscal 1999. Comparable store net sales for Fiscal 2000 increased
2.8% from Fiscal 1999. The Company closed fifteen stores in June 1998 and
twenty-seven stores in January 1999 in making a decision to vacate all stores in
selected markets. One new store was opened in southern California in May 1999
and a clearance center located in Atlanta, GA was opened in January 2000.

Gross profit for Fiscal 2000 was $232.1 million, or 43.4% of net sales, as
compared to $276.8 million, or 42.4% of net sales, for Fiscal 1999. Before an
increase in shrinkage expense, the gross margin percent increased by 1.3% of net
sales in fiscal 2000 as compared to fiscal 1999. The improvement in gross margin
percent was primarily related to new programs introduced in the last half of
fiscal 2000 designed to enhance maintained margins and the introduction in
January 2000 of an expanded furniture protection warranty program. These
improvements in gross margin were offset by an increase of .3% of net sales in
shrinkage expense as compared to the prior year.

Total selling, general and administrative (SG&A) expenses decreased by $35.0
million or 12.5% to $245.8 million in Fiscal 2000 from $280.8 million in Fiscal
1999. Closed stores accounted for a decrease of $52.6 million, while the one new
store and the Atlanta clearance center added $3.9 million in SG&A expense.
Comparable corporate and store SG&A expense, exclusive of the income from the
private label credit card program, increased by $25.8 million and represented
50.4% of net sales in fiscal 2000 as compared to 46.8% of net sales in the prior
year. As outlined below, income from the private label credit card program
increased for the year by $11.2 million over the prior year and represented 4.6%
of net sales in the current year as compared to 2.4% of net sales in the prior
year.

                                       21
<PAGE>

Controllable expenses for corporate overhead and comparable stores increased by
$6.0 million and represented 27.2% of sales as compared to 26.8% in the prior
year. Salaries and benefits increased by approximately $4.4 million over last
year. While a little over one-half of that increase was related to the higher
comparable store sales volume and sales incentive programs, higher non-selling
labor costs were incurred due to warehouse operating inefficiencies associated
with implementation of the warehouse consolidation program. Other increases in
controllable expenses reflected higher shuttle and delivery expenses and
demurrage charges, particularly in the east region warehouses, and an increase
over last year in write-offs of aged receivables, agency labor costs and junk
merchandise expense.

Corporate office and comparable store occupancy expense increased $8.3 million
and represented 6.7% of sales in the current year as compared to 5.3% of sales
in the prior year. The primary cause for this increase is due to the higher rent
being paid on properties involved in sale/leaseback and lease assignment
transactions completed in the current year. The proceeds from these transactions
were used to reduce outstanding debt resulting in significantly lower interest
expense. $1.8 million of the increase is due to the change in accounting for
certain of the assigned leases from treatment as a capital lease in the prior
year to an operating lease in the current year. Interest and depreciation
expense in the current year is lower than last year due to the change in
accounting for those leases.

Comparable store advertising expense, including the cost of finance discounts
related to credit promotion events, increased $11.6 million and represented
16.5% of sales in the current year as compared to 14.7% of sales in the prior
year. Approximately $5.0 million of the increase was related to higher media
expenditures. The remaining increase was primarily due to an increase in the
cost of credit promotions as the Company was more aggressive in the use of
credit promotions in the current year.

Finance income from the private label credit card program increased by $11.2
million over the prior year. The Company terminated the former agreement with GE
Capital and entered into a new agreement with Household Bank NA in September
1998; however, the economic terms of the new agreement were not fully effective
until Household commenced servicing in December 1998. Under the Household
agreement, higher interest finance charges and other fees were instituted. In
addition, the share of the income stream from sale of credit insurance increased
for the Company under the Household agreement as compared to the GE agreement.
The year over year improvement in income from the portfolio occurred in the
first six months of the current fiscal year. In the last six months, as a result
of store closings, the portfolio decreased in size resulting in decreased net
interest income and a higher bad debt expense. The higher bad debt expense is
primarily associated with losses related to closed store portfolio accounts. The
Company accrued a charge of $14.1 million which is included in reorganization
expense for the estimated remaining losses on the closed store receivable
portfolio which the Company is obligated to pay under its agreement with
Household Bank NA.

Depreciation and amortization expenses decreased to $8.9 million in Fiscal 2000
from $17.9 million in Fiscal 1999. The reduction is primarily related to the
reductions in asset values associated with closed stores.

Interest expense for Fiscal 2000 decreased to $16.8 million or 3.1% of net sales
from $29.5 million or 4.5% of net sales for Fiscal 1999. Interest on
pre-petition unsecured obligations has not been accrued after the Petition Date
except that interest expense continues to be recorded on capital lease
obligations. Contractual interest expense of $23.1 million was not recorded on
certain pre-petition debt for Fiscal years ended 2000 and 1999. Contractual
interest expense of $13.3 million was not recorded for the period from September
5, 1997 through March 31, 1998.

                                       22
<PAGE>

Reorganization items represent the costs to restructure the Company during the
Chapter 11 proceedings. The following costs are included for Fiscal 2000 and
1999 (dollars in millions):

                                                      2000              1999
                                                  ------------      ------------

Store closings                                            $ -             $42.3
Loss (gain) on sale of property held for sale             0.4              (5.9)
Setup reserve for HRS closed store portfolio             14.1                 -
Adjust store closing reserve                              3.1                 -
Setup lease rejection claims                              1.2                 -
Adjust net realizable value of closed property            2.3                 -
Professional fees                                         6.3               6.6
                                                  ------------      ------------
                                                        $27.4             $43.0
                                                  ============      ============

Store closing charges include the write-down of assets to their net realizable
value, severance pay and continuing expenses.

As a result of the aforementioned factors, the net loss was $66.9 million or
12.4% of net sales for Fiscal 2000 as compared to $94.4 million or 14.4% of net
sales for Fiscal 1999.

Comparison of Operations for Fiscal 1999 to Fiscal 1998

Net sales for Fiscal 1999 decreased to $653.1 million or 19.7% from $812.9
million for Fiscal 1998. Comparable store sales for Fiscal 1999 declined 0.1%
from Fiscal 1998. Levitz closed forty-two stores during Fiscal 1999. The
comparable store sales decreased 2.5% and 5.4% in the first and third quarter of
Fiscal 1999, respectively. Comparable store sales increased 8.7% and 0.3% in the
second and forth quarter of Fiscal 1999, respectively. The decrease in
comparable store sales for the first quarter of Fiscal 1999 is primarily
attributed to the announcement of fifteen store closings at the end of June
1999. The increase in comparable store sales for the second quarter of Fiscal
1999 is primarily due to the filing of a Chapter 11 petition in the same quarter
of the previous year. The decrease in comparable store sales for the third
quarter of Fiscal 1999 was impacted by the resumption of normal shipments during
the third quarter of Fiscal 1998 which transferred sales that would have
normally been recorded in the second quarter of Fiscal 1998 to the third quarter
of Fiscal 1998.

Gross profit for Fiscal 1999 was $276.8 million, or 42.4% of net sales, as
compared to $345.4 million, or 42.5% of net sales, for Fiscal 1998. Gross profit
for Fiscal 1999 includes a write-down of $4.8 million for excess, discontinued
and damaged inventory in continuing stores of which $0.9 million of the reserve
remained at March 31, 1999. Excluding the effect of the inventory write-down,
gross profit as a percentage of net sales would have been 42.5%.

Selling, general and administrative (SG&A) expenses decreased by $56.5 million
or 16.8% to $280.8 million in Fiscal 1999 from $337.3 million in Fiscal 1998.
The dollar decrease in SG&A expenses is primarily due to the reduction in costs
attributable to the closing of forty-two stores during Fiscal 1999. The increase
in SG&A in Fiscal 1999 as a percentage of net sales to 43.0% from 41.5% is due
to an increase in advertising expense of 1.0%, an increase in salaries and
related expenses and benefits of 0.8% as offset by an increase in the service
fee income of 0.3% under Levitz's private-label credit card program.

During Fiscal 1998, LFI incurred unusual operating expenses of $1.3 million
under the provisions of an employment agreement due to the termination of an
officer. Additionally, LFI recorded a $5.9 million write-off of the future

                                       23
<PAGE>

service revenue receivable under the GECC Agreement when Levitz was required to
account for the transfer of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financial
reporting purposes. During the fourth quarter of Fiscal 1998, the Company
reviewed certain discontinued and/or slow moving inventory items which did not
complement the new merchandise assortment. In an effort to accelerate the
liquidation of these items, the Company reduced their selling prices. Included
in unusual operating expenses is a $6.1 million charge reflecting the Company's
adjustment to record this inventory at its estimated net realizable value. The
Company also wrote off goodwill in the amount of $2.8 million.

Depreciation and amortization expenses decreased to $17.9 million in Fiscal 1999
from $24.1 million in Fiscal 1998. The decrease is primarily attributable to the
suspension of depreciation on assets of the closed stores. At the same time, the
assets were written down to their net realizable value.

Interest expense for Fiscal 1999 decreased to $29.5 million or 4.5% of net sales
from $39.6 million or 4.9% of net sales for Fiscal 1998. Interest on
pre-petition unsecured obligations has not been accrued after the Petition Date
except that interest expense continues to be recorded on capital lease
obligations. Contractual interest expense of $23.1 million was not recorded on
certain pre-petition debt for Fiscal years ended 2000 and 1999. Contractual
interest expense of $13.3 million was not recorded for the period from September
5, 1997 through March 31, 1998.

Reorganization items represent the costs to restructure the Company during the
Chapter 11 proceedings. The following costs are included for Fiscal 1999 and
1998 (dollars in millions):

                                                     1999           1998
                                                 ------------   ------------
Store closings                                         $42.3          $23.4
Loss on sale of John M. Smyth Company Assets               -           22.7
Gain on sale of property held for resale                (5.9)             -
Deferred finance fees and other                            -            2.5
Professional fees                                        6.6            6.9
                                                 ------------   ------------
                                                       $43.0          $55.5
                                                 ============   ============

Store closing charges include the write-down of assets to their net realizable
value, severance pay and continuing expenses.

During Fiscal 1998, LFI incurred an after-tax extraordinary loss of $5.8 million
due to the write-off of deferred financing fees related to the previous bank
credit agreements.

As a result of the aforementioned factors, the net loss was $94.4 million or
14.4% of net sales for Fiscal 1999 as compared to $93.4 million or 11.5% of net
sales for Fiscal 1998.

Seasonality and Inflation

Management does not believe that seasonal variation has a significant impact on
its business. LFI has generally been able to pass along any price increases
relating to inflation. Accordingly, the effect of inflation, if any, on LFI's
results of operations has been minor.

Liquidity and Capital Resources

Cash Flows

                                       24
<PAGE>

LFI's only material asset is the common stock of Levitz and, therefore, its
ability to pay cash dividends, interest and principal, is dependent upon
dividends and other payments from Levitz. LFI's ability to obtain cash from
Levitz is restricted by the Bankruptcy Court, the DIP Facility (as defined
below), the indentures relating to Levitz's outstanding indebtedness and Florida
law. LFI's only outstanding obligations are $8.7 million of Senior Deferred
Coupon Debentures due June 15, 2002 which includes accrued interest through
September 4, 1997, that are currently classified as liabilities subject to
compromise.

Levitz's primary sources of liquidity are cash flows from operations (including
the proceeds from customer credit obligations under the private-label credit
card program by Household), trade credit and borrowings under the DIP Facility.
During Fiscal 2000, cash flow used in operating activities before changes in
operating assets and liabilities was $53.4 million.

Cash flows provided by changes in operating assets and liabilities was $9.8
million for Fiscal 2000.

Net cash used in financing activities amounted to $73.4 million in Fiscal 2000,
and includes net repayments under the DIP Facilities of $67.2 million, principal
payments on long-term debt and capital lease obligations of $7.5 million and an
increase in the cash overdraft position of $1.4 million which is reflective of
the decrease in inventory levels and the timing of payments. Net cash used in
financing activities amounted to $14.2 million in Fiscal 1999 and included net
repayments under the credit facilities of $4.2 million, principal payments on
long-term debt and capital lease obligations of $2.4 million and a decrease in
cash overdraft position of $7.6 million.

Cash provided by investing activities for Fiscal 2000 includes the proceeds from
the sale of eleven owned properties and leasehold interests and/or rights on
eleven leased properties. Net proceeds were applied to existing mortgages,
including the related accrued interest and fees; the term notes under the DIP
facility; and cure costs related to pre-petition liabilities.

Levitz operated 21 warehouses and 64 stores in Fiscal 2000, 27 warehouses and 64
stores in Fiscal 1999, and 58 warehouses and 105 stores in Fiscal 1998. Capital
expenditures totaled approximately $4.9 million, $7.8 million and $14.1 million,
respectively. Capital expenditures during Fiscal 2000 were for existing store
improvements and equipment. Management plans to spend approximately $6.0 million
for capital expenditures in Fiscal 2001 of which approximately $2.6 million is
for maintenance of existing facilities. The recapitalization of the Company as a
result of the Plan of Reorganization would permit additional capital
expenditures in Fiscal 2001 primarily related to new stores and distribution
center facilities. The Company's ability to implement these projects is subject
to confirmation of the Plan of Reorganization.

Debt

LFI and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a DIP Credit Agreement dated as of September 5, 1997, as amended (the
"DIP Facility"), with Bankers Trust Credit Corp. ("BTCC") as agent. The DIP
Facility approved by the Bankruptcy Court initially provided for up to $260.0
million of availability. The DIP Facility contained revolving loans of $223.6
million and a term loan of $36.4 million. Letter of Credit obligations under the
revolving DIP Facility are limited to $25.0 million. The DIP Facility has been
intended to provide Levitz with the cash and liquidity necessary to conduct its
operations and pay for merchandise shipments at normal levels during the course
of the Chapter 11 Cases.

Loans made under the DIP Facility revolving notes bear interest, at Levitz's
option, at a rate equal to either BTCC's prime lending rate plus 1.50% or BTCC's
LIBOR rate plus 3.75%. The term note bore interest at 16%. Levitz is required to
pay an unused line fee of 0.50%, and a letter of credit fee of 2.0%. Levitz paid
financing fees of $3.2 million on the closing date. These

                                       25
<PAGE>

financing fees were amortized over the original life of the DIP Facility.

The maximum borrowings, excluding the term commitments, under the DIP Facility
are limited to 85% of eligible Accounts Receivable, 75% of Eligible Inventory
(as both are defined in the DIP Facility).

The DIP Facility is secured by substantially all of the assets of Levitz and a
perfected pledge of stock of all Levitz companies. The DIP Facility contains
restrictive covenants including, among other things, the maintenance of minimum
earnings before interest, taxes, depreciation and amortization as defined
(EBITDA), limitations on the incurrence of additional indebtedness, liens,
contingent obligations, sale of assets, and a prohibition on paying dividends.

During the Chapter 11 Cases, the Company has negotiated a number of amendments
to the DIP Facility. Toward the end of July 1998, the Company believed that
additional availability under the revolving line of credit portion of the
Company's DIP Facility was necessary as Levitz entered the fall 1998 retail
buying season. Thus, the Company sought, and by Bankruptcy Court order dated
September 17, 1998, obtained, an order authorizing the Company to enter into an
amendment of the DIP Facility, under which they borrowed $22,000,000 under a
second term loan from AG Capital Funding Partners, L.P. (as agent for and on
behalf of certain affiliates and/or managed, accounts), which monies were used
to reduce outstanding borrowings under the revolving line of credit portion of
the Company's DIP Facility, on the same priority basis as the original term loan
under the DIP Facility.

The DIP Facility was set to expire on March 5, 1999. Levitz negotiated with the
Lenders and reached an agreement extending the maturity date of the loans under
the DIP Facility and obtained an additional $10 million commitment (the
Overadvance Term Loan) from Resurgence Partners, L.P., an affiliate of the
Company's largest claim holder, the proceeds of which were available to reduce
borrowings under the revolving loans under the DIP Facility. On March 2, 1999,
the Bankruptcy Court approved the amendment. On May 28, 1999, the Bankruptcy
Court authorized an amendment to the DIP Facility to repay the AG Capital
Funding Partners Term Loans using proceeds of the Sale/Leaseback Transaction
with a third party and extend the DIP Facility maturity through December 31,
1999. Thus both the original term note in the amount of $36.4 million and the
second term note in the amount of $22 million, both of which had accrued
interest at sixteen percent, were paid in full. Also, the maturity date of the
DIP Facility was extended (by the tenth amendment to the DIP Facility) to
December 31, 1999 and the commitment thereunder reduced to $125 million.

Three further amendments to the DIP Facility were approved by the Bankruptcy
Court, between August and December, 1999. Previously, the DIP Facility had
required that the Revolving Credit Line be repaid before any principal payments
be made on the Overadvance Term Loan. On August 24, 1999, the Bankruptcy Court
approved amendments that provided for principal repayment of the Overadvance
Term Loan, should the Excess Availability surpass $18,000,000 for five
consecutive business days; and, conversely, granting a $10,000,000 term loan,
should the Excess Availability fall below $12,000,000; as well as a provision
for acceleration of the Debtors' obligations under the Overadvance Term Loan
under certain conditions. By final order entered on October 27, 1999, the DIP
Facility was amended to: (1) extend the Expiration Date and Overadvance Maturity
Date to June 30, 2000; (2) extend the Fixed Asset Sublimit to December 31, 1999;
(3) reduce the commitment on the Revolving Line of Credit to $95,000,000; (4)
require the Debtors to pay an amendment fee of $150,000; and (5) and set the
minimum EBITDA at $4,000,000 beginning December 31, 1999, and $9,000,000 as of
March 31, 2000. On December 14, 1999, the Bankruptcy Court approved an amendment
to the DIP Facility to include Levitz Furniture Company of Massachusetts, Inc.
as a party subject to all the provisions of the DIP Credit Agreement.
Subsequently, the Court approved amendments providing for additional overadvance
loans to a total amount of $35,000,000. The Debtors pay interest monthly at an
annual rate of 16% on the

                                       26
<PAGE>

funded portion of the Overadvance Term Loan commitment and a monthly collateral
management fee of .75%, which can be paid by issuing additional notes.

