<PAGE>
                                       
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                  FORM 10-QSB

(Mark One)

[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934
     
      For the quarterly period ended:    March 31, 1998

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

     For the transition period from _______ to _______

                       Commission File Number  0-22403
                                       
                           HORIZON Pharmacies, Inc.
      (Exact name of small business issuer as specified in its charter)
                                          
           TEXAS                                         75-2441557
(State or other jurisdiction of                        (I.R.S. Employer
    Identification Number)                       incorporation or organization)
                                       
                            275 W. Princeton Drive
                            Princeton, Texas  75407
                   (Address of principal executive offices)
                                (972) 736-2424
                         (Issuer's telephone number)
                                          
Check whether the issuer (1) filed all reports required to be filed by 
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]

State the number of shares outstanding of each of the issuer's classes of 
common equity, as of the latest practicable date:

<TABLE>
<S>                                                   <C>
          Title of Each Class                         Outstanding at May 7, 1998
  Common stock, par value $.01 per share                      4,526,099
</TABLE>

Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X]

<PAGE>
                                       
                                 FORM 10-QSB
                              TABLE OF CONTENTS

<TABLE>
                                                                         Page
                                                                         ----
<S>       <C>                                                            <C>
PART I.   FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . .     3

          Consolidated Balance Sheets - December 31, 1997 
               and March 31, 1998 (unaudited) . . . . . . . . . . . .      3

          Consolidated Statements of Income - Three months 
               ended March 31, 1997 and 1998 (unaudited). . . . . . .      4

          Statement of Shareholders' Equity - Three months ended 
               March 31, 1998 (unaudited) . . . . . . . . . . . . . .      5

          Consolidated Statements of Cash Flows - Three months 
               ended March 31, 1997 and 1998 (unaudited). . . . . . .      6

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

          Management's Discussion and Analysis of Financial 
               Condition and Results of Operations. . . . . . . . . .     10

PART II.  OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . .     16

          Changes in Securities and Use of Proceeds . . . . . . . . .     16

          Other Information . . . . . . . . . . . . . . . . . . . . .     16

          Exhibits and Reports on Form 8-K. . . . . . . . . . . . . .     17

SIGNATURES      . . . . . . . . . . . . . . . . . . . . . . . . . . .     18
</TABLE>



                                       2
<PAGE>

                         PART I -- FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS.

                            HORIZON PHARMACIES, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
                       ASSETS                        December  31,        March 31,
                                                         1997               1998
                                                      -----------        -----------
                                                       (audited)         (unaudited)
<S>                                                  <C>                 <C>
Current assets:
   Cash and cash equivalents . . . . . . . . . . .     $4,084,088        $ 2,388,288
   Accounts receivable, net:
      Third-party providers. . . . . . . . . . . .      2,763,481          3,622,865
      Others . . . . . . . . . . . . . . . . . . .      1,477,953          1,406,161
   Inventories . . . . . . . . . . . . . . . . . .      7,900,994          9,827,570
   Prepaid expenses and deposits . . . . . . . . .        120,915            144,994
   Deferred income taxes . . . . . . . . . . . . .         42,000             42,000
                                                      -----------        -----------
Total current assets . . . . . . . . . . . . . . .     16,389,431         17,431,878
Property, equipment and capital lease assets:
   Property and equipment:
      Land and building. . . . . . . . . . . . . .        204,389            204,389
      Equipment. . . . . . . . . . . . . . . . . .      1,453,112          1,910,014
                                                      -----------        -----------
                                                        1,657,501          2,114,403
   Less accumulated depreciation . . . . . . . . .        200,855            262,725
                                                      -----------        -----------
   Property and equipment, net . . . . . . . . . .      1,456,646          1,851,678
   Equipment under capital leases. . . . . . . . .        374,209            373,509
   Less accumulated amortization . . . . . . . . .         92,238            112,568
                                                      -----------        -----------
   Equipment under capital leases, net . . . . . .        281,971            260,941
                                                      -----------        -----------
Property, equipment and capital lease assets, net.      1,738,617          2,112,619
Intangibles, at cost:
   Noncompete covenants. . . . . . . . . . . . . .        441,788            561,788
   Customer lists. . . . . . . . . . . . . . . . .        531,147            688,747
   Goodwill. . . . . . . . . . . . . . . . . . . .      1,879,782          3,015,818
                                                      -----------        -----------
                                                        2,852,717          4,266,353
   Less accumulated amortization . . . . . . . . .        327,058            395,369
                                                      -----------        -----------
Intangibles, net . . . . . . . . . . . . . . . . .      2,525,659          3,870,984
                                                      -----------        -----------
                                                      $20,653,707        $23,415,481
                                                      -----------        -----------
                                                      -----------        -----------