On June 21, 2000, the Bankruptcy Court approved an amendment to (i) extend the
DIP Facility to December 31, 2000, (ii) decrease the availability of the
Revolving Loans and Letters of Credit to no more than $85 million, (iii) waive
violations of EBITDA covenants required as of March 31, 2000, and set minimum
EBITDA at ($2,000,000) and ($0) for the three and six month periods ending June
30 and September 30, 2000, and (iv) provide for an increase in the Overadvance
Term Loan commitment to a total of $45 million.

In connection with a plan of reorganization, Levitz anticipates arranging exit
financing before the Confirmation Date comprised of a working capital revolver
with a total commitment of approximately $95,000,000. The terms, conditions,
collateral requirements and borrowing availability under the working capital
facility are expected to be similar to the current DIP Facility. Proceeds from
the working capital revolver and from existing creditors and vendors will be
used to fund the operating and working capital requirements of Levitz.

Levitz is exposed to market risk as a result of the terms of the DIP Facility
which requires the Company to pay a variable interest rate based on the
fluctuation of Bankers Trust Company's prime lending rate. The change in annual
cash flow and earnings resulting from a 1% increase or decrease in interest
rates based on outstanding borrowings at March 31, 2000 would be approximately
$0.5 million assuming other variables remained constant.

The Company is currently in default of the senior notes, senior deferred coupon
debentures, and senior subordinated notes, all of which are unsecured and have
been classified as liabilities subject to compromise.

On September 4, 1998 Levitz and its operating subsidiaries entered into an
agreement ("Merchant Agreement") with Household Bank (SB), N.A. ("Household")
whereby Household would provide financing to individual consumers purchasing
merchandise from Levitz ("Private-Label Credit Card Program"). The Court
approved the Merchant Agreement and granted a first priority and security
interest and lien to Household on certain reserves retained or accumulated by
Household, totaling $17.3 million at March 31, 2000, and gave administrative
expense status to substantially all obligations of Levitz arising under the
Merchant Agreement.

Also on September 4, 1998, General Electric Capital Corporation ("GECC") and
Levitz terminated the Second Amended and Restated Account Purchase and Credit
Card Agreement (the "GECC Agreement") which was replaced by the Merchant
Agreement. Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.

The Company determined that the transfer of the GECC portfolio to Household
qualified for sale treatment under Financial Accounting Standards Board,
Statement of Accounting Standards No. 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishments of Liabilities". Accordingly,
the Receivable under Account Purchase Agreement and the offsetting Obligation
Under Account Purchase Agreement were removed from the consolidated condensed
balance sheets.

At March 31, 2000, Household's portfolio balance was $452.8 million. The
portfolio balance includes Levitz customer purchases through Household as well
as customer accounts transferred to Household from GECC. Levitz recorded income
from both the Merchant Agreement and the GECC Agreement of $24.4 million, $13.2
million and $7.9 million, respectively for the years ended March 31, 2000, 1999
and 1998. Finance income from the private label credit card program increased by
$11.2 million over the prior year. The Company terminated the former agreement
with GE Capital and entered into a new agreement with Household Bank NA in
September 1998; however, the economic terms of the new agreement were not fully
effective until Household commenced servicing in December 1998. Under the
Household agreement, higher interest finance charges and other fees were
instituted. In addition, the share of the income stream from sale of credit
insurance increased for the Company under the Household agreement as compared to
the GE agreement. The year over year improvement in income from the portfolio
occurred in the first six months of the current fiscal year. In the last six
months, as a result of store closings, the portfolio decreased in size resulting
in decreased net interest income and a higher bad debt expense. The higher bad
debt expense is primarily associated with losses related to closed store
portfolio accounts. The Company accrued a charge of $14.1 million which is
included in reorganization expense for the estimated remaining losses on the
closed store receivable portfolio which the Company is obligated to pay under
its agreement with Household Bank NA. The decrease in recorded income for the
period ended March 31, as compared to the prior year was due to the write-off of
$5.9 million in future revenue service fees under the GECC Agreement as
explained in Note 7 to the consolidated financial statements.

                                       27
<PAGE>

Levitz is exposed to market risk under the terms of the Household Agreement.
Levitz may pay a fee or may receive income, based upon the relationship among
the interest earned on the portfolio, the amount of the servicing fee, the cost
of capital, promotional discount fees and credit losses. Levitz is obligated for
all credit losses under the portfolio, including the GECC portfolio transferred
to Household, up to a maximum of 15% of average outstanding receivables and for
50% of all credit losses above 15%. Levitz is also required under the Merchant
Agreement to fund a merchant risk reserve of 2.5% for the first year and 3.5%
thereafter of all amounts financed up to a stipulated dollar amount. The total
amount in portfolio risk reserve as of March 31, 2000 was $17.3 million.

Going Concern

On May 25, 2000, the Debtors filed a "Disclosure Statement" and a "Second
Amended Joint Plan of Reorganization" ("Plan of Reorganization" or "Plan"),
pursuant to Section 1125 of the Bankruptcy Code with the Court. The Disclosure
Statement sets forth certain information regarding, among other things,
significant events that have occurred during the Debtors' Chapter 11 cases and
the anticipated organization, operation and financings of "Reorganized Levitz".
The Disclosure Statement describes the Plan of Reorganization, certain effects
of Plan confirmation, certain risk factors associated with securities to be
issued under the Plan, and the manner in which distribution will be made under
the Plan. In addition, the Disclosure Statement discusses the confirmation
process and the voting procedures that holders of claims in impaired classes
must follow for their votes to be counted. The Plan of Reorganization sets forth
certain information, among other things, the classification and treatment of
claims and interests, means for implementation of the Plan, acceptance or
rejection of the Plan and effect of rejection by one or more classes of claims
or interests, provisions for governing distributions, the treatment of executory
contracts and leases, conditions precedent to confirmation of the Plan and the
occurrence of the effective date of the Plan. The foundation of the Plan is (i)
a management agreement between Seaman Furniture Company, Inc. ("Seaman") and LFI
(the "Management Agreement") and (ii) a shared services agreement between Seaman
and LFI (the "Shared Services Agreement").

Under the Management Agreement, Seaman would perform the general day to day
management of Levitz's stores located on the East Coast. Levitz would perform
the day to day management of its stores on the West Coast. Under the Shared
Services Agreement, Seaman would provide certain services to Levitz, including:
(i) accounting, (ii) finance, (iii) advertising support, (iv) MIS and
telecommunications, (v) human resources, (vi) insurance, (vii) inventory control
and merchandise loss protection, (vii) real estate, (ix) legal and (x) logistic
support of the merchandise program. The agreements would provide the Debtors
with, among other things, cost savings, streamlined operations, and economies of
scale with respect to purchasing inventory.

The Plan of Reorganization as filed provides, among other things, that as of the
Plan effective date:

(1)         All holders of an allowed administrative and priority tax claim are
            unimpaired and unclassified, are not entitled to vote on the Plan
            and will receive cash or such other treatment as to which LFI and
            such creditor shall have agreed in writing.
(2)         All holders of an allowed other priority claim (Class 1), setoff
            claim (Class 2) and miscellaneous secured claim (Class 3) are
            unimpaired, are deemed to have accepted the Plan and, therefore not
            entitled to

                                       28
<PAGE>

            vote on the Plan and will receive cash or setoff or reinstatement or
            such other treatment as to which LFI and such creditor shall have
            agreed in writing.
(3)         All holders of a small unsecured claim (less than $1,000, Class 4)
            are impaired and are entitled to vote on the Plan and shall receive
            in cash 30% of the allowed amount of the claim.
(4)         All holders of an allowed general unsecured claim (Class 5) are
            impaired, are entitled to vote on the Plan and shall receive their
            pro rata share of the new common stock distribution of "Levitz Home
            Furnishings, Inc." ("LFHI"). A beneficial holder of more than one
            Allowed Class 5 General Unsecured Claim may elect to reduce the
            aggregate amount of such Claim to $20,000 and receive a single
            distribution as a holder of an Allowed Class 4 Small Unsecured
            Claim.
(5)         All holders of an allowed subordinated claim (Class 6) are impaired,
            are deemed to have rejected the Plan and, therefore, not entitled to
            vote on the Plan, and shall not receive or retain any property or
            interest in property on account of their subordinated claim.
(6)         All intercompany claims (Class 7) shall be cancelled, and their
            holders shall not receive or retain any property or interest in
            property on account of their intercompany claims.
(7)         All holders of Interests (the rights of any current or former holder
            or owner of "old equity securities" authorized and issued prior to
            the Plan confirmation date, Class 8) are impaired, are deemed to
            have rejected the Plan and, therefore, are not entitled to vote on
            the Plan. All Interests shall be cancelled and the Interest holders
            shall not receive or retain any property or interest in property on
            account of their Interests.

On June 23, 2000 the Chancery Court of Delaware issued a preliminary injunction
prohibiting Seaman from performing or taking any further action with respect to
the performance of the aforementioned Management and Shared Services agreements.
While Levitz is not a party to the Chancery Court action, this decision makes it
unlikely that the Company will be able to implement the Plan of Reorganization
as filed by the Company on May 25, 2000.

Levitz and substantially all of its subsidiaries, as debtors-in-possession, are
parties to a DIP Credit Agreement dated as of September 5, 1997, as amended (the
"DIP Facility"), with Bankers Trust Credit Corp. ("BTCC") as agent. The DIP
Facility has provided Levitz with the cash and liquidity necessary to conduct
its operations and pay for merchandise shipments at normal levels during the
course of the Chapter 11 Cases. The DIP Facility is secured by substantially all
of the assets of Levitz and a perfected pledge of stock of all Levitz companies.
On June 21, 2000, the Bankruptcy Court approved an amendment to (i) extend the
DIP Facility to December 31, 2000, (ii) decrease the availability of the
Revolving Loans and Letters of Credit to no more than $85 million, (iii) waive
violations of EBITDA covenants required as of March 31, 2000 and set minimum
EBITDA at ($2,000,000) and ($0) for the three and six month periods ending June
30 and September 30, 2000, and (iv) provide for an increase in the Overadvance
Term Loan commitment to a total of $45 million. The Company does not currently
have any other sources of financing to support its cash flow requirements beyond
December 31, 2000.

As a result of the Chancery Court Action, the Company is currently in the
process of developing a new "stand-alone" plan of reorganization. Such plan will
include measures for obtaining a working capital financing facility to replace
the current revolver facility under the DIP Agreement and sources of additional
capital from existing creditors and vendors which would be required to finance
the Company's "stand-alone" plan. The proceeds of these arrangements would be
used to support future operations.

                                       29
<PAGE>

Inherent in a successful plan of reorganization is a capital structure that
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 Case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors and stockholders.

                                       30
<PAGE>

ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                       Page
                                                                       ----
Presentation of Unaudited Financial Statements......................    32

Consolidated Balance Sheets.........................................    33

Consolidated Statements of Operations...............................    34

Consolidated Statements of Stockholders' Deficit....................    35

Consolidated Statements of Cash Flows...............................    36

Notes to Consolidated Financial Statements..........................    37

Consolidated Financial Statement Schedule (Item 14(a))..............    71

                                       31
<PAGE>

                 Presentation of Unaudited Financial Statements
                              As of July 14, 2000
                              -------------------

Because of the significant uncertainties facing the Company (See Note 1 to the
Consolidated Financial Statements), Arthur Andersen LLP, the Company's
independent auditors, have not been able, as of the above date, to express an
opinion on the accompanying consolidated balance sheets of Levitz Furniture
Incorporated (a Delaware corporation) and subsidiaries, debtor-in-possession
(the "Company") as of March 31, 2000 and 1999, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended March 31, 2000.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Chapter 11 filing was the result
of violation of certain debt covenants, recurring losses, deterioration of
vendor support, and cash flow deficiencies. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. Although the
Company is currently operating as a debtor-in-possession under the jurisdiction
of the bankruptcy court, the continuation of the business as a going concern is
contingent upon, among other things, the ability to formulate a plan of
reorganization which will gain approval of the creditors and confirmation by the
bankruptcy court, success of future operations, the ability to obtain financing
and the ability to recover the carrying amount of assets and/or the amount and
classification of liabilities. Management's plans in regard to these matters are
described in Note 1. The accompanying financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.

The accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
and priority thereof; (c) as to stockholder accounts, the effect of any changes
that may be made in the capitalization of the Company; or (d) as to operations,
the effect of any changes that may be made in the business.

                                       32
<PAGE>
                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Dollars in thousands, except share data)
<TABLE>
<CAPTION>
                                                                   March 31,
                                                          ---------------------------
                                                             2000           1999
                                                          ------------   ------------
<S>                                                         <C>            <C>
                          ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                 $   2,891      $   3,046
  Receivables                                                  21,340         21,861
  Inventories                                                  80,293         84,232
  Deposits and prepaid expenses                                 4,355          4,452
  Property under agreement of sale                                  -         95,571
                                                          ------------   ------------
    Total current assets                                      108,879        209,162
                                                          ------------   ------------
PROPERTY AND EQUIPMENT:
  Land                                                             90          3,890
  Buildings and building improvements                             377          5,860
  Leasehold improvements                                       35,414         31,616
  Store, warehouse and transportation
    equipment                                                  50,196         43,243
                                                          ------------   ------------
                                                               86,077         84,609
  Less-Accumulated depreciation and
    amortization                                               52,002         45,742
                                                          ------------   ------------
                                                               34,075         38,867
  Property under capital leases, net of
    accumulated amortization of $29,918
    in 2000 and $28,926 in 1999                                27,772         33,303
                                                          ------------   ------------
                                                               61,847         72,170
                                                          ------------   ------------
OTHER ASSETS:
  Intangible leasehold interests                                5,085          5,637
  Property held for disposal                                    2,250         32,469
  Deferred income taxes                                             -          4,440
  Other                                                        21,321          9,764
                                                          ------------   ------------
                                                               28,656         52,310
                                                          ------------   ------------
                                                            $ 199,382      $ 333,642
                                                          ============   ============
          LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES NOT SUBJECT TO COMPROMISE
CURRENT LIABILITIES:
  Cash overdrafts                                           $  10,210      $   8,823
  Current portion of long-term debt                                 -          6,962
  Current portion of obligations under capital leases             351          9,846
  Accounts payable, trade                                      23,558         23,060
  Accrued expenses and other liabilities                       84,491         73,979
  Deferred income taxes                                             -         11,590
  DIP Facility                                                 77,392        144,618
                                                          ------------   ------------
    Total current liabilities                                 196,002        278,878
                                                          ------------   ------------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion       25,946         29,368
                                                          ------------   ------------
OTHER NONCURRENT LIABILITIES                                   15,078          4,290
                                                          ------------   ------------
DEFERRED INCOME TAXES                                           7,013              -
                                                          ------------   ------------
LIABILITIES SUBJECT TO COMPROMISE                             302,424        301,326
                                                          ------------   ------------
COMMITMENTS AND CONTINGENCIES (See Note 14)

STOCKHOLDERS' DEFICIT:
  Common stock, $0.01 par; authorized 63,700,000
    shares; 30,320,628 shares issued and 30,071,621
    outstanding in both 2000 and 1999                             303            303
  Capital in excess of par                                    213,560        213,560
  Retained earnings (deficit)                                (560,643)      (493,782)
  Treasury stock, at cost, 249,007 shares in both
    2000 and 1999                                                (301)          (301)
                                                          ------------   ------------
      Total stockholders' deficit                            (347,081)      (280,220)
                                                          ------------   ------------
                                                            $ 199,382      $ 333,642
                                                          ============   ============
</TABLE>

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

                                       33
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                               Years Ended March 31,
                                                    --------------------------------------------
                                                         2000           1999            1998
                                                    -------------  --------------  -------------
<S>                                                   <C>             <C>            <C>
NET SALES                                              $ 535,052       $ 653,100      $ 812,948
                                                    -------------  --------------  -------------
COSTS AND EXPENSES:
  Cost of sales                                          303,016         376,327        467,591
  Selling, general and administrative expenses           245,819         280,810        337,278
  Unusual operating expenses                                   -               -         16,151
  Depreciation and amortization                            8,862          17,948         24,093
  Interest expense, net                                   16,822          29,477         39,592
                                                    -------------  --------------  -------------
                                                         574,519         704,562        884,705
                                                    -------------  --------------  -------------
LOSS BEFORE REORGANIZATION ITEMS AND
  INCOME TAXES                                           (39,467)        (51,462)       (71,757)

REORGANIZATION ITEMS:
  Loss on store closings and other                        21,132          36,359         33,649
  Acceleration of goodwill amortization                        -               -         14,975
  Professional fees                                        6,262           6,623          6,888
                                                    -------------  --------------  -------------
    Total                                                 27,394          42,982         55,512
                                                    -------------  --------------  -------------
LOSS BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEMS                                    (66,861)        (94,444)      (127,269)

INCOME TAX (BENEFIT)                                           -               -        (39,687)
                                                    -------------  --------------  -------------
LOSS BEFORE EXTRAORDINARY ITEMS                          (66,861)        (94,444)       (87,582)

EXTRAORDINARY ITEMS, NET OF TAX
  BENEFIT OF $2,630 IN 1998                                    -               -         (5,805)
                                                    -------------  --------------  -------------
NET LOSS                                               $ (66,861)      $ (94,444)     $ (93,387)
                                                    =============  ==============  =============
LOSS PER COMMON SHARE:
  Loss before extraordinary items                         ($2.22)         ($3.15)        ($2.93)
  Extraordinary items                                          -               -          (0.19)
                                                    -------------  --------------  -------------
NET LOSS                                                  ($2.22)         ($3.15)        ($3.12)
                                                    =============  ==============  =============
WEIGHTED AVERAGE NUMBER OF COMMON
  SHARES OUTSTANDING                                  30,071,621      30,023,119     29,923,578
                                                    =============  ==============  =============
</TABLE>

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

                                       34
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                       Common Stock            Capital       Retained                         Minimum
                                ---------------------------   in Excess      Earnings         Deferred         Pension      Treasury
                                    Shares        Amount        of Par       (Deficit)      Compensation      Liability       Stock
                                --------------  -----------  ------------  -------------   --------------   -------------  ---------
<S>                                <C>               <C>        <C>          <C>               <C>             <C>          <C>
BALANCE, MARCH 31, 1997            30,320,628        $ 303      $213,560     $ (305,951)       $ (1,169)       $ (637)      $ (178)

Net loss                                    -            -             -        (93,387)              -             -            -

Amortization of deferred
  compensation                              -            -             -              -             871             -            -

Elimination of minimum pension
  liability                                 -            -             -              -               -           637            -

Treasury stock, 121,275 shares              -            -             -              -               -             -         (110)
                                --------------  -----------  ------------  -------------   ------------- -------------  -----------
BALANCE, MARCH 31, 1998            30,320,628          303       213,560       (399,338)           (298)            -         (288)

Net loss                                    -            -             -        (94,444)              -             -            -

Amortization of deferred
  compensation                              -            -             -              -             298             -            -

Treasury stock, 67,275 shares               -            -             -              -               -             -          (13)
                                --------------  -----------  ------------  -------------   ------------- -------------  -----------
BALANCE, MARCH 31, 1999            30,320,628        $ 303      $213,560     $ (493,782)       $      -        $    -       $ (301)

Net loss                                    -            -             -        (66,861)              -             -            -
                                --------------  -----------  ------------  -------------   ------------- -------------  -----------
BALANCE, MARCH 31, 2000            30,320,628        $ 303      $213,560     $ (560,643)       $      -        $    -       $ (301)
                                ==============  ===========  ============  =============   ============= =============  ===========
</TABLE>

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

                                       35
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Years Ended March 31,
                                                             -----------------------------------------
                                                                2000           1999          1998
                                                             ------------   -----------   ------------
<S>                                                            <C>           <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                     $ (66,861)    $ (94,444)     $ (93,387)
                                                             ------------   -----------   ------------
  Adjustments to reconcile net loss to net cash used in
    operating activities:
      Depreciation                                                 5,377        10,750         14,421
      Amortization                                                 3,485         7,198          9,672
      Amortization of original issue discount on
        deferred debentures                                            -             -            331
      Amortization of deferred financing fees                          -         2,061          2,326
      Amortization of deferred compensation                            -           298            871
      Pension expense                                                (58)          310            901
      Loss (gain) on disposal of property and equipment              (29)           58            (39)
      Other                                                            -           390          6,146
      Deferred tax benefit                                             -             -        (42,372)
      Extraordinary loss related to early redemption
        of debt, before tax benefit                                    -             -          8,435
      Inventory write-down                                             -         4,836          6,124
      Goodwill write-off                                               -             -          2,810
      Reorganization items, non-cash                               4,692        21,853         45,532
      Change in operating assets and liabilities:
        Decrease (increase) in:
          Receivables                                                521         3,553          6,265
          Inventories                                              3,939        46,065         19,376
          Deposits and prepaid expenses                               85        (1,381)           (49)
          Income taxes receivable                                      -             -          2,299
          Other, net                                             (11,495)       (4,372)           315
        Increase (decrease) in:
          Accounts payable, trade                                    879        (9,144)        (2,320)
          Accrued expenses and other liabilities                   9,208        10,829         (4,593)
          Income taxes payable                                      (110)          (38)           198
          Other noncurrent liabilities                             6,818           119           (305)
                                                             ------------   -----------   ------------
             Total adjustments                                    23,312        93,385         76,344
                                                             ------------   -----------   ------------
NET CASH USED IN OPERATING ACTIVITIES                            (43,549)       (1,059)       (17,043)
                                                             ------------   -----------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                            (4,863)       (7,768)       (14,130)
  Proceeds from sale of property and equipment
    and other assets                                             121,640        20,685         46,775
                                                             ------------   -----------   ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES                        116,777        12,917         32,645
                                                             ------------   -----------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under credit facilities                             628,447       840,799        990,740
  Repayments under credit facilities                            (695,673)     (844,951)      (992,189)
  Principal payments on long-term debt                            (6,962)         (145)        (8,503)
  Principal payments under capital lease obligations                (582)       (2,269)        (3,174)
  Increase (decrease) in cash overdrafts                           1,387        (7,572)        (3,129)
  Payment of deferred financing fees                                   -             -         (3,165)
  Acquisition of treasury stock                                        -           (13)          (110)
                                                             ------------   -----------   ------------
NET CASH USED IN FINANCING ACTIVITIES                            (73,383)      (14,151)       (19,530)
                                                             ------------   -----------   ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS                           (155)       (2,293)        (3,928)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       3,046         5,339          9,267
                                                             ------------   -----------   ------------
CASH AND CASH EQUIVALENTS, END OF YEAR                         $   2,891     $   3,046      $   5,339
                                                             ============   ===========   ============
</TABLE>

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

                                       36
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2000

1.       CHAPTER 11 PROCEEDINGS AND BASIS OF FINANCIAL STATEMENTS PRESENTATION:

         On September 5, 1997 (the "Petition Date"), Levitz Furniture
         Incorporated, a Delaware corporation ("LFI"), and 11 of its
         subsidiaries (collectively, the "Debtors"), including, Levitz Furniture
         Corporation, a Florida corporation and wholly-owned subsidiary of LFI
         ("Levitz"), filed voluntary petitions for relief under Chapter 11,
         Title 11 of the United States Code (the "Bankruptcy Code") with the
         United States Bankruptcy Court (the "Court") for the District of
         Delaware, Wilmington, Delaware under Case No. 97-1842(MFW). Pursuant to
         Sections 1107 and 1108 of the Bankruptcy Code, LFI, as debtor and
         debtor-in-possession, has continued to manage and operate its assets
         and businesses pending the confirmation of a reorganization plan or
         plans and subject to the supervision and orders of the Court. Because
         LFI is operating as debtor-in-possession under Chapter 11 of the
         Bankruptcy Code, the existing directors and officers of LFI continue to
         manage the operations of LFI subject to the supervision and orders of
         the Court.

         Certain subsidiaries were not included in the Chapter 11 filings. These
         subsidiaries are inactive and the results of their operations and
         financial position are not material to the consolidated financial
         statements.

         On May 25, 2000, the Debtors filed a "Disclosure Statement" and a
         "Second Amended Joint Plan of Reorganization" ("Plan of Reorganization"
         or "Plan"), pursuant to Section 1125 of the Bankruptcy Code with the
         Court. The Disclosure Statement sets forth certain information
         regarding, among other things, significant events that have occurred
         during the Debtors' Chapter 11 cases and the anticipated organization,
         operation and financings of "Reorganized Levitz". The Disclosure
         Statement describes the Plan of Reorganization, certain effects of Plan
         confirmation, certain risk factors associated with securities to be
         issued under the Plan, and the manner in which distribution will be
         made under the Plan. In addition, the Disclosure Statement discusses
         the confirmation process and the voting procedures that holders of
         claims in impaired classes must follow for their votes to be counted.
         The Plan of Reorganization sets forth certain information, among other
         things, the classification and treatment of claims and interests, means
         for implementation of the Plan, acceptance or rejection of the Plan and
         effect of rejection by one or more classes of claims or interests,
         provisions for governing distributions, the treatment of executory
         contracts and leases, conditions precedent to confirmation of the Plan
         and the occurrence of the effective date of the Plan. The foundation of
         the Plan is (i) a management agreement between Seaman Furniture
         Company, Inc. ("Seaman") and LFI (the "Management Agreement") and (ii)
         a shared services agreement between Seaman and LFI (the "Shared
         Services Agreement").

                                       37
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Under the Management Agreement, Seaman would perform the general day to
         day management of Levitz's stores located on the East Coast. Levitz
         would perform the day to day management of its stores on the West
         Coast. Under the Shared Services Agreement, Seaman would provide
         certain services to Levitz, including: (i) accounting, (ii) finance,
         (iii) advertising support, (iv) MIS and telecommunications, (v) human
         resources, (vi) insurance, (vii) inventory control and merchandise loss
         protection, (vii) real estate, (ix) legal and (x) logistic support of
         the merchandise program. The agreements would provide the Debtors with,
         among other things, cost savings, streamlined operations, and economies
         of scale with respect to purchasing inventory.

         The Plan of Reorganization as filed provides, among other things, that
         as of the Plan effective date:

         (1)      All holders of an allowed administrative and priority tax
                  claim are unimpaired and unclassified, are not entitled to
                  vote on the Plan and will receive cash or such other treatment
                  as to which LFI and such creditor shall have agreed in
                  writing.
         (2)      All holders of an allowed other priority claim (Class 1),
                  setoff claim (Class 2) and miscellaneous secured claim (Class
                  3) are unimpaired, are deemed to have accepted the Plan and,
                  therefore not entitled to vote on the Plan and will receive
                  cash or setoff or reinstatement or such other treatment as to
                  which LFI and such creditor shall have agreed in writing.
         (3)      All holders of a small unsecured claim (less than $1,000,
                  Class 4) are impaired and are entitled to vote on the Plan and
                  shall receive in cash 30% of the allowed amount of the claim.
         (4)      All holders of an allowed general unsecured claim (Class 5)
                  are impaired, are entitled to vote on the Plan and shall
                  receive their pro rata share of the new common stock
                  distribution of "Levitz Home Furnishings, Inc." ("LFHI"). A
                  beneficial holder of more than one Allowed Class 5 General
                  Unsecured Claim may elect to reduce the aggregate amount of
                  such Claim to $20,000 and receive a single distribution as a
                  holder of an Allowed Class 4 Small Unsecured Claim.
         (5)      All holders of an allowed subordinated claim (Class 6) are
                  impaired, are deemed to have rejected the Plan and, therefore,
                  not entitled to vote on the Plan, and shall not receive or
                  retain any property or interest in property on account of
                  their subordinated claim.
         (6)      All intercompany claims (Class 7) shall be cancelled, and
                  their holders shall not receive or retain any property or
                  interest in property on account of their intercompany claims.
         (7)      All holders of Interests (the rights of any current or former
                  holder or owner of "old equity securities" authorized and
                  issued prior to the Plan confirmation date, Class 8) are
                  impaired, are deemed to have rejected the Plan and, therefore,
                  are not entitled to vote on the Plan. All Interests shall be
                  cancelled and the Interest holders shall not receive or retain
                  any property or interest in property on account of their
                  Interests.

         On June 23, 2000 the Chancery Court of Delaware issued a preliminary
         injunction prohibiting Seaman from performing or taking any further
         action with respect to the performance of the aforementioned Management
         and Shared Services agreements. While Levitz is not a party to the
         Chancery Court action, this decision makes it unlikely that the Company
         will be able to implement the Plan of Reorganization as filed by the
         Company on May 25, 2000.

                                       38
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Levitz and substantially all of its subsidiaries, as
         debtors-in-possession, are parties to a DIP Credit Agreement dated as
         of September 5, 1997, as amended (the "DIP Facility"), with Bankers
         Trust Credit Corp. ("BTCC") as agent. The DIP Facility has provided
         Levitz with the cash and liquidity necessary to conduct its operations
         and pay for merchandise shipments at normal levels during the course of
         the Chapter 11 Cases. The DIP Facility is secured by substantially all
         of the assets of Levitz and a perfected pledge of stock of all Levitz
         companies. On June 21, 2000, the Bankruptcy Court approved an amendment
         to (i) extend the DIP Facility to December 31, 2000, (ii) decrease the
         availability of the Revolving Loans and Letters of Credit to no more
         than $85 million, (iii) waive violations of EBITDA covenants required
         as of March 31, 2000 and set minimum EBITDA at ($2,000,000) and ($0)
         for the three and six month periods ending June 30 and September 30,
         2000, and (iv) provide for an increase in the Overadvance Term Loan
         commitment to a total of $45 million. The Company does not currently
         have any other sources of financing to support its cash flow
         requirements beyond December 31, 2000.

         As a result of the Chancery Court Action, the Company is currently in
         the process of developing a new "stand-alone" plan of reorganization.
         Such plan will include measures for obtaining a working capital
         financing facility to replace the current revolver facility under the
         DIP Agreement and sources of additional capital from existing creditors
         and vendors which would be required to finance the Company's
         "stand-alone" plan. The proceeds of these arrangements would be used to
         support future operations.

         The consolidated financial statements have been presented in accordance
         with the American Institute of Certified Public Accountants Statement
         of Position 90-7, "Financial Reporting by Entities in Reorganization
         under the Bankruptcy Code" (SOP 90-7) and have been prepared in
         accordance with generally accepted accounting principles applicable to
         a going concern, which principles, except as otherwise disclosed,
         assume that assets will be realized and liabilities will be discharged
         in the ordinary course of business. As a result of the Chapter 11 cases
         and circumstances relating to this event, including LFI's debt
         structure, its recurring losses, and current economic conditions, such
         realization of assets and liquidation of liabilities are subject to
         significant uncertainty. While under the protection of Chapter 11, the
         Company may sell or otherwise dispose of assets, and liquidate or
         settle liabilities, for amounts other than those reflected in the
         financial statements. Additionally, the amounts reported on the
         consolidated balance sheet could materially change because of changes
         in business strategies and the effects of any proposed plan of
         reorganization.

         The appropriateness of using the going concern basis is dependent upon,
         among other things, confirmation of a plan of reorganization, future
         profitable operations, the ability to comply with the terms of the DIP
         Facility and the ability to generate sufficient cash from operations
         and financing arrangements to meet obligations.

         In the Chapter 11 cases, substantially all unsecured liabilities as of
         the Petition Date are subject to compromise or other treatment under a

                                       39
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         plan of reorganization which must be confirmed by the Bankruptcy Court
         after submission to any required vote by affected parties. For
         financial reporting purposes, those liabilities and obligations whose
         treatment and satisfaction is dependent on the outcome of the Chapter
         11 cases have been segregated and classified as liabilities subject to
         compromise under reorganization proceedings in the consolidated balance
         sheets. Generally, all actions to enforce or otherwise effect repayment
         of pre-Chapter 11 liabilities as well as all pending litigation against
         the Debtors are stayed while the Debtors continue their business
         operations as debtors-in-possession. Unaudited schedules have been
         filed by the Debtors with the Court setting forth the assets and
         liabilities of the Debtors as of the Petition Date as reflected in the
         Debtor's accounting records. LFI has notified all known claimants
         subject to the August 10, 1998 bar date of their need to file a proof
         of claim with the Court. A bar date is the date by which claims against
         LFI must be filed if the claimants wish to receive any distribution in
         the Chapter 11 cases. Differences between amounts shown by the Debtors
         and claims filed by creditors are being investigated and will be either
         amicably resolved or adjudicated before the Court. The ultimate amount
         of and settlement terms for such liabilities are subject to an approved
         plan of reorganization and accordingly are not presently determinable.

         Under the Bankruptcy Code, the Debtors may elect to assume or reject
         real estate leases, employment contracts, personal property leases,
         service contracts and other prepetition executory contracts, subject to
         Court approval. Claims for damages resulting from the rejection of real
         estate leases and other executory contracts will be subject to separate
         bar dates. The Debtors have not reviewed all real estate leases for
         assumption or rejection. As of March 31, 2000, the Debtors had rejected
         leases for 27 store locations, reached agreement with the landlord on
         seven store locations to terminate without liability and assumed and
         assigned leases on 37 store locations without liability. The Court has
         extended the time for which the Debtors may assume or reject unexpired
         leases of nonresidential real property to August 28, 2000. The
         liabilities subject to compromise include a reserve for an estimated
         amount that may be claimed by lessors for the stores that have been
         closed through March 31, 2000. The Debtors will continue to analyze
         their real estate leases and executory contracts and may assume or
         reject additional leases and contracts. Such rejections could result in
         additional liabilities subject to compromise.

2.       DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Description Of Business

         Levitz Furniture Incorporated (LFI), a Delaware Corporation, was
         incorporated in December 1984 for the purpose of acquiring Levitz
         Furniture Corporation (which together with its subsidiaries are
         collectively referred to as "Levitz"). Levitz is a specialty retailer
         of furniture with a chain of 64 stores and 21 sales support centers
         located in major metropolitan areas in 13 states.

         Principles of Consolidation

         The consolidated financial statements include the accounts of LFI and
         its wholly-owned subsidiaries. All material intercompany accounts and
         transactions are eliminated in consolidation.

                                       40
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Revenue Recognition Policy

         Levitz currently recognizes revenue at the time a sales order is
         written and the following conditions are met: the merchandise is in
         stock and is available for sale; for a credit sale, the credit is
         unconditionally approved; and for items requested to be delivered by a
         customer, a firm delivery date is set, and a minimum down payment is
         received. In December 1999, the SEC issued Staff Accounting Bulletin
         ("SAB") 101, "Revenue Recognition in Financial Statements," which is
         effective no later than the fourth fiscal quarter of fiscal years
         beginning after December 15, 1999. This SAB provides additional
         guidance in applying generally accepted accounting principles for
         revenue recognition in consolidated financial statements. Upon the
         emergence from Chapter 11, or no later than January 1, 2001, the
         Company will change its method of accounting to record merchandise
         sales upon delivery of merchandise to customers, rather than prior to
         delivery, in order to be consistent with the provisions of SAB 101. Had
         the Company elected to adopt SAB 101 at March 31, 2000, the pre-tax
         amount of the one-time non-cash charge is estimated to have been
         between $4.0-$6.0 million. The cumulative effect of the change
         represents the deferral of previously recorded revenue, net of direct
         costs, related to merchandise that had not been delivered to the
         customer as of March 31, 2000. This change in accounting will impact
         future interim and fiscal year reporting periods based on seasonal
         trends in sales and corresponding delivery cycles. However, there will
         be no impact on the Company's cash flows from operations as a result of
         this change.

         Cash, Cash Equivalents and Cash Overdrafts

         All highly liquid debt instruments purchased with original maturities
         of three months or less are considered to be cash equivalents. Cash
         overdrafts include checks outstanding that do not have the right of
         offset with cash and cash equivalents. The carrying value approximates
         fair value because of the short maturity of those instruments.