         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable. . . . . . . . . . . . . . . .    $ 3,670,123        $ 3,999,972
   Accrued liabilities . . . . . . . . . . . . . .        394,526            497,486
   Notes payable . . . . . . . . . . . . . . . . .        161,865            319,958
   Income taxes payable. . . . . . . . . . . . . .        220,000            177,771
   Current portion of long-term debt . . . . . . .        572,254            802,215
   Current obligations under capital leases. . . .         83,824             76,801
                                                      -----------        -----------
Total current liabilities. . . . . . . . . . . . .      5,102,592          5,874,203
Long-term debt . . . . . . . . . . . . . . . . . .      3,332,682          4,507,285
Obligations under capital leases . . . . . . . . .        197,775            178,572
Deferred income taxes. . . . . . . . . . . . . . .        182,000            157,000
Shareholders' equity
   Preferred stock . . . . . . . . . . . . . . . .           --                 --  
   Common stock. . . . . . . . . . . . . . . . . .         44,365             45,261
   Additional paid-in capital. . . . . . . . . . .     11,516,834         12,100,570
   Retained earnings . . . . . . . . . . . . . . .        277,459            552,590
                                                      -----------        -----------
Total shareholders' equity . . . . . . . . . . . .     11,838,658         12,698,421
                                                      -----------        -----------
                                                      $20,653,707        $23,415,481
                                                      -----------        -----------
                                                      -----------        -----------
</TABLE>
                                       
                             SEE ACCOMPANYING NOTES.
                                       3
<PAGE>

                             HORIZON PHARMACIES, INC.
                         CONSOLIDATED STATEMENTS OF INCOME
                                    (UNAUDITED)

<TABLE>
                                                     Three Months ended March 31,
                                                     ----------------------------
                                                          1997           1998
                                                     ------------    ------------
<S>                                                  <C>             <C>
Net revenues:
   Prescription drugs sales. . . . . . . . . . . .    $ 4,060,266    $ 9,799,681
   Other sales and services. . . . . . . . . . . .      1,052,981      3,022,568
                                                      -----------    -----------
Total net revenues . . . . . . . . . . . . . . . .      5,113,247     12,822,249
Costs and expenses:
   Cost of sales and services:
      Prescription drugs . . . . . . . . . . . . .      2,809,258      7,181,401
      Other. . . . . . . . . . . . . . . . . . . .        649,246      1,668,992
   Depreciation and amortization . . . . . . . . .         58,696        150,511
   Selling, general and administrative expenses. .      1,322,381      3,310,284
                                                      -----------    -----------
Total costs and expenses . . . . . . . . . . . . .      4,839,581     12,311,188
                                                      -----------    -----------
Income from operations . . . . . . . . . . . . . .        273,666        511,061
Other income (expense):
   Interest and other income . . . . . . . . . . .            393         50,832
   Interest expense. . . . . . . . . . . . . . . .        (53,531)      (103,762)
                                                      -----------    -----------
Total other income (expense) . . . . . . . . . . .        (53,138)       (52,930)
                                                      -----------    -----------
Income before provision for income taxes . . . . .        220,528        458,131
Provision for income taxes (Note 3). . . . . . . .         77,000        183,000
                                                      -----------    -----------
Net income . . . . . . . . . . . . . . . . . . . .    $   143,528    $   275,131
                                                      -----------    -----------
                                                      -----------    -----------
Basic earnings per share (Note 2). . . . . . . . .    $      0.08    $      0.06
                                                      -----------    -----------
                                                      -----------    -----------
Diluted earnings per share (Note 2). . . . . . . .    $      0.08    $      0.06
                                                      -----------    -----------
                                                      -----------    -----------
</TABLE>