         Inventories

         Inventories of furniture and accessories are stated at the lower of
         cost or market. In December 1998, the Company reviewed certain
         discontinued and/or slower moving inventory as well as damaged
         inventory items. Included in cost of sales is a $4.8 million charge
         reflecting the Company's adjustment to record this inventory at its
         estimated net realizable value. Cost is determined using the last-in,
         first-out (LIFO) method. Inventories valued on the LIFO cost method
         were approximately $9.1 million and $8.8 million lower than first-in,
         first-out (FIFO) costs at March 31, 2000 and 1999, respectively.

         During the year ended March 31, 1999, there was a significant reduction
         in inventories as a result of the sale of inventory to third-party
         liquidators upon the closing of forty-two facilities. The reduction in
         inventory caused the liquidation of prior year LIFO layers. The
         liquidation of prior year layers at prior year prices reduced the LIFO
         reserve and cost of sales by $3.9 million more than would have resulted
         if the liquidation of the layers were measured at current year prices.

                                       41
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Property and Equipment, Depreciation and Amortization

         Property and equipment purchased by LFI are stated at cost. Capital
         leases are recorded at the lower of the present value of the future
         minimum lease obligations or fair market value of the property.
         Depreciation is provided substantially by the straight-line method over
         the estimated useful lives of the related assets. The estimated useful
         lives range from 10 to 40 years for buildings, building improvements
         and leasehold improvements, and 2 to 20 years for store, warehouse and
         transportation equipment. Fully depreciated assets are written off
         against accumulated depreciation. Capital leases are depreciated over
         their initial terms which generally range from 15 to 40 years.

         Property Held for Disposal

         Property held for disposal represents the net book value or net
         realizable value of land, buildings, leasehold improvements and
         leasehold interests associated with closed facilities. Property held
         for disposal was $2.3 million and $32.5 million at March 31, 2000 and
         1999, respectively and is classified in other assets.

         Intangible Leasehold Interests

         Intangible leasehold interests represent the value associated with
         renewal terms of capital leases and original and renewal terms of
         operating leases acquired by LFI at rents below market value.
         Intangible leasehold interests are amortized by the straight-line
         method over the original and renewal terms of the related leases.
         Accumulated amortization related to intangible leasehold interests was
         $10.8 million and $9.1 million as of March 31, 2000 and 1999,
         respectively.

         Income Taxes

         LFI accounts for income taxes under an asset and liability approach
         that requires the recognition of deferred tax assets and liabilities
         for the expected future tax consequences of events that have been
         recognized in LFI's financial statements or tax returns. In estimating
         future tax consequences, LFI generally considers all expected future
         events other than enactment of changes in the tax laws or rates. The
         income tax benefit generated as a result of the net loss during the
         years ended March 31, 2000 and 1999 was fully offset by a valuation
         allowance.

         Deferred Financing Fees

         Deferred financing fees represent costs associated with obtaining
         financing arrangements. These fees were amortized over the original
         terms of the related debt. Accumulated amortization of the DIP
         financing fees was $1.1 million at March 31, 1998. Net deferred
         financing costs as of the Petition Date of $8.4 million and $2.5
         million for the senior secured facilities and for the various
         unsecured-debt obligations were written off during the fiscal year
         ended March 31, 1998 as an extraordinary item and as reorganization
         items, respectively.

         Advertising Expenses

         LFI expenses all advertising costs the first time the advertising takes
         place including direct-response advertising. Advertising expense for
         fiscal years ended March 31, 2000, 1999 and 1998 was $88.2 million,

                                       42
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         $93.4 million and $108.1 million, respectively. Advertising
         expenditures include promotional financing fees of $30.1 million, $28.4
         million and $27.2 million for fiscal years ended March 31, 2000, 1999
         and 1998, respectively.

         Use of Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates. See Note 1 regarding proceedings under Chapter
         11.

         Self Insurance

         LFI is generally self-insured up to a maximum of $0.2 million to $0.3
         million for losses and liabilities related to worker's compensation,
         health and welfare claims and comprehensive general, product and
         vehicle liability. Losses are accrued based upon LFI's estimates of the
         aggregate liability for claims incurred using certain actuarial
         assumptions followed in the insurance industry and based on LFI's
         experience.

         Earnings Per Share

         Shares outstanding from the issuance of options, warrants and
         restricted stock was 5,797,490, 6,178,740 and 7,293,737 for the years
         ended March 31, 2000, 1999 and 1998, respectively. Even though a
         portion of these shares may have a dilutive affect on earnings per
         share, all had an antidilutive impact on the Company's loss from
         continuing operations, and therefore, have no impact on the Company's
         earnings per share calculation.

         Reclassifications

         Effective March 31, 1999, LFI elected to reclassify certain revenues in
         its consolidated statements of operations. As a result, net sales, and
         selling, general and administrative ("SG&A") expenses have been
         restated for the fiscal years ended March 31, 1999 and 1998. LFI now
         reflects delivery income and miscellaneous revenue in SG&A expenses.
         Previously, these revenues were included in net sales. The effect of
         this reclassification was to reduce net sales and SG&A expenses by
         $19.8 million and $23.9 million for the fiscal years ended March 31,
         1999 and 1998, respectively.

         Certain other amounts in prior years' consolidated financial statements
         have been reclassified to conform to the current year's presentation.

3.       LIABILITIES SUBJECT TO COMPROMISE:

         The principal categories of obligations classified as liabilities
         subject to compromise under reorganization proceedings are identified
         below. The amounts below in total vary significantly from the stated
         amount of proofs of claim that were filed by the bar date set by the
         Court of August 10, 1998. The difference between claim amounts
         scheduled by the Debtors and the claim amounts filed by creditors are

                                       43
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         being investigated and will be either amicably resolved or adjudicated
         before the Court. The amounts in total will be subject to future
         adjustment depending on Court action, further developments with respect
         to potential disputed claims, determination as to the value of any
         collateral securing claims, or other events. Additional claims may
         arise from the rejection of additional real estate leases and executory
         contracts by the Debtors.

                                                                  March 31,
                                                                    2000
                                                                 (Dollars in
      Liabilities Subject to Compromise                           thousands)
      ---------------------------------                          -----------

Accounts payable, trade                                           $  38,901
Accrued expenses                                                     15,313
13.375% Senior Notes due 10/15/98                                    96,031 (1)
9.625% Senior Subordinated Notes due 7/15/03                        101,337 (1)
Senior Deferred Coupon Debentures due 6/15/02                         8,716 (1)
Reserve for lease rejection claims                                   20,432
Executive retirement and employment agreements                       17,359 (2)
General liability claims                                                736
Reserve for previous store closings                                   1,353
Common area maintenance                                                 234
Real estate taxes                                                     1,508
Personal property taxes                                                 504
                                                                  ----------
                                                                  $ 302,424
                                                                  ==========

         (1)      Includes accrued interest at September 4, 1997.
         (2)      Includes $15,824 related to employee benefits and agreements
                  which were assumed by a creditor in fiscal 1999.

         As a result of the Chapter 11 filing, no principal or interest payments
         will be made on most prepetition debt without Court approval or until a
         plan of reorganization providing for the repayment terms has been
         confirmed by the Court and becomes effective. Interest on prepetition
         unsecured obligations has not been accrued after the Petition Date
         except that interest expense and principal payments will continue to be
         recorded on capital lease obligations unless the leases are rejected by
         the Debtors. If a capital lease is rejected the obligation will be
         limited to the lease rejection claim. Contractual interest expense of
         $23.1 million was not recorded on certain prepetition debt for Fiscal
         years ended 2000 and 1999. Contractual interest expense of $13.3
         million was not recorded for the period from September 5, 1997 through
         March 31, 1998.

4.       REORGANIZATION ITEMS:

         Reorganization items represent the costs to restructure the Company
         during the Chapter 11 proceedings. Store closing charges include the
         write-down of assets to their net realizable value, severance pay and
         continuing expenses. The following costs are included for Fiscal 2000,
         1999 and 1998 (dollars in millions):

                                       44
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

                                          2000           1999           1998
                                      ------------   ------------   ------------
Store closings                              $   -          $42.3          $23.4
Deferred financing fees and
  other                                         -              -            2.5
Loss (gain) on sale of property
  held for sale                               0.4           (5.9)             -
Reserve for HRS closed store
  portfolio                                  14.1              -              -
Store closing reserve                         3.1              -              -
Lease rejection claims                        1.2              -              -
Adjust net realizable value of
  closed property                             2.3              -              -
Loss on sale of John M. Smyth
  Company Assets                                -              -           22.7
Professional fees                             6.3            6.6            6.9
                                      ------------   ------------   ------------
                                            $27.4          $43.0          $55.5
                                      ============   ============   ============

         In Fiscal 2000, the Company accrued a charge of $14.1 million related
         to the estimated remaining losses on the closed store receivable
         portfolio which the Company is obligated to pay under its agreement
         with Household Bank NA. In addition, as a result of unanticipated
         closing costs, the holding of certain properties longer than originally
         estimated, and unfavorable lease rejection costs, the Company increased
         the related reserves by $3.1 million, $1.2 million and $2.3 million
         respectively. Professional fees remained consistent with prior years.

         In Fiscal 1999, LFI closed forty-two stores in under-performing or
         non-strategic markets. Fifteen stores were closed in June 1998 and
         twenty-seven stores were closed in January 1999. In addition to the
         store closings, certain support functions were or are being eliminated
         over a period of time and fifteen warehouses, as part of the "Warehouse
         Rationalization Program", were closed where another warehouse in the
         same or adjacent market could service the store. The pre-tax charge for
         store and warehouse closings and the elimination of certain support
         functions was $42.3 million which included non-cash charges of $17.8
         million for the write-down of assets to their net realizable values net
         of capital lease obligations of $14.7 million, $7.6 million loss on the
         sale of inventory to liquidators and anticipated lease rejection claims
         of $4.3 million. Cash charges include severance pay of $3.3 million and
         continuing expenses of $9.3 million.

         During Fiscal 1999, LFI recognized $5.9 million in gains on the sale of
         eight previously closed stores. The gains were recorded as
         reorganizational items.

         During October 1997, the Court approved a motion for Levitz to close
         eighteen stores in under-performing markets. The Company recorded a
         pre-tax charge of $23.8 million associated with the closing of these
         stores. The charge included non-cash items for the write-down of
         property, capital lease assets, furniture and fixtures to their net
         realizable values of $18.9 million, the loss on sale of inventory
         through liquidation in the amount $1.5 million and the write-down of
         other assets in the amount of $0.8 million. Cash items include
         severance pay of $1.6 million and continuing expenses of $1.0 million.
         Additional non-cash reorganization items written off at the same time
         included acceleration of goodwill amortization of $4.7 million and
         deferred financing fees of $2.5 million. As of March 31, 2000
         approximately $2.6 million of this closing reserve remained.

                                       45
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         On January 9, 1998, Levitz sold substantially all of the assets of the
         John M. Smyth Company ("JMS"), a wholly-owned subsidiary of Levitz,
         which then operated five store locations in the Chicago, Illinois
         vicinity. The gross proceeds from the sale, which includes reimbursed
         amounts, were approximately $35.6 million. The proceeds were used to
         pay mortgages, accounts payable, accrued liabilities and reduce
         borrowings under the DIP Facilities. In December 1997, Levitz incurred
         a charge of $18.0 million on the sale and closing of the JMS
         facilities. The charge included non-cash items for loss on sale of
         property and equipment of $5.0 million, acceleration of goodwill
         amortization of $10.3 million, lease rejection claims of $1.6 million
         and write-off of other assets of $0.2 million. The charge included cash
         items of $0.3 million for severance pay and $0.6 million for continuing
         expenses. At March 31, 2000, the reserve was fully amortized.

         Net sales and operating (loss) (exclusive of certain central office
         expense allocations and prior to interest expense, income taxes and
         reorganization items) from the forty-two stores closed in Fiscal 1999,
         and the twenty-four stores closed or disposed of during Fiscal 1998
         were (in 000's):

                                      1999                1998
                                -----------------   -----------------

Net sales                               $138,257            $299,073

Operating (loss)                          (2,879)            (24,044)

         Professional fees include accounting, legal and consulting services
         provided to LFI and the Creditors' Committee which, subject to Court
         approval, are required to be paid by LFI while it is in Chapter 11.

5.       CONSOLIDATED STATEMENTS OF CASH FLOWS:

         Supplemental disclosures of cash flow information (dollars in
         thousands):

                                              2000      1999       1998
                                            -------   --------   --------

Cash paid/(received) during the year for:
    Interest                                $18,391    $26,152    $37,853
    Income tax (refunds), net                   110         36     (2,417)

                                       46
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

6.       DEBT:

         Outstanding balances under debt arrangements are as follows (dollars in
         thousands):

<TABLE>
<CAPTION>
                                                         March 31,                   Maturity
                                               -------------------------------     Year Ending
                                  Rate             2000             1999             March 31
                                  ----         --------------   --------------   -----------------
<S>                            <C>                  <C>              <C>           <C>
DIP Facilities                  Variable            $ 77,392         $144,618          2000
Senior notes                    13.375%               91,267           91,267          1999
Senior deferred coupon
  debentures                     15.00%                8,439            8,439          2003
Senior subordinated notes        9.625%              100,000          100,000          2004
Mortgages                      8.375%-13%                  -            6,962      2003 to 2006
                                               --------------   --------------
                                                     277,098          351,286
Less -
Current portion of long-
  term debt                                                -            6,962
DIP Facilities classified
  as current                                          77,392          144,618
Unsecured debt reclassified
  as subject to compromise                           199,706          199,706
                                               --------------   --------------
                                                    $      -         $      -
                                               ==============   ==============
</TABLE>

         LFI and substantially all of its subsidiaries, as
         debtors-in-possession, are parties to a DIP Credit Agreement dated as
         of September 5, 1997, as amended (the "DIP Facility"), with Bankers
         Trust Credit Corp. ("BTCC") as agent. The DIP Facility approved by the
         Bankruptcy Court initially provided for up to $260.0 million of
         availability. The DIP Facility contained revolving loans of $223.6
         million and a term loan of $36.4 million. Letter of Credit obligations
         under the revolving DIP Facility are limited to $25.0 million. The DIP
         Facility has been intended to provide Levitz with the cash and
         liquidity necessary to conduct its operations and pay for merchandise
         shipments at normal levels during the course of the Chapter 11 Cases.

         Loans made under the DIP Facility revolving notes bear interest, at
         Levitz's option, at a rate equal to either BTCC's prime lending rate
         plus 1.50% or BTCC's LIBOR rate plus 3.75%. The term note bore interest
         at 16%. Levitz is required to pay an unused line fee of 0.50%, and a
         letter of credit fee of 2.0%. Levitz paid financing fees of $3.2
         million on the closing date. These financing fees were amortized over
         the original life of the DIP Facility.

         The maximum borrowings, excluding the term commitments, under the DIP
         Facility are limited to 85% of eligible Accounts Receivable, 75% of
         Eligible Inventory (as both are defined in the DIP Facility).

         The DIP Facility is secured by substantially all of the assets of
         Levitz and a perfected pledge of stock of all Levitz companies. The DIP
         Facility contains restrictive covenants including, among other things,
         the maintenance of minimum earnings before interest, taxes,
         depreciation and amortization as defined (EBITDA), limitations on the
         incurrence of additional indebtedness, liens, contingent obligations,
         sale of assets, and a prohibition on paying dividends.

                                       47
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         During the Chapter 11 Cases, the Company negotitated several amendments
         to the DIP Facility. Toward the end of July 1998, the Company believed
         that additional availability under the revolving line of credit portion
         of the Company's DIP Facility was necessary as Levitz entered the fall
         1998 retail buying season. Thus, the Company sought, and by Bankruptcy
         Court order dated September 17, 1998, obtained, an order authorizing
         the Company to enter into an amendment of the DIP Facility, under which
         they borrowed $22,000,000 under a second term loan from AG Capital
         Funding Partners, L.P. (as agent for and on behalf of certain
         affiliates and/or managed, accounts), which monies were used to reduce
         outstanding borrowings under the revolving line of credit portion of
         the Company's DIP Facility, on the same priority basis as the original
         term loan under the DIP Facility.

         The DIP Facility was set to expire on March 5, 1999. Levitz negotiated
         with the Lenders and reached an agreement extending the maturity date
         of the loans under the DIP Facility and obtained an additional $10
         million commitment from Resurgence Partners, L.P., an affiliate of the
         Company's largest claim holder, the proceeds of which were available to
         reduce borrowings under the revolving loans under the DIP Facility. On
         March 2, 1999, the Bankruptcy Court approved the amendment. On May 28,
         1999, the Bankruptcy Court authorized an amendment to the DIP Facility
         to repay the Term Loans using proceeds of the Sale/Leaseback
         Transaction with a third party and extend the DIP Facility maturity
         through December 31, 1999. Thus both the original term note in the
         amount of $36.4 million and the second term note in the amount of $22
         million, both of which had accrued interest at sixteen percent, were
         paid in full. Also, the maturity date of the DIP Facility was extended
         (by the tenth amendment to the DIP Facility) to December 31, 1999 and
         the commitment thereunder reduced to $125 million.

         Three further amendments to the DIP Facility were approved by the
         Bankruptcy Court, between August and December, 1999. Previously, the
         DIP Facility had required that the Revolving Credit Line be repaid
         before any principal payments be made on the Overadvance Term Loan. On
         August 24, 1999, the Bankruptcy Court approved amendments that provided
         for principal repayment of the Overadvance Term Loan, should the Excess
         Availability surpass $18,000,000 for five consecutive business days;
         and, conversely, granting a $10,000,000 term loan, should the Excess
         Availability fall below $12,000,000; as well as a provision for
         acceleration of the Debtors' obligations under the Overadvance Term
         Loan under certain conditions. By final order entered on October 27,
         1999, the DIP Facility was amended to: (1) extend the Expiration Date
         and Overadvance Maturity Date to June 30, 2000; (2) extend the Fixed
         Asset Sublimit to December 31, 1999; (3) reduce the commitment on the
         Revolving Line of Credit to $95,000,000; (4) require the Debtors to pay
         an amendment fee of $150,000; and (5) and set the minimum EBITDA at
         $4,000,000 beginning December 31, 1999, and $9,000,000 as of March 31,
         2000. On December 14, 1999, the Bankruptcy Court approved an amendment
         to the DIP Facility to include Levitz Furniture Company of
         Massachusetts, Inc. as a party subject to all the provisions of the DIP
         Credit Agreement. Subsequently, the Court approved amendments providing
         for additional overadvance loans to a total amount of $35,000,000. The
         Debtors pay interest monthly at an annual rate of 16% on the funded
         portion of the Overadvance Term Loan commitment and a monthly
         collateral management fee of .75%, which can be paid by issuing
         additional notes.

                                       48
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         On June 21, 2000, the Bankruptcy Court approved an amendment to (i)
         extend the DIP Facility to December 31, 2000, (ii) decrease the
         availability of the Revolving Loans and Letters of Credit to no more
         than $85 million, (iii) waive violations of EBITDA covenants required
         as of March 31, 2000, and set minimum EBITDA at ($2,000,000) and ($0)
         for the three and six month periods ending June 30 and September 30,
         2000 and (iv) provide for an increase in the Overadvance Term Loan
         commitment to a total of $45 million.

         Levitz is exposed to market risk as a result of the terms of the DIP
         Facility which requires the Company to pay a variable interest rate
         based on the fluctuation of Bankers Trust Company's prime lending rate.
         The change in annual cash flow and earnings resulting from a 1%
         increase or decrease in interest rates based on outstanding borrowings
         at March 31, 2000 would be approximately $0.5 million assuming other
         variables remained constant.

         At March 31, 1999, all mortgages were classified as current due to the
         Sale-Leaseback Transaction and Bulk Sale Transaction as described in
         Note 8 to the consolidated financial statements. All mortgages have
         been paid from the proceeds of both transactions.

         The Company is currently in default of the senior notes, senior
         deferred coupon debentures, and senior subordinated notes, all of which
         are unsecured and have been classified as liabilities subject to
         compromise.

7.       UNUSUAL OPERATING EXPENSES:

         During Fiscal 1998, upon the resignation of an officer, LFI accrued
         severance costs (i.e., future payroll and employee benefit) of $1.3
         million under the provisions of an employment agreement. Additionally,
         LFI recorded a $5.9 million write-off of the future service revenue
         receivable under the GECC Agreement when Levitz was required to account
         for the transfer of assets under the GECC Agreement as a secured
         borrowing with a pledge of collateral rather than as a sale for
         financial reporting purposes. The charges increased the net loss by
         $5.0 million or $0.17 per share.

         During the fourth quarter of Fiscal 1998, the Company reviewed certain
         discontinued and/or slow moving inventory items that did not complement
         the new merchandise assortment. In an effort to accelerate the
         liquidation of these items, the Company reduced their selling prices.
         Included in unusual operating expenses is a $6.1 million charge
         reflecting the Company's adjustment to record this inventory at its
         estimated net realizable value. The Company also wrote off goodwill in
         the amount of $2.8 million. The charges increased the net loss by $6.1
         million or $0.20 per share.

8.       LEASING ARRANGEMENTS:

         Levitz leases its facilities generally under non-cancelable leases for
         original terms ranging from 10 to 40 years. Most leases are for land
         and buildings and contain renewal options and some include options to
         purchase the properties.

         On June 8, 1999, Levitz sold 11 owned properties and leasehold
         interests and/or rights on 11 leased properties for gross proceeds of
         $67.3 million ("Contract of Sale"). Net proceeds, which excludes
         closing costs, of $67.1 million were used to pay-off existing mortgages
         and related accrued interest, default interest and other fees of $7.6

                                       49
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         million; the term notes under the DIP Facility including accrued
         interest, extension fees and other fees of $59.2 million and cure costs
         relating to pre-petition liabilities of $0.3 million. The aggregate
         carrying value of these properties of $72.2 million was classified as
         property under agreement of sale at March 31, 1999. Capital lease
         obligations relating to these properties were $9.1 million as of March
         31, 1999 which were classified as current.

         The gain on the sale of owned property and leasehold interests of
         approximately $2.2 million, subject to further adjustment, will be
         amortized over the initial term of the "Unitary Lease Agreement" as
         described below. In addition, the Contract of Sale places certain
         limitations on Levitz incurring new unsecured debt following the
         approval of a plan of reorganization.

         At the same time, Levitz entered into a Unitary Lease Agreement to
         lease back all of the owned property as well as the property where the
         leasehold interest was sold ("Sale-Leaseback Transaction"). The Unitary
         Lease Agreement is for an initial term of twenty years with three
         additional option periods of five years each. Rent is payable monthly,
         in advance, calculated at 10.75% of the gross proceeds for the first
         five years of the initial term with incremental increases of 5% after
         each five year period of the initial terms and all option periods.

         The Unitary Lease requires Levitz to assume all obligations for
         payments and lease terms under the original leases ("the Overleases").
         The Unitary Lease allows Levitz to exercise a right to vacate or
         surrender all or a portion of the lease space of the properties by
         giving notice on or before the two year anniversary of the Unitary
         Lease Agreement and vacating within three years. In some instances,
         there is also a requirement that Levitz must vacate the warehouse
         portion and/or the showroom portion of some of the properties by
         specified dates. Levitz would receive a pro rata reduction in the
         Unitary Lease rent at the time it vacates the entire property and would
         be released of all payment obligations for the Overlease in the
         instances described above.

         On July 7, 1999, Levitz sold five owned properties and leasehold
         interests/rights in six properties, all of which locations had
         previously been closed. The gross proceeds from the transaction were
         $19.8 million (the "Bulk Sale Transaction"). Net proceeds of
         approximately $19.4 million, excluding closing costs, were used to
         pay-off existing mortgages and accrued interest of $0.6 million, cure
         costs relating to pre-petition liabilities of $0.3 million, proration
         of real estate taxes and other costs of $0.4 million and to pay down
         the revolver portion of the DIP Facility of approximately $18.1
         million. The Bulk Sale Transaction relieved Levitz of all lease
         obligations for the leased properties. The aggregate carrying value of
         these properties of $20.3 million was classified as property under
         agreement of sale at March 31, 1999.

         Amortization expense relating to property under capital leases for the
         years ended March 31, 2000, 1999 and 1998 was $2.7 million, $6.0
         million and $8.3 million, respectively.

         Minimum annual rentals on continuing stores at March 31, 2000 for the
         five years subsequent to March 31, 2000 and in the aggregate are as
         follows (dollars in thousands):

                                       50
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

                                             Capital             Operating
Year                                          Leases               Leases
----                                     ----------------     -----------------
2001                                               3,495                22,733
2002                                               3,407                21,973
2003                                               3,407                20,624
2004                                               3,407                19,587
2005                                               3,593                19,425
Thereafter                                        70,200               205,386
                                         ----------------     -----------------
Total minimum lease payments                      87,509              $309,728
                                                              =================
Less - Amount representing interest               61,212
                                         ----------------
Present value of net minimum
  payments under capital leases                   26,297
Less - Current portion of
         continuing leases                           351
                                         ----------------
                                                 $25,946
                                         ================

         Rent expense includes minimum rentals on operating leases, contingent
         payments based on either the Consumer Price Index or a percentage of
         sales for both capital and operating leases and amortization of
         intangible leasehold interests.

         Rent expense consists of the following (dollars in thousands):

                                       51
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

                            2000              1999               1998
                       ---------------   ----------------   ---------------
Rent expense                   17,399             18,630            23,835
Sublease income                  (481)              (810)             (519)
                       ---------------   ----------------   ---------------
Rent expense, net             $16,918            $17,820           $23,316
                       ===============   ================   ===============

         Some rental agreements contain escalation provisions that may require
         higher future rent payments. Rent expense incurred under rental
         agreements that contain fixed escalation clauses is recognized on a
         straight-line basis over the life of the lease.

9.       PRIVATE-LABEL CREDIT CARD PROGRAM:

         On September 4, 1998 Levitz and its operating subsidiaries entered into
         an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
         ("Household") whereby Household would provide financing to individual
         consumers purchasing merchandise from Levitz ("Private-Label Credit
         Card Program"). The Court approved the Merchant Agreement and granted a
         first priority and security interest and lien to Household on certain
         reserves retained or accumulated by Household, totaling $17.3 million
         at March 31, 2000, and gave administrative expense status to
         substantially all obligations of Levitz arising under the Merchant
         Agreement.

         Also on September 4, 1998, General Electric Capital Corporation
         ("GECC") and Levitz terminated the Second Amended and Restated Account
         Purchase and Credit Card Agreement (the "GECC Agreement") which was
         replaced by the Merchant Agreement. Levitz and GECC jointly released
         each other from substantially all obligations under the GECC Agreement.
         At the same time GECC sold the majority of the portfolio under the GECC
         Agreement, approximately $561.0 million, to Household.

         The Company determined that the transfer of the GECC portfolio to
         Household qualified for sale treatment under Financial Accounting
         Standards Board, Statement of Accounting Standards No. 125, "Accounting
         for Transfer and Servicing of Financial Assets and Extinguishments of
         Liabilities". Accordingly, the Receivable under Account Purchase
         Agreement and the offsetting Obligation under Account Purchase
         Agreement were removed from the consolidated balance sheets.

         Levitz is exposed to market risk under the terms of the Household
         Agreement. Levitz may pay a fee or may receive income, based upon the
         relationship among the interest earned on the portfolio, the amount of
         the servicing fee, the cost of capital, promotional discount fees and
         credit losses. Levitz is obligated for all credit losses under the
         portfolio, including the GECC portfolio transferred to Household, up to
         a maximum of 15% of average outstanding receivables and for 50% of all
         credit losses above 15%. A one percent increase or decrease in the
         finance charge to customers or the cost of capital or the credit loss
         rate would increase or decrease the annual income from the portfolio by
         $2.7 million to $4.9 million.

         Levitz recorded income from both the Merchant Agreement and the GECC
         Agreement of $24.4 million, $13.2 million, and $7.9 million for the
         years ended March 31, 2000, 1999, and 1998, respectively.

         Included in the consolidated balance sheets for the years ended March
         31, 2000 are (dollars in thousands):

                                       52
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

                                   2000                       1999
                        -------------------------     ----------------------
                            Asset      Liability         Asset    Liability
                        ------------  -----------     ---------  -----------

Net receivable/
   payable  (1)             $     -      $ 4,323        $2,964     $      -
Merchant risk
   reserve  (2)              17,336                      6,117            -
Promotional discount
   accrual  (3)                   -       26,935             -       23,788
                        ------------  -----------     ---------  -----------
    Total                   $17,336      $31,258        $9,081     $ 23,788
                        ============  ===========     =========  ===========

         (1)      The net receivable/payable represents amounts due from or owed
                  to Household on the settlement of monthly portfolio operations
                  pursuant to the Merchant Agreement and customer accounts that
                  were submitted to Household for purchase.

         (2)      Levitz is also required under the Merchant Agreement to fund a
                  merchant risk reserve of 2.5% for the first year and 3.5%
                  thereafter of all amounts financed up to a stipulated dollar
                  amount. The merchant risk reserve is the amounts paid to
                  Household in case the Merchant Agreement is terminated or
                  Levitz would discontinue operations. The cash can be returned
                  to Levitz if a letter of credit is posted or Levitz emerges
                  from bankruptcy and meets certain financial covenants. The
                  amount is included in other long-term assets on the
                  consolidated balance sheets.

         (3)     The promotional discount accrual represents the estimated
                 interest that will be charged back to Levitz for those
                 customers that are likely to take advantage of a "no-interest"
                 finance promotion at their time of purchase. Levitz is required
                 to make payments of the estimated amount on a monthly basis.
                 Under the GECC Agreement these amounts were paid in advance.
                 This accrual is included in accrued liabilities and other
                 expenses on the consolidated balance sheets.

10.      INCOME TAXES:

         LFI has a Federal cumulative net operating loss ("NOL") carry-forward
         of $131.1 million as of the fiscal year ended March 31, 2000. LFI has
         recorded a full valuation allowance against the federal and state NOL's
         for the fiscal year ended March 31, 2000. The cumulative NOL net tax
         benefit at March 31, 2000 before full valuation allowance was $45.9
         million. LFI will continue its current practice of providing a
         valuation allowance against future net operating losses pending a
         change in financial condition. Limitations may be placed on the
         realization of these NOL's when LFI emerges from bankruptcy. Federal
         NOL carry-forwards are available through Fiscal 2019.

                                       53
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         The benefit for income taxes was allocated as follows (dollars in
         thousands):

<TABLE>
<CAPTION>
                                           2000              1999               1998
                                     ---------------  -----------------  -----------------
<S>                                             <C>                <C>           <C>
Loss before extraordinary items                 $ -                $ -           $(39,687)
Extraordinary items                               -                  -             (2,630)
                                     ---------------  -----------------  -----------------
                                                $ -                $ -           $(42,317)
                                     ===============  =================  =================
</TABLE>

         The components of the benefit for income taxes applicable to loss
         before extraordinary items is (dollars in thousands):

<TABLE>
<CAPTION>
                                           2000               1999               1998
                                     ----------------   ----------------   ----------------
<S>                                            <C>                 <C>            <C>
Current:
  Federal                                      $   -               $  -           $      -
  State                                          140                 52                 57
                                     ----------------   ----------------   ----------------
                                                 140                 52                 57
                                     ----------------   ----------------   ----------------
Deferred:
  Federal                                          -                  -            (35,249)
  State                                         (140)               (52)            (4,495)
                                     ----------------   ----------------   ----------------
                                                (140)               (52)           (39,744)
                                     ----------------   ----------------   ----------------
                                               $   -               $  -           $(39,687)
                                     ================   ================   ================
</TABLE>

         A reconciliation of the statutory benefit for income taxes on loss
         before extraordinary items to the actual tax benefit is as follows
         (dollars in thousands):

<TABLE>
<CAPTION>
                                            2000               1999               1998
                                     -----------------   ----------------   ----------------
<S>                                          <C>                <C>                <C>
Computed income tax benefit
  at Federal statutory rate                  $(23,402)          $(33,056)          $(44,544)
State and local income tax
  benefit, net of federal
  income tax                                   (9,273)            (5,676)            (7,108)
Permanent differences                           2,609              2,938              6,797
Federal valuation allowance                    21,381             31,388              1,072
State valuation allowance                       7,139              7,198              4,223
Other                                           1,546             (2,792)              (127)
                                     -----------------   ----------------   ----------------
                                             $      -           $      -           $(39,687)
                                     =================   ================   ================
</TABLE>

                                       54
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Components of the deferred income tax assets and liabilities are
         (dollars in thousands):

<TABLE>
<CAPTION>
                                                              March 31,
                                   ---------------------------------------------------------------
                                                2000                              1999
                                   ------------------------------    -----------------------------
<S>                                    <C>               <C>              <C>             <C>
Deferred tax assets:
  Expense deducted for book and
    not for tax                                          $ 1,824                          $ 7,820
  Obligations under capital lease                          2,996                           18,559
  Other liabilities                                        4,088                           21,840
  Federal NOL benefit                  $ 45,901                           $ 57,194
     Less:  valuation allowance         (45,901)               -           (32,460)        24,734
                                   -------------                     --------------

  State NOL benefit                      24,834                             21,291
     Less:  valuation allowance         (24,834)               -           (21,291)             -
                                   -------------                     --------------
  AMT credit carryover                                         -                            2,039
  Other                                                      (36)                              24
  Valuation allowance                                     (8,872)                               -
                                                    -------------                     ------------
                                                               -                           75,016
                                                    -------------                     ------------
Deferred tax liabilities:
  Inventory                                                1,978                           15,757
  Property and equipment                                   1,226                           34,593
  Property under capital lease                             2,414                           16,076
  Stepped-up values on plant
    and equipment due to
    purchase accounting                                      800                           15,740
  Other                                                      593                                -
                                                    -------------                     ------------
                                                           7,011                           82,166
                                                    -------------                     ------------
Net deferred tax liability                               $ 7,011                           $7,150
                                                    =============                     ============
</TABLE>

11.      EMPLOYEE BENEFIT PLANS:

         Levitz has a non-contributory, defined benefit plan (the Pension Plan).

         In March 1996, Levitz amended the Pension Plan to exclude future
         benefit accruals for credited service and annual earnings after March
         31, 1996 and also excluded any associate from becoming a participant in
         the plan after January 1, 1996 (Pension Curtailment). Pension benefits
         are based on length of service and final average compensation as of the
         Pension Curtailment date and are integrated with Social Security. The
         maximum pension benefit per individual is limited to $130,000 per year.
         Plan assets consist primarily of marketable equity and debt securities
         and cash equivalents. Levitz's funding policy is to make the minimum
         annual contributions required by applicable regulations.

         Certain officers of Levitz are participants in an unfunded
         non-contributory supplemental executive retirement plan (SERP) and a
         life insurance plan. The SERP provides supplemental retirement,
         disability and/or death benefits. Retirement and disability benefits
         are equal to 4.0% of the highest consecutive five-year average of
         salary plus bonus paid for each year of service, limited to a maximum
         of 60% of compensation or $0.3 million on an indexed basis. Death
         benefits are

                                       55
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         equal to 3% per year of service to a maximum of 45% of such
         compensation. Benefits are subject to a dollar-for-dollar reduction for
         benefits paid under the Pension Plan, Social Security and certain other
         specified pension plan payments. The liability for the SERP and
         insurance plan is included in liabilities subject to compromise.