                            See accompanying notes.

                                       4
<PAGE>
                                       
                            HORIZON PHARMACIES, INC.
                        STATEMENT OF SHAREHOLDERS' EQUITY
                        THREE MONTHS ENDED MARCH 31, 1998
                                  (UNAUDITED)

<TABLE>
                                                  COMMON STOCK
                                              ---------------------      ADDITIONAL                                 TOTAL
                                               SHARES       AMOUNT     PAID-IN CAPITAL   RETAINED EARNINGS    SHAREHOLDERS' EQUITY
                                              ---------    --------    ---------------   -----------------    --------------------
<S>                                           <C>          <C>         <C>               <C>                  <C>
Balance at December 31, 1997                  4,436,494     $44,365      $11,516,834         $277,459            $11,838,658
Exercise of stock options                        56,101         561          223,843             --                  224,404
Tax benefit from exercise of stock options         --          --             50,228             --                   50,228
Issuance of stock to acquire stores              31,282         313          289,687             --                  290,000
Issuance of stock to reduce debt                  2,222          22           19,978             --                   20,000
Net income                                         --          --               --            275,131                275,131
                                              ---------     -------      -----------         --------            -----------
Balance at March 31, 1998                     4,526,099     $45,261      $12,100,570         $552,590            $12,698,421
                                              ---------     -------      -----------         --------            -----------
                                              ---------     -------      -----------         --------            -----------
</TABLE>

                            See accompanying notes.













                                       5
<PAGE>

                           HORIZON PHARMACIES, INC.
                                       
                    CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                 (UNAUDITED)

<TABLE>
                                                      THREE MONTHS ENDED MARCH 31,
                                                      ----------------------------
                                                           1997          1998
                                                        ---------    -----------
<S>                                                   <C>            <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . .      $ 143,528    $   275,131
Adjustments to reconcile net income to net 
  cash provided by (used in) operating activities:
   Depreciation and amortization of property, 
     equipment and capital lease assets . . . . .          28,244         82,200
   Amortization of intangibles . . . . . . . . . .         30,452         68,311
   Provision for uncollectible accounts receivable          5,598          1,742
   Pro forma provision for income taxes. . . . . .         77,000           --  
   Credit for deferred income taxes. . . . . . . .           --          (25,000)
   Changes in operating assets and liabilities, 
     net of acquisitions of businesses:
      Accounts receivable. . . . . . . . . . . . .       (529,881)      (775,930)
      Inventories. . . . . . . . . . . . . . . . .       (212,899)      (647,023)
      Prepaid expenses and deposits. . . . . . . .          3,989        (24,080)
      Bank overdraft . . . . . . . . . . . . . . .        482,480           --  
      Accounts payable . . . . . . . . . . . . . .        172,397        329,849
      Accrued liabilities. . . . . . . . . . . . .         53,031        102,960
      Income taxes payable . . . . . . . . . . . .           --            7,999
                                                        ------------------------
Total adjustments. . . . . . . . . . . . . . . . .        110,411       (878,972)
                                                        ------------------------
Net cash used provided by (used in) operating 
  activities . . . . . . . . . . . . . . . . . . .        253,939       (603,841)