         The table below reconciles the funded status of the plans with the
         amounts recognized in the consolidated balance sheets (dollars in
         thousands):

<TABLE>
<CAPTION>
                                                                 2000                               1999
                                                  ---------------------------------   --------------------------------
                                                     Pension                             Pension
                                                       Plan              SERP              Plan             SERP
                                                  ---------------   ---------------   ---------------   --------------
<S>                                                     <C>                <C>               <C>             <C>
Change in benefit obligation
    Benefit obligation at
       beginning of year                                $ 58,907           $   772           $61,171         $ 15,080
    Service cost                                               -               102                 -              319
    Interest cost                                          3,948                60             4,074              105
    Actuarial (gain) loss                                 (7,249)              360               347             (760)
    Settlements (1)                                            -                 -                 -          (13,980)
    Special termination benefits                               -                 -                 -               14
    Gross benefits paid                                   (5,919)                -            (6,685)              (6)
                                                  ---------------   ---------------   ---------------   --------------
    Net obligation at end of year                         49,687             1,294            58,907              772
                                                  ---------------   ---------------   ---------------   --------------
Change in plan assets
    Fair value of plan assets at
       beginning of year                                  60,692                 -            68,383                -
    Actual return on plan assets                          12,013                 -              (882)               -
    Employer contributions                                   352                 -                 -                -
    Benefits paid and expenses                            (6,420)                -            (6,809)               -
                                                  ---------------   ---------------   ---------------   --------------
    Fair value of plan assets at
       end of year                                        66,637                 -            60,692                -
                                                  ---------------   ---------------   ---------------   --------------
Funded status
    Funded status at end of year                          16,949            (1,294)            1,785             (772)
    Unrecognized net actuarial
      (gain) loss                                        (13,498)              360             1,113                -
    Unrecognized prior service cost                            -                 -                 -                -
    Unrecognized net transition
      obligation                                               -                 -                 -                -
    Other                                                      -                 -                 -               (2)
                                                  ---------------   ---------------   ---------------   --------------
    Net amount recognized at end
      of year                                           $  3,451           $  (934)          $ 2,898         $   (774)
                                                  ===============   ===============   ===============   ==============
Amounts recognized in the consolidated
  balance sheets
    Prepaid benefit costs                               $  3,451           $     -           $ 2,898         $      -
    Accrued benefit costs                                      -              (934)                -             (774)
                                                  ---------------   ---------------   ---------------   --------------
    Net asset (liability) recognized
       at end of year                                   $  3,451           $  (934)          $ 2,898         $   (774)
                                                  ===============   ===============   ===============   ==============

<FN>
         (1)      Included in settlements above for Fiscal 1999 are obligations
                  related to inactive employees which are included in
                  liabilities subject to compromise.
</FN>
</TABLE>

                                       56
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         The tables below list the weighted average assumptions and the
         components of periodic (benefit) costs (dollars in thousands):

<TABLE>
<CAPTION>
                                                  2000                      1999                   1998
                                        ------------------------  ----------------------  ---------------------
                                         Pension                   Pension                 Pension
                                           Plan         SERP         Plan        SERP       Plan        SERP
                                        -----------  -----------  -----------  ---------  ----------  ---------
<S>                                          <C>          <C>          <C>        <C>         <C>        <C>
Weighted average assumptions
    Discount rate                            8.00%        8.00%        7.00%      7.00%       7.00%      7.00%
    Expected return on plan assets           9.00%            -        9.00%          -       9.00%          -
    Rate of compensation increase                -        3.00%            -      3.00%           -      3.80%

<CAPTION>
                                                  2000                      1999                   1998
                                        ------------------------  ----------------------  ---------------------
                                         Pension                   Pension                 Pension
                                           Plan         SERP         Plan        SERP       Plan        SERP
                                        -----------  -----------  -----------  ---------  ----------  ---------
<S>                                        <C>            <C>        <C>           <C>      <C>         <C>
Components of periodic
  benefit cost
    Service cost                           $     -        $ 102      $     -       $319     $     -     $ 273
    Interest cost                            3,948           60        4,074        105       4,258       559
    Expected return on assets               (4,500)           -       (4,576)         -      (4,440)        -
    Amortization of:
       Transition obligation                                  -            -          6           -        36
       Prior service cost                                     -            -          6           -        45
       Actuarial loss                                         -            -          -           -        31
    Special termination charge                 351            -          409         14         114        55
                                        -----------  -----------  -----------  ---------  ----------  --------
    Net periodic (benefit) cost            $  (201)       $ 162      $   (93)      $450     $   (68)    $ 999
                                        ===========  ===========  ===========  =========  ==========  ========
</TABLE>

         Associates Savings Plan

         Levitz has savings plans which were adopted under Section 401(k) of the
         Internal Revenue Code. Under the provisions of the Associates Savings
         Plans, substantially all employees who meet the age and service
         requirements of the plan are entitled to defer a certain percentage of
         their compensation. Levitz contributed to the fund 40% of the first 6%
         beginning January 1, 2000, 30% of the first 6% beginning January 1,
         1999 and 20% of the first 6% beginning January 1, 1998 subject to
         certain limitations. Such matching contributions of $0.7 million, $0.6
         million and $0.8 million were made by Levitz for the years ended March
         31, 2000, 1999 and 1998, respectively.

12.      CAPITAL STOCK, STOCK OPTION PLANS, RIGHTS AND STOCK WARRANTS:

         Common Stock

         As of March 31, 2000 LFI had 30,320,628 shares of Common Stock issued
         and 30,071,621 shares outstanding. 26,497,959 shares were voting stock
         and 3,573,662 shares were non-voting stock. The Plan of Reorganization
         filed by the Company on May 25, 2000 does not provide for any
         distribution to existing stockholders.

         Restricted Stock

         LFI contracted to issue 700,000 shares of restricted stock to certain
         key employees during the fiscal year ended March 31, 1996. These shares
         of restricted stock were issued in the fiscal year ended March 31,
         1997. The total market value at the effective date of grant was
         recorded as deferred compensation, a separate component of
         stockholders' deficit. The deferred compensation was charged to
         selling, general and administrative expenses over the three-year
         vesting period.

                                       57
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Stock Options

         In May 1993, LFI adopted an Executive Long-Term Incentive Plan (Plan),
         which provides for incentive awards to include the issuance of stock
         options. The Plan provides that the stock option price shall not be
         less than the fair market value of the shares on the date of grant and
         that no portion of the options may be exercised beyond ten years from
         that date. Options are exercisable in various increments starting one
         year from date of grant.

         LFI accounts for these plans under APB Opinion No. 25, "Accounting for
         Stock Issued to Employees", under which no compensation expense is
         recognized because the exercise price of stock options granted equals
         the market price of the underlying stock on the date of grant.

         Had compensation costs for these plans been determined consistent with
         FASB Statement No. 123, LFI's net loss and net loss per common share
         would not have been materially different.

         Employee Stock Options

         Employee Stock Option Plans are summarized as follows:

<TABLE>
<CAPTION>
                                 2000                        1999                       1998
                              -------------------------  -------------------------  -------------------------
                                             Weighted                   Weighted                   Weighted
                                              average                    average                    average
                                             exercise                   exercise                   exercise
                                Shares         price        Shares        price        Shares        price
                              ------------   ----------  -------------  ----------  -------------  ----------
<S>                             <C>             <C>         <C>            <C>         <C>            <C>
Outstanding at beginning
  of year                         841,875       $ 4.24      1,789,625      $ 3.50      2,037,875      $ 3.91
Granted                                 -            -              -           -        250,000        1.25
Exercised                               -            -              -           -              -           -
Cancelled                        (381,250)        3.87       (947,750)       1.67       (498,250)       2.80
                              ------------               -------------              -------------
Outstanding at end of year        460,625         4.46        841,875        4.24      1,789,625        3.50
                              ============               =============              =============
Exercisable at end of year        401,005         4.48        644,375        4.09        810,750        3.06
Available for grant at end
  of year                       2,420,406                   2,039,156                  1,091,406
</TABLE>

         The following table summarizes information concerning outstanding and
         exercisable employee options at March 31, 2000:

                                                                     Options
                      Options Outstanding                          Exercisable
--------------------------------------------------------------------------------
                                            Weighted
                                             Average
     Exercise              Shares          Contractual               Shares
      Prices            Outstanding           Life                 Exercisable
--------------------  -----------------  ----------------        ---------------

      $ 3.063                11,000            6.9                      8,500
        3.625               236,625            5.3                    212,755
        5.000               133,000            6.2                     99,750
        6.250                80,000            5.3                     80,000
                      -----------------                          ---------------
                            460,625                                   401,005
                      =================                          ===============

                                       58
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         Directors Stock Options

         In addition, LFI has adopted a Non-qualified Non-Employee Directors
         Stock Option Plan. The Plan provides that the stock option price shall
         not be less than the fair market value of the shares on the date of
         grant and that no portion of the options may be exercised beyond ten
         years from the date of grant. Options are exercisable in various
         increments starting one year from date of grant.

         Directors' Option Plans are summarized as follows:

<TABLE>
<CAPTION>
                                         2000                      1999                     1998
                                ------------------------   -----------------------  -----------------------
                                              Weighted                 Weighted                  Weighted
                                              Average                   Average                  Average
                                              Exercise                 Exercise                  Exercise
                                  Shares       Price        Shares       Price       Shares       Price
                                -----------  -----------   ---------  ------------  ----------  -----------
<S>                                 <C>        <C>          <C>          <C>           <C>        <C>
Outstanding at beginning
  of year                           52,893     $6.02         70,140      $6.00         70,140     $6.00
Granted                                  -         -              -          -              -         -
Exercised                                -         -              -          -              -         -
Cancelled                                -         -        (17,247)      5.92              -         -
                                -----------                ---------                ----------
Outstanding at end of year          52,893      6.02         52,893       6.02         70,140      6.00
                                ===========                =========                ==========
Exercisable at end of year          52,893                   50,225                    60,135
Available for grant at end
  of year                           72,107                   72,107                    54,860
</TABLE>

         The following table summarizes information concerning outstanding and
         exercisable director's options at March 31, 2000:

<TABLE>
<CAPTION>
                      Options Outstanding                               Options Exercisable
-----------------------------------------------------------------  -------------------------------
                                        Weighted
                                        Average       Weighted                         Weighted
    Range of                           Remaining       Average                          Average
    Exercise            Shares         Contractual    Exercise         Shares          Exercise
     Prices           Outstanding         Life          Price        Exercisable         Price
------------------  ----------------  -------------  ------------  ----------------   ------------
<S>                          <C>          <C>             <C>               <C>            <C>
   $4.69-$6.19               44,893       6.0             $ 5.28            44,893         $ 5.28
      10.19                   8,000       4.3              10.19             8,000          10.19
                    ----------------                               ----------------
                             52,893                                         52,893
                    ================                               ================
</TABLE>

         Rights

         In May 1993, the Board of Directors adopted a Rights Agreement which
         declared a dividend distribution of one Right for each outstanding
         share of LFI's Common Stock effective with the close of the Offering.
         Each Right entitles the registered holder to purchase from LFI one
         one-hundredth of a share of Series A Junior Participating Preferred
         Stock at a purchase price of $50 per share. The Rights are exercisable
         at specified number of days following (i) a public announcement that a
         person or group of persons has acquired or obtained the right to
         acquire beneficial ownership of 15% or more of LFI's outstanding Common
         Stock or (ii) the commencement of a tender offer or exchange offer that
         would result in persons acquiring 15% or more of LFI's outstanding
         Common Stock. LFI has reserved 1,000,000 shares, $1 par value, of
         Series A Junior Participating Preferred Stock for issuance upon
         exercise of the Rights. The Rights may be redeemed by LFI, subject to
         the approval of

                                       59
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

         the Board of Directors, for $0.01 per Right in accordance with the
         provisions of the Rights Agreement. If the Rights are not redeemed, the
         holder of the Rights may purchase stock of LFI (or in certain
         circumstances, stock of an acquiring person) for approximately half its
         value. The Rights will expire on July 2, 2003, unless redeemed earlier
         by LFI.

         Stock Warrants

         In March 1996, LFI issued warrants to purchase 283,972 shares of LFI
         Common Stock at an exercise price equal to $3.89 per share as part of
         an exchange offer in which Levitz issued $91.6 million aggregate
         principal amount of 13.375% Senior Notes due October 15, 1998 for $91.6
         million principal amount of 12.375% Senior Notes due April 15, 1997.
         The warrants were revalued at $0.7 million which was being amortized as
         interest expense over the life of the 13.375% Senior Notes until the
         Petition Date. The warrants expire on March 25, 2001.

         In July 1996, LFI issued warrants to purchase up to 5,000,000 shares of
         LFI Common Stock, subject to downward adjustments if certain targeted
         stock prices of LFI were not achieved and other anti-dilution
         provisions. The exercise price as of June 19, 1998 was $0.01 per share.
         The warrants were issued as part of a refinancing in July 1996. The
         warrants were valued at $0.6 million and were amortized as interest
         expense over the original life of the DIP Facility which replaced the
         previous financing. The warrants expire on July 1, 2001.

                                       60
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

13.      ACCRUED EXPENSES AND OTHER LIABILITIES (Dollars in Thousands):

                                              2000               1999
                                         --------------     -------------

Payroll                                         $7,945            $9,394
Payroll and sales taxes                          3,998             4,843
Real estate taxes                                2,297             3,238
Interest                                           444             2,615
Promotional discount accrual                    26,935            23,788
Workers Compensation                             6,586             6,708
Closed store reserves                            9,387             5,062
Customer deposits                                8,815             6,446
Other                                           18,084            11,885
                                         --------------     -------------
                                               $84,491           $73,979
                                         ==============     =============

14.      COMMITMENTS AND CONTINGENCIES:

         As a result of the bankruptcy filing, the initiation of litigation
         against the Debtors involving matters arising prior to the filing for
         bankruptcy is stayed. Such stay may be lifted by the Bankruptcy Court
         in appropriate circumstances.

         Levitz has employment agreements with six officers. Each of these
         agreements is for an initial term of eighteen months and will be
         automatically renewed for an additional twelve months unless either
         party gives prior written notice of intent to terminate the agreement.
         The agreements provide that if the officer is terminated by Levitz
         other than for Cause (as defined in the agreements) or disability or by
         the officer for Good Reason (as defined in the agreements), Levitz must
         continue to pay such officer's base salary for eighteen months and, for
         certain of the officers, would be required to credit such officer with
         three years of additional service and age for purposes of Levitz's
         SERP. In the event of such termination following a Change in Control
         (as defined in the agreements), Levitz must pay such officer a lump sum
         amount equal to one and one-half times his or her annual base salary.
         Each agreement also contains certain non-competition provisions.

         LFI is subject to a number of lawsuits, investigations and claims
         arising out of the normal conduct of its business, including those
         relating to government regulations, general and product liability and
         employee relations. Although there are a number of actions pending
         against LFI as of March 31, 2000, in the opinion of Management such
         actions as currently known would not have a material effect on the
         financial position of LFI.

15.      SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

         The following is a summary of LFI's unaudited quarterly results of
         operations for the years ended March 31, 2000 and 1999:

                                       61
<PAGE>

                 LEVITZ FURNITURE INCORPORATED AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                 MARCH 31, 2000

<TABLE>
<CAPTION>
                                                                          Quarter Ended
                                           ----------------------------------------------------------------------------
                                            June 30,         September 30,        December 31,        March 31,
                                              1999               1999                 1999               2000
                                           ------------     ----------------     ---------------     -------------
                                                            (In thousands, except per share amounts)

<S>                                           <C>                 <C>                 <C>               <C>
Net sales                                     $119,988            $ 126,331           $ 147,517         $ 141,216
Gross profit                                    51,887               54,273              65,999            59,877
Net loss                                        (9,056)             (11,517)            (11,079)          (35,209)
                                             ==========       ==============       =============       ===========
Net loss per common share                     $  (0.30)           $   (0.38)          $   (0.37)        $   (1.17)
                                             ==========       ==============       =============       ===========

<CAPTION>

                                                                       Quarter Ended
                                           -----------------------------------------------------------------------
                                             June 30,         September 30,        December 31,        March 31,
                                               1998               1998                 1998               1999
                                           ------------     ----------------     ---------------     -------------
                                                            (In thousands, except per share amounts)
<S>                                           <C>                 <C>                 <C>               <C>
Net sales                                     $171,276            $ 169,285           $ 182,174         $ 130,365
Gross profit                                    74,094               73,303              74,098            55,278
Net loss                                       (37,974)             (14,047)            (35,451)           (6,972)
                                             ==========       ==============       =============       ===========
Net loss per common share                     $  (1.27)           $   (0.47)          $   (1.18)        $   (0.23)
                                             ==========       ==============       =============       ===========
</TABLE>

16.     FAIR VALUE OF FINANCIAL INSTRUMENTS:

        The carrying amounts and fair values of LFI's financial instruments at
        March 31, 2000 and 1999, were as follows (dollars in thousands):

<TABLE>
<CAPTION>
                                            2000                             1999
                               ------------------------------   ------------------------------
                                 Carrying           Fair          Carrying           Fair
                                  Amount           Value           Amount           Value
                               --------------   -------------   --------------   -------------
<S>                                  <C>             <C>             <C>             <C>
Cash and cash equivalents            $ 2,891         $ 2,891         $  3,046        $  3,046
Debt obligations including
  current maturities                  77,392          77,392          151,580         151,580
Letters of credit                          -          16,385                -          16,936
</TABLE>

        The carrying amounts of cash, cash equivalents and debt obligations
        approximate fair value because of the short maturity of these
        instruments. The fair value of LFI's long-term debt, including current
        maturities, is estimated based on the quoted market prices for the same
        or similar issues. The contract amount of the letter of credit
        approximates its fair value. The fair value of the Company's liabilities
        subject to compromise are not presently determinable as a result of the
        Chapter 11 proceedings.

                                       62
<PAGE>

ITEM 9.   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

             None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth, as of June 12, 2000, the name, age, position at
LFI and Levitz and principal occupation or employment for the past five years,
of the directors and executive officers of LFI and Levitz. Each of such persons
is a citizen of the United States. None of the directors or executive officers
is related to each other.

<TABLE>
<CAPTION>
                                            Principal Occupation or
                                           Employment During the Past                  Director of
      Name and Age                                Five Years                            LFI Since
      ------------                         --------------------------                  -----------
<S>                            <C>                                                        <C>
Edward L. Grund (55)           Chairman of the Board and Chief Executive Officer          1998
                               of LFI and Levitz since 1998,
                               formerly President Store Operations
                               of LFI and Levitz, formerly Executive
                               Vice President-General Manager North
                               American Division of Sunglass Hut
                               International from 1997 to 1998. He
                               was also Senior Vice President-Store
                               Operations of Sunglass Hut
                               International from 1993 to 1997.
Michael E. McCreery (52)       Senior Vice President and Chief Financial Officer
                               of LFI and Levitz since 1998, formerly Vice
                               Chairman and Chief Administrative Officer of C.R.
                               Anthony Company from 1995 to 1998 and Senior
                               Executive Vice President and Chief Financial
                               Officer of C.R. Anthony Company from 1990 to 1994.
Nicholas S. Masullo (52)       Vice President, Strategic Operations and Human
                               Resources of Levitz.
Richard J. Mazzoni, Jr. (52)   Vice President, Management  Information Services
                               and Logistics of Levitz.
Lawrence R. McDevitt (56)      Vice President, Controller of Levitz.
Edward P. Zimmer (51)          Vice President, Secretary and General Counsel of
                               LFI and Levitz. Director of Levitz since 1996.
Robert M. Harrell (76)         Director of LFI.  Commercial Real Estate broker            1994
                               since 1984.  Former Executive Vice President of
                               Merchandising of Montgomery Ward & Company,
                               Incorporated.
Bruce C. Leadbetter (61)       Director of LFI, formerly Chief Executive Officer          1985
                               of Dalfort Aviation.  Managing Partner, the
                               Security Management Company.  President and
                               Director of the Astraea Company (a management
                               consulting firm).

                                       63
<PAGE>

Kenneth D. Moelis (41)         Director of LFI.  Managing Director of Donaldson,          1986
                               Lufkin & Jenrette Securities Corporation
                               (investment bankers) since 1990.
Henry B. Reiling (62)          Director of LFI.  Professor, Harvard Graduate              1990
                               School of Business Administration.
</TABLE>

The Board of Directors of LFI is divided into three classes serving staggered
three-year terms. The terms of office of the Directors of the Company have
expired in prior years; however, because the Company did not hold an Annual
Meeting of Stockholders since 1996, such directors continue in office until
their successors are elected. Directors who are employees of LFI or Levitz do
not receive any compensation for serving on the Board of Directors of either LFI
or Levitz. Directors who are not employees of LFI or Levitz receive $15,000 in
compensation annually. Audit and Compensation Committee members receive $1,000
for each committee meeting attended and each committee chairman receives an
additional $5,000 per year for serving as chairman.

Pursuant to the Company's Non-Employee Directors' Stock Option Plan, following
the Company's Annual Meeting of Stockholders, each director who is not an
employee of the Company is eligible to receive an annual grant of an option to
purchase 2,000 shares of the Company's Common Stock. Such directors may also
elect to receive options to purchase shares of the Company's Common Stock in
lieu of their yearly retainer fee. The exercise price of all options granted
pursuant to this plan will be set at the average of the high and low prices of
the Common Stock on the date of grant. The term of each option is ten years from
date of grant. Annual grant options are exercisable as to one-third of the
shares subject to the option on each of the first, second and third anniversary
of the grant. Elective grant options are exercisable six months after the grant.
No stock options have been granted to Directors since the Petition Date.

LFI has entered into indemnification agreements with each of its officers and
directors. The indemnification agreements provide that LFI shall indemnify the
officers and directors to the fullest extent permitted by law against any and
all expenses, judgments, fines, penalties and settlement amounts paid or
incurred in any threatened, pending or completed action, suit or proceeding
related to their service as a director, officer, employee, agent or fiduciary of
LFI with another corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise when they are serving at the request of LFI. LFI's
Restated Certificate of Incorporation also provides for certain indemnification
rights.

ITEM 11.  EXECUTIVE COMPENSATION

The following summary compensation table sets forth information regarding the
annual and long-term compensation awarded or earned for each of the last three
fiscal years to those persons who were, for the fiscal year ended March 31,
2000, the Chief Executive Officer and the four other most highly compensated
executive officers. Mr. Grund was not employed by the Company prior to the 1999
fiscal year and Mr. McCreery was not employed by the Company prior to the 1998
fiscal year. Accordingly, no information is set forth with respect to these
individuals for the prior year(s).

                                       64
<PAGE>

<TABLE>
<CAPTION>
                                            Annual Compensation                  Long-Term Compensation
                            -----------------------------------------------------------------------------
                                                                  Other         Restricted     Securities    All Other
                            Fiscal                                Annual          Stock        Underlying    Compensa-
Name and Principal Position  Year     Salary       Bonus       Compensation       Awards        Options       tion (1)
--------------------------- ------  -----------  ----------    -------------    -----------    ----------    -----------
<S>                          <C>     <C>          <C>               <C>            <C>                 <C>      <C>
Edward L. Grund              2000    $ 441,396    $      -          $     -        $     -             -        $ 8,823
  Chairman of the Board      1999      299,534     200,000 (2)            -              -             -          5,147
  and Chief Executive        1998            -           -                -              -             -              -
  Officer of LFI and Levitz

Michael E. McCreery          2000    $ 341,340    $      -          $     -        $     -             -        $11,597
  Senior Vice President and  1999      282,724      50,000 (3)       49,500 (4)          -             -          6,072
  Chief Financial Officer    1998       26,445      50,000 (3)            -              -             -              -
  of LFI and Levitz

Edward P. Zimmer             2000    $ 214,050    $      -          $     -        $     -             -        $ 6,799
  Vice President, Secretary  1999      195,000      25,000                -              -             -          5,470
  and General Counsel of     1998      190,392           -                -              -             -          5,182
  LFI and Levitz

Richard J. Mazzoni, Jr.      2000    $ 199,620    $      -          $     -        $     -             -        $ 6,887
  Vice President, Management 1999      185,016      25,000                -              -             -          5,642
  Information Systems and    1998      183,472           -                -              -             -          5,865
  Logistics of Levitz

Nicholas S. Masullo          2000    $ 175,984    $      -          $     -        $     -             -        $ 9,197
  Vice President, Human      1999      144,976      25,000                -              -             -          7,779
  Resources of Levitz        1998      142,368           -                -              -             -          9,422

<FN>
-------------
(1)      Included in this column for the fiscal year ended March 31, 2000 are
         matching contributions paid pursuant to Levitz's Associates' Savings
         Plan to Messrs. McCreery, Zimmer, Mazzoni and Masullo in the amounts of
         $11,597, $6,799, $6,887 and $9,197, respectively, and the dollar value
         attributable to life insurance premiums paid on behalf of Messrs.
         Grund, McCreery, Zimmer, Mazzoni and Masullo in the amounts of $8,823,
         $11,597, $6,799, $6,887 and $5,732, respectively.

(2)      Pursuant to the terms of his employment agreement with the Company, Mr.
         Grund received a guaranteed bonus of $100,000 for the fiscal year ended
         March 31, 1999 plus a $100,000 signing bonus.

(3)      Pursuant to the terms of his employment agreement with the Company, Mr.
         McCreery received a guaranteed bonus of $50,000 for the fiscal year
         ended March 31, 1999 and $50,000 signing bonus for fiscal year ended
         March 31, 1998.

(4)      Represents relocation expenses paid by the Company.
</FN>
</TABLE>

Option Grants in the Last Fiscal Year

There were no grants of stock options in the fiscal year ended March 31, 2000.

Aggregate Options Exercised in Last Fiscal Year and Fiscal Year-End Option
Values

None of the officers exercised any options in the fiscal year ended March 31,
2000.

The following table provides information on the number of options held by the
executive officers named in the Summary Compensation Table. Messrs. Grund,
Bozic, Homler and McCreery hold no options.

                                       65
<PAGE>

<TABLE>
<CAPTION>
                                      Number of Securities                  Value of Unexercised
                                     Underlying Unexercised                 In-the-money Options
                                 Options at end of Fiscal Year               end of Fiscal Year
                              -------------------------------------  -----------------------------------
Name                            Exercisable       Unexercisable        Exercisable       Unexercisable
----                          ----------------  -------------------  ----------------  -----------------
<S>                                <C>                  <C>                <C>                 <C>
Edward P. Zimmer                   85,000               -                  $ -                 $ -
Richard J. Mazzoni                 50,000               -                    -                   -
Nicholas S. Masullo                70,000               -                    -                   -
</TABLE>

Levitz Retirement Plans

Certain officers (a total of six persons) are participants in the Levitz
Furniture Corporation Employees Retirement Plan (the "Retirement Plan") and the
Levitz Furniture Corporation Supplemental Executive Retirement Plan (the
"Supplemental Plan"). After March 31, 1996 no additional benefits accrue under
the Retirement Plan. Retirement and disability benefits pursuant to the
Supplemental Plan are equal to 4% of the highest five-year average of salary
plus bonus for each year of service to a maximum of 15 years of service. The
retirement benefit of a participant who terminates service prior to age 65 is,
except under certain circumstances, subject to reduction. Benefits are subject
to a dollar-for-dollar reduction for similar benefits paid under the Retirement
Plan, pension plans of other employers and Social Security. Retirement and
disability benefits under the Supplemental Plan are limited to a 2000 maximum of
$491,577 per year, to be increased annually by the average increase in annual
salary for Supplemental Plan participants. The following table shows annual
benefits payable (before offsets) under the Supplemental Plan and the Retirement
Plan to participants at age 65 in specified years of service and remuneration
classes:

                                            Pension Plan Table
                                            Years of Service(2)
                                ---------------------------------------------
Remuneration(1)                      10                  15 or more at age 65
---------------                 --------------           --------------------
     $200,000                    $ 80,000                        $120,000
      300,000                     120,000                         180,000
      400,000                     160,000                         240,000
      500,000                     200,000                         300,000
      600,000                     240,000                         360,000

--------------
(1)      For the fiscal year ended March 31, 2000, remuneration equaled the
         amount listed for each executive officer under "Annual Compensation" in
         the Summary Compensation Table.

(2)      As of March 31, 2000, Messrs. Grund and McCreery had less than three
         years of service and the remaining listed executive officers had more
         than 15 years of service under the Supplemental Plan.

                                       66
<PAGE>

Employment Agreements

Levitz has employment agreements with each of the current executive officers
listed in the Summary Compensation Table on page 64. Each of these agreements is
for an initial term of eighteen months and will be automatically renewed for an
additional twelve months unless either party gives prior written notice of
intent to terminate the agreement. The agreements provide that if the officer is
terminated by Levitz other than for Cause (as defined in the agreements) or
disability or by the officer for Good Reason (as defined in the agreements),
Levitz must continue to pay such officer's base salary for eighteen months and,
for certain of the officers, would be required to credit such officer with three
years of additional service and age for purposes of Levitz's Supplemental Plan.
In the event of such termination following a Change in Control (as defined in
the agreements), Levitz must pay such officer a lump sum amount equal to one and
one-half times his or her annual base salary. Each agreement also contains
certain non-competition provisions.

In the event of termination at their current salary, the current executive
officers listed in the Summary Compensation Table would receive the following
total compensation pursuant to the above-described employment agreements: Mr.
Grund, $637,572, Mr. McCreery, $450,060, Mr. Zimmer, $292,500, Mr. Mazzoni,
$277,524 and Mr. Masullo, $262,548. These amounts assume payments for 18 months
at current salaries.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Principal Stockholders

As of June 12, 2000, the Common Stock was held of record by 758 stockholders.
The following table sets forth certain information concerning the beneficial
ownership of Common Stock by each stockholder who is known by the Company to own
beneficially in excess of 5% of the outstanding Common Stock, by each director,
by the executive officers named in the Summary Compensation Table above, and by
all directors and executive officers as a group, as of the Record Date. Except
as otherwise indicated, all persons listed below have (i) sole voting power and
investment power with respect to their shares of Common Stock, except to the
extent that authority is shared by spouses under applicable law, and (ii) record
and beneficial ownership with respect to their shares of Common Stock.

                                       67
<PAGE>

                                             No. of Shares
                                               of Common
Name of Beneficial Owner                        Stock(1)             Percent(1)
------------------------                   -------------------     -------------

Apollo Investment Fund III,                    5,000,000 (2)            16.6
Apollo Overseas Partners, III, L.P.
and Apollo (U.K.) Partners, III, L.P.
Two Manhattanville Road
Purchase, New York 10577

Court Square Capital, Ltd. ("CSCL")            5,764,888 (3)            19.2
399 Park Avenue, 10th Floor
New York, New York

Robert M. Harrell                                  6,750 (4)               *
9139 Ridge Pine Trail
Orlando, Florida

Edward L. Grund                                        -                   -
[Address]


Michael E. McCreery                                    -                   -
[Address]


Bruce C. Leadbetter                              147,531 (5)               *
7701 Lemon Avenue
Dallas, Texas

Nicholas S. Masullo                               62,500 (6)               *
7887 North Federal Highway
Boca Raton, Florida

Richard J. Mazzoni                                42,500 (6)               *
7887 North Federal Highway
Boca Raton, Florida

Kenneth D. Moelis                                 12,399 (6)               *
Donaldson, Lufkin & Jenrette
2121 Avenue of the Stars
Los Angeles, California

Henry B. Reiling                                  44,397 (7)               *
Harvard Graduate School of
Business Administration
Morgan 385, Soldiers Field
Boston, Massachusetts

Edward P. Zimmer                                 156,474 (8)               *
7887 North Federal Highway
Boca Raton, Florida

All Officers and Directors of the Company        367,551 (9)             1.0
as a group (11 persons)

All Officers and Directors of Levitz             326,474 (10)            1.1
as a group (9 persons)
-----------------
* Less than 1.0%

(1)      Includes Voting Common Stock and Non-Voting Common Stock. The
         Non-Voting Common Stock is identical to the Voting Common Stock in all
         respects, except that the Non-Voting Common Stock is non-voting and is
         convertible into Voting Common Stock. On June 12, 2000, there were
         26,497,959 shares of Voting Common Stock and 3,573,662 shares of
         Non-Voting Common Stock outstanding, which were held by 758 and 7
         holders of record, respectively.

                                       68
<PAGE>

(2)      Represents warrants to purchase 5,000,000 shares of Common Stock.

(3)      CSCL is an indirect wholly-owned subsidiary of Citicorp. Of these
         shares 3,484,888 are Non-Voting Common Stock.

(4)      Includes beneficial ownership of 6,000 shares which may be acquired
         within 60 days pursuant to stock option grants.

(5)      Includes beneficial ownership of 17,247 shares which may be acquired
         within 60 days pursuant to stock option grants.

(6)      Consists solely of beneficial ownership of shares which may be acquired
         within 60 days pursuant to stock option grants.

(7)      Includes beneficial ownership of 17,247 shares which may be acquired
         within 60 days pursuant to stock option grants. Also includes 2,250
         shares held in trust for members of Mr. Reiling's family. Mr. Reiling
         disclaims beneficial ownership of such shares held by members of his
         family.

(8)      Includes beneficial ownership of 85,000 shares which may be acquired
         within 60 days pursuant to stock option grants.

(9)      Includes beneficial ownership of 137,893 shares which may be acquired
         within 60 days pursuant to stock option grants and other shares as to
         which beneficial ownership is disclaimed.

(10)     Includes beneficial ownership of 255,000 shares which may be acquired
         within 60 days pursuant to stock option grants and other shares as to
         which beneficial ownership is disclaimed.

                                       69
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Directors who are employees of the Company or Levitz do not receive any
compensation for serving on the Board of Directors of either the Company or
Levitz. Directors who are not employees of the Company or Levitz receive $15,000
in compensation annually. Audit and Compensation Committee members receive
$1,000 for each committee meeting attended and each committee chairman receives
an additional $5,000 per year for serving as chairman.

Pursuant to the Company's Non-Employee Directors' Stock Option Plan, each
director who is not an employee of the Company, following the Company's Annual
Meeting of Stockholders, is eligible to receive an annual grant of an option to
purchase 2,000 shares of the Company's Common Stock. Such directors may also
elect to receive options to purchase shares of the Company's Common Stock in
lieu of their yearly retainer fee. The exercise price of all options granted
pursuant to this plan will be set at the average of the high and low prices of
the Common Stock on the New York Stock Exchange on the date of grant. The term
of each option is ten years from date of grant. Annual grant options are
exercisable as to one-third of the shares subject to the option on each of the
first, second and third anniversary of the grant. Elective grant options are
exercisable six months after the grant. No stock options have been granted to
Directors since the Petition Date.

Court Square Capital, Ltd. owns 19.2% of the Company's Common Stock. Court
Square Capital, Ltd. also owns the capital stock of Furniture Comfort
Corporation, which, in the ordinary course of business, sold $30.0 million of
merchandise to Levitz in Fiscal 2000.

                                       70
<PAGE>

                                     PART IV

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

(a)  Financial Statements

The financial statements filed as part of this report are listed on the Index to
Consolidated Financial Statements on page 31.

Financial Statement Schedules

               INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

Schedules                                                              Page
                                                                       ----
Schedule I - Condensed Financial Information of Registrant . . . . . .  77

All other schedules have been omitted because the required information is shown
in the Consolidated Financial Statements or Notes thereto or they are not
applicable.

(b)    Report on Form 8-K

       Not applicable.

(c)    Exhibits

       See Page 73 for Index to Exhibits.

                                       71
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                              LEVITZ FURNITURE INCORPORATED

Date: July 14, 2000                           By:    /s/ EDWARD L. GRUND
                                                     --------------------------
                                                         Edward L. Grund
                                                         Chairman of the Board
                                                         and Chief Executive
                                                         Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

             Signature                           Title                 Date
             ---------                           -----                 ----
/s/   EDWARD L. GRUND                 Chairman of the Board        July 14, 2000
---------------------------------     and Chief Executive
      Edward L. Grund                 Officer

/s/   MICHAEL MCCREERY                Senior Vice President        July 14, 2000
---------------------------------     and Chief Financial
      Michael McCreery                Officer

/s/   ROBERT M. HARRELL               Director                     July 14, 2000
---------------------------------
      Robert M. Harrell

                                      Director                     July 14, 2000
---------------------------------
      Bruce C. Leadbetter

/s/   KENNETH D. MOELIS               Director                     July 14, 2000
---------------------------------
      Kenneth D. Moelis

/s/   HENRY B. REILING                Director                     July 14, 2000
---------------------------------
      Henry B. Reiling

                                       72
<PAGE>

Index to Exhibits (numbered in accordance with Item 601 of Regulation S-K)

<TABLE>
<CAPTION>
Exhibit No.                               Description of Exhibits
-----------                               -----------------------
<S>                <C>
3.01               Form of Restated Certificate of Incorporation of the Company. (1)
3.02               Form of By-Laws of the Company. (1)
3.03               Certificate of Incorporation of Levitz. (2)
3.04               By-Laws of Levitz. (2)
4.01               Form of Stockholder Rights Plan, including exhibits. (1)
10.02              Form of Indemnification Agreement. (1)
10.04              Amendment to Shareholders Agreement dated as of May 14, 1993. (1)
10.05              Senior Deferred Coupon Debenture Indenture dated as of December 1, 1992 between
                   the Company and First Bank National Association, as Trustee. (1)
10.06              Form of Senior Deferred Coupon Debenture (included as Exhibit A to 10.05 above). (1)
10.07              First Supplemental Indenture dated as of April 21, 1993, relating to the Debenture Indenture. (1)
10.08              Second Supplemental Indenture, dated as of June 16, 1993, relating to the Debenture Indenture. (1)
10.10              Shareholders Agreement, dated as of December 23, 1986 between the Company and the Investors. (3)
10.11              Form of Agreement of Indemnification  dated March 5, 1985 between Levitz and certain  directors
                   of Levitz Furniture Corporation. (3)
10.14              Supplemental Executive Retirement Plan of Levitz dated April, 1995. (4)
10.15              Levitz Bonus Plan. (4)
10.16              13-3/8% Senior Note Indenture, dated as of March 1, 1996, between Levitz Furniture Corporation
                   and American Bank National Association, as Trustee. (4)
10.17              Form of 13-3/8% Senior Note (included as Exhibit A to 10.16 above). (4)
10.18              First Supplemental Indenture, dated as of May 29, 1996, to the 13-3/8% Senior Note Indenture,
                   dated as of March 1, 1996 between Levitz Furniture Corporation and American Bank National
                   Association, as Trustee. (4)
10.19              Warrant Agreement, dated as of March 25, 1996, by and between the Company and American Stock
                   Transfer & Trust Company, as Agent.(7)
10.20              Form of Warrant, dated March 25, 1996 (included as Exhibit A to Exhibit 10.19 above). (4)
10.22              Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo
                   Investment Fund III, L.P. (4)
10.23              Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo Overseas
                   Partners III, L.P. (4)
10.24              Warrant Certificate, dated as of July 1, 1996, by and between the Company and Apollo (U.K.)
                   Partners III, L.P. (4)
10.25              Registration Rights Agreement, dated as of July 1, 1996, by and among the Company, Apollo
                   Investment Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo (U.K.) Partners II, L.P.
                   and Court Square Capital Limited. (4)
10.26              $150,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz Furniture  Corporation,
                   Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
                   Levitz Furniture Company of Washington, Inc., John M. Smyth Company, each of the lenders from
                   time to time parties thereto, Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
                   L.P., Apollo U.K. Partners III, L.P. and BT Commercial Corporation, as agent. (4)
</TABLE>

                                       73
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.                               Description of Exhibits
-----------                               -----------------------
<S>                <C>
10.27              $40,000,000 Credit Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation,
                   Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc.,
                   Levitz Furniture Company of Washington, Inc., John M. Smyth Company, each of the lenders from
                   time to time parties thereto, Apollo Investment Fund III, L.P., Apollo Overseas Partners III,
                   L.P., Apollo U.K. Partners III, L.P. and BT Commercial Corporation, as agent. (4)
10.28              Intercreditor and Collateral Agency Agreement, dated as of July 1, 1996, among Levitz
                   Furniture Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company
                   of the Pacific, Inc., Levitz Furniture Company of Washington, Inc., John M. Smyth Company, BT
                   Commercial Corporation and the lenders named therein. (4)
10.29              Intercreditor Agreement, dated as of July 1, 1996, among Levitz Furniture Corporation,
                   General Electric Capital Corporation, BT Commercial Corporation and the lenders named therein. (4)
10.30              Revolving Note, dated July 1, 1996, by and among BT Commercial  Corporation,  Levitz  Furniture
                   Corporation, Levitz Furniture  Company of the Midwest,  Inc., Levitz Furniture  Company of the
                   Pacific, Inc., Levitz Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.31              Term Note, dated July 1, 1996, by and among Apollo (UK) Partners  III, L.P.  and Levitz
                   Furniture Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company
                   of the Pacific,  Inc., Levitz Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.32              Term Note, dated July 1, 1996, by and among Apollo Overseas Partners III, L.P. and Levitz
                   Furniture Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company
                   of the Pacific, Inc., Levitz Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.33              Term Note, dated July 1, 1996, by and among Apollo Investment Fund III, L.P. and Levitz
                   Furniture Corporation, Levitz Furniture Company of the Midwest, Inc., Levitz Furniture Company
                   of the Pacific, Inc., Levitz Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.34              Note, dated July 1, 1996, by and among BT Commercial  Corporation  and  Levitz  Furniture
                   Corporation, Levitz Furniture  Company of the Midwest, Inc., Levitz Furniture  Company of the
                   Pacific, Inc., Levitz Furniture Company of Washington, Inc., and John M. Smyth Company. (4)
10.35              Security Agreement, dated as of July 1, 1996, by Levitz Furniture Corporation, Levitz
                   Furniture Company of the Midwest, Inc., Levitz Furniture Company of the Pacific, Inc., Levitz
                   Furniture Company of Washington, Inc., and John M. Smyth Company in favor of BT Commercial
                   Corporation. (4)
10.36              Pledge Agreement, dated as of July 1, 1996, by and between Levitz Furniture  Corporation and BT
                   Commercial Corporation. (4)
10.37              Amendment No. 1 dated as of December 6, 1996 to the Credit Agreements dated as of July 1, 1996
                   among Levitz Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (5)
10.39              Amendment No. 2 dated as of  December 16, 1996 to the Credit Agreements dated as of July 1,
                   1996 among Levitz Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (6)
10.40              Amendment No. 3 dated as of June 13, 1997 to the Credit Agreements dated as of July 1, 1996
                   among Levitz Furniture Corporation, et al. and BT Commercial Corporation, as Agent. (7)
</TABLE>

                                       74
<PAGE>

<TABLE>
<CAPTION>
Exhibit No.                               Description of Exhibits
-----------                               -----------------------
<S>                <C>
10.41              Amendment No. 4 dated as of June 30, 1997 to the Credit Agreements dated as of July 1, 1996
                   among Levitz Furniture Corporation et al. and BT Commercial Corporation, as Agent. (7)
10.44              Amendment No. 5 dated as of July 25, 1997 to the Credit Agreements among Levitz Furniture
                   Corporation, et al. and BT Commercial Corporation, as agent. (8)
10.45              $260,000,000 Postpetition Credit Agreement among Levitz Furniture Incorporated, Levitz
                   Furniture Corporation and certain other subsidiaries and certain financial institutions,
                   with Levitz Furniture Corporation, as LFC Funds Administrator and, BT Commercial Corporation,
                   as Agent, dated as of September 5, 1997. (9)
10.46              Second Amended and Restated Account Purchase and Credit Card Program Agreement by and among
                   Levitz Furniture Corporation, certain other subsidiaries and General Electric Capital
                   Corporation, dated September 5, 1997. (9)
10.47              Amendment No. 1 dated as of October 7, 1997 to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (10)
10.48              Amendment No. 1 dated as of October 7, 1997 to the Second Amended and Restated Account
                   Purchase and Credit Card Agreement among Levitz Furniture Corporation, et al. and General
                   Electric Capital Corporation. (10)
10.49              Amendment No. 2, dated as of December 30, 1997 to the Postpetition Credit Agreement among
                   Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (11)
10.50              Amendment No. 3 dated as of February 23, 1998 to the Postpetition Credit Agreement among
                   Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (12)
10.51              Amendment No. 4 dated as of  February  20,  1998 to the Postpetition Credit Agreement among
                   Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (12)
10.52              Amendment No. 5 dated as of May 14, 1998 to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (12)
10.53              Amendment No. 6 dated as of June 23, 1998 to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (12)
10.54              Form of Employment Agreement by and among Levitz Furniture Corporation and Edward L. Grund
                   dated as of June 1, 1998. (12)
10.55              Form of Employment Agreement between Levitz and certain officers. (12)
10.56              Merchant Agreement among Levitz Furniture Corporation and certain other subsidiaries and
                   Household Bank (SB) N.A., dated September 4, 1998. (13)
10.57              Amendment No. 7 dated as of September 4, 1998 to the Postpetition Credit Agreement among
                   Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (13)
10.58              Amendment No. 8 dated as of September 18, 1998 to the Postpetition Credit Agreement among
                   Levitz Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (13)
10.59              Waiver dated  as of  December  31,  1998 to the Postpetition Credit Agreement among  Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (14)
10.60              Amendment No. 9 dated as of March 5, 1999 to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
10.61              Amendment No. 10 dated as of May 14, 1999 to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
</TABLE>

                                       75
<PAGE>

<TABLE>
<S>                <C>
10.62              Contract of Sale by and among Levitz Furniture Corporation and certain other subsidiaries and
                   Klaff Realty, LP, Lubert-Adler Capital Real Estate Fund II, L.P., Lubert-Adler Real Estate
                   Fund II, L.P. and Lubert-Adler Parallel Fund II, L.P., dated as of April 20, 1999. (15)
10.63              First Amendment to Contract of Sale by and among  Levitz Furniture Corporation and certain
                   subsidiaries and the various purchasers set forth therein, dated as of June 8, 1999. (15)
10.64              Unitary Lease by and among Levitz Furniture Corporation and certain other subsidiaries and the
                   various purchasers set forth therein, dated as of June 8, 1999. (15)
10.65              Amendment No. 11 dated as of July 23, 1999, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (16)
10.66              Amendment No. 12 dated as of August 4, 1999, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (17)
10.67              Amendment No. 13 dated as of September 16, 1999, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (17)
10.68              Amendment No. 14 dated as of December 14, 1999, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (18)
10.69              Amendment No. 15 dated as of January 7, 2000, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent. (18)
10.70              Amendment No. 16 dated as of March 1, 2000, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
10.71              Amendment No. 17 dated as of April 21, 2000, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
10.72              Amendment No. 18 dated as of June 27, 2000, to the Postpetition Credit Agreement among Levitz
                   Furniture Incorporated, et al. and BT Commercial Corporation, as agent.
21.01              Wholly Owned Subsidiaries of Levitz Furniture Incorporated. (15)
27                 Financial Data Schedule.

<FN>
------------------
 (1)               Incorporated by reference from the Company's and Levitz's Registration Statement Nos. 33-61534
                   and 33-61534-01 on Form S-1 filed April 23, 1993.
 (2)               Incorporated by reference from Levitz's Registration Statement No. 33-1325 on Form S-1
                   declared effective on August 13, 1986.
 (3)               Incorporated by reference from Levitz's Registration Statement No. 33-12639 on Form S-1
                   declared effective on May 12, 1987.
 (4)               Incorporated by reference from Levitz Furniture Incorporated's Form 10-K for the fiscal year
                   ended March 31, 1996.
 (5)               Incorporated by reference to Form 8-K filed December 6, 1996.
 (6)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended December 31, 1996.
 (7)               Incorporated by reference from Levitz Furniture Incorporated's Annual Report on Form 10-K for
                   the year ended March 31, 1997.
 (8)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended June 30, 1997.
 (9)               Incorporated by reference to Form 8-K filed September 12, 1997.
(10)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended September 30, 1997.
(11)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended December 31, 1997.
(12)               Incorporated by reference from Levitz Furniture Incorporated's Annual Report on Form 10-K for
                   the year ended March 31, 1998.
(13)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended September 30, 1998.
(14)               Incorporated by reference from Levitz Furniture Incorporated's quarterly report on Form 10-Q
                   for the quarter ended December 31, 1998.
(15)               Incorporated by reference to Form 8-K filed July 2, 1999.
(16)               Incorporated by reference from Levitz Furniture Incoporated quarterly report on Form 10-Q for
                   the quarter ended June 30, 1999.
(17)               Incorporated by reference from Levitz Furniture Incoporated quarterly report on Form 10-Q for
                   the quarter ended September 30, 1999.
(18)               Incorporated by reference from Levitz Furniture Incoporated quarterly report on Form 10-Q for
                   the quarter ended December 31, 1999.
</FN>
</TABLE>

                                       76
<PAGE>

                          LEVITZ FURNITURE INCORPORATED

                                   SCHEDULE I

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                                           March 31,
                                                                               ----------------------------------
                                                                                   2000                1999
                                                                               --------------     ---------------
<S>                                                                                <C>                 <C>
ASSETS

  Current assets:
    Income taxes receivable                                                        $       8           $      20
    Income taxes receiviable from
      subsidiary                                                                      13,623              13,635
    Deferred taxes                                                                         -                   -
                                                                               --------------     ---------------
        Total current assets                                                          13,631              13,655
                                                                               ==============     ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT

  Income taxes payable                                                             $       -           $       -
                                                                               --------------     ---------------
        Total current liabilities                                                          -                   -

  Deferred taxes                                                                         840                 839
                                                                               --------------     ---------------
  Excess of losses over investment in subsidiary                                     351,155             284,319
                                                                               --------------     ---------------
  Liabilities subject to compromise                                                    8,717               8,717
                                                                               --------------     ---------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT

  Common stock, $0.01 par; authorized 63,700,000 shares; 30,320,628 shares
    issued and 30,071,621 outstanding in 1999 and 30,138,896 shares
    outstanding in 1998                                                                  303                 303

  Preferred stock $1 par; authorized 2,500,000 shares; issued outstanding
    -0- shares in 1999 and 1998                                                            -                  -

Capital in excess of par                                                             213,560             213,560
Retained earnings (deficit)                                                         (560,643)           (493,782)
Deferred compensation
Treasury stock, at cost, 249,007 shares in 1999
  and 181,732 shares in 1998                                                            (301)               (301)
                                                                               --------------     ---------------
    TOTAL STOCKHOLDERS' DEFICIT                                                     (347,081)           (280,220)
                                                                               --------------     ---------------
                                                                                   $  13,631           $  13,655
                                                                               ==============     ===============
</TABLE>

    The accompanying note is an integral part of these financial statements.

                                       77
<PAGE>

                          LEVITZ FURNITURE INCORPORATED

                                   SCHEDULE I

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF OPERATIONS

                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                Years Ended March 31,
                                                ---------------------------------------------------------
                                                      2000                1999               1998
                                                -----------------   -----------------  ------------------
<S>                                                   <C>                 <C>                 <C>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE             $     25            $     32            $     47

INTEREST EXPENSE                                               -                   -                 618
                                                -----------------   -----------------  ------------------
LOSS BEFORE INCOME TAXES                                     (25)                (32)               (665)

INCOME TAX (BENEFIT)                                           -                   -                (250)
                                                -----------------   -----------------  ------------------
LOSS BEFORE EQUITY IN NET LOSS
  OF SUBSIDIARY AND EXTRAORDINARY ITEMS                      (25)                (32)               (415)

EQUITY IN NET LOSS OF SUBSIDIARY                         (66,836)            (94,412)            (87,167)
                                                -----------------   -----------------  ------------------
LOSS BEFORE EXTRAORDINARY ITEMS                          (66,861)            (94,444)            (87,582)

EXTRAORDINARY ITEMS, NET OF TAX BENEFIT
  OF $2,630 IN 1998                                            -                   -              (5,805)
                                                -----------------   -----------------  ------------------
NET LOSS                                                $(66,861)           $(94,444)           $(93,387)
                                                =================   =================  ==================
LOSS PER COMMON SHARE:
  LOSS BEFORE EXTRAORDINARY ITEMS                       $  (2.22)           $  (3.15)           $  (2.93)
  EXTRAORDINARY ITEMS                                          -                   -               (0.19)
                                                -----------------   -----------------  ------------------
  NET LOSS PER COMMON SHARE                             $  (2.22)           $  (3.15)           $  (3.12)
                                                =================   =================  ==================
WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING                                         30,071,621          30,023,119          29,923,578
                                                =================   =================  ==================
</TABLE>

    The accompanying note is an integral part of these financial statements.

                                       78
<PAGE>

                          LEVITZ FURNITURE INCORPORATED

                                   SCHEDULE I

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF CASH FLOWS

                    (Dollars in thousands, except share data)

<TABLE>
<CAPTION>
                                                                      Years Ended March 31,
                                                        -------------------------------------------------
                                                             2000             1999             1998
                                                        ---------------   --------------   --------------
<S>                                                           <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                    $(66,861)        $(94,444)        $(93,387)
  Deferred tax benefit                                               -                -             (198)
  Amortization of original issue discount
    on deferred debentures                                           -                -              331
  Amortization of deferred financing fees                            -                -                8
  Equity in net loss of subsidiaries                            66,836           94,412           87,167
  Extraordinary loss related to early
    redemption of debt                                               -                -            5,805
  Decrease (increase) in income tax receivables                      -              (20)           2,299
  Decrease (increase) in receivable from
    subsidiary                                                     151               (2)          (3,348)
  Other                                                           (126)              67            1,433
                                                        ---------------   --------------   --------------
      Net cash provided by operating
        activities                                                   -               13              110
                                                        ---------------   --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Acquisition of treasury stock                                      -              (13)            (110)
                                                        ---------------   --------------   --------------
      Net cash used in financing activities                          -              (13)            (110)
                                                        ---------------   --------------   --------------
      Net increase in cash and cash equivalents                      -                -                -

CASH AND CASH EQUIVALENTS, beginning of year                         -                -                -
                                                        ---------------   --------------   --------------
CASH AND CASH EQUIVALENTS, end of year                               -                -                -
                                                        ===============   ==============   ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES
  Fair value of warrants contributed to subsidiary                   -                -                -
                                                        ===============   ==============   ==============
</TABLE>

    The accompanying note is an integral part of these financial statements.

                                       79
<PAGE>

                          LEVITZ FURNITURE INCORPORATED

                                   SCHEDULE I

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                          NOTE TO FINANCIAL STATEMENTS

                                 MARCH 31, 2000

1.     These statements should be read in conjunction with LFI's Consolidated
       Financial Statements and Notes thereto as described in the index listed
       in Item 8.

                                       80