INVESTING ACTIVITIES
Purchases of property and equipment. . . . . . . .         (7,819)      (135,482)
Assets acquired for cash in acquisitions of 
  businesses . . . . . . . . . . . . . . . . . . .           --         (951,023)
                                                        ------------------------
Net cash used in investing activities. . . . . . .         (7,819)    (1,086,505)

FINANCING ACTIVITIES
Principal payments on notes payable. . . . . . . .        (85,000)       (56,984)
Principal payments on long-term debt . . . . . . .        (55,248)      (146,648)
Principal payments on obligations under 
  capital leases . . . . . . . . . . . . . . . . .        (10,583)       (26,226)
Proceeds from sales of stock . . . . . . . . . . .        (63,850)       224,404
Distributions to shareholders. . . . . . . . . . .        (75,000)          --  
                                                        ------------------------
Net cash used in financing activities. . . . . . .       (289,681)        (5,454)
                                                        ------------------------
Net decrease in cash and cash equivalents. . . . .        (43,561)    (1,695,800)
Cash and cash equivalents at beginning of 
  period . . . . . . . . . . . . . . . . . . . . .        153,260      4,084,088
                                                        ------------------------
Cash and cash equivalents at end of period . . . .      $ 109,699    $ 2,388,288
                                                        ------------------------
                                                        ------------------------
Supplemental disclosure of interest paid . . . . .      $  53,531    $   103,762

NONCASH INVESTING AND FINANCING ACTIVITIES
Equipment leased under capital leases. . . . . . .      $  59,694    $      --  
Issuance of common stock to reduce long-term debt.           --           20,000
Acquisitions of businesses financed by debt and 
   common stock:
     Accounts receivable and other . . . . . . . .      $  66,382    $    12,703
     Inventories . . . . . . . . . . . . . . . . .        482,260      1,279,553
     Property and equipment. . . . . . . . . . . .         60,000        321,420
     Intangibles . . . . . . . . . . . . . . . . .        390,000      1,413,635
                                                        ------------------------
                                                          998,642      3,027,311
     Less cash paid. . . . . . . . . . . . . . . .           --          951,023
                                                        ------------------------
     Assets acquired . . . . . . . . . . . . . . .      $ 998,642    $ 2,076,288
                                                        ------------------------
                                                        ------------------------
</TABLE>


                                       6
<PAGE>

                           HORIZON PHARMACIES, INC.
                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (UNAUDITED) CONTINUED...

<TABLE>
<S>                                                   <C>            <C>
Financed by:
     Notes payable . . . . . . . . . . . . . . . .       $898,642     $215,077
     Long-term debt. . . . . . . . . . . . . . . .           --      1,571,211
     Advance by shareholder. . . . . . . . . . . .        100,000         --  
     Common stock. . . . . . . . . . . . . . . . .           --        290,000
                                                         ---------------------
                                                         $998,642   $2,076,288
                                                         ---------------------
                                                         ---------------------
</TABLE>

                                       
                           See accompanying notes.   















                                       7

<PAGE>

                               HORIZON PHARMACIES, INC.

                      NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1

        The unaudited financial statements include all adjustments, consisting
of normal, recurring accruals, which HORIZON Pharmacies, Inc. (the "Company")
considers necessary for a fair presentation of the financial position and the
results of operations for the indicated periods.  The notes to the financial
statements should be read in conjunction with the notes to the financial
statements contained in the Company's Form 10-KSB, for the year ended December
31, 1997.  The results of operations for the three months ended March 31, 1998,
are not necessarily indicative of the results to be expected for the full year
ending December 31, 1998.  The Company's sales and earnings are higher during
peak holiday periods and from Christmas through Easter (the first and fourth
quarters of the calendar year).  Estimated gross profit rates were used to
determine costs of sales for the three months ended March 31, 1997 and 1998.

NOTE 2

        Weighted average common shares outstanding used in the calculation of
basic earnings per share of the three months ended March 31, 1997 and 1998
totaled 1,713,636 and 4,492,576, respectively.  Common shares used in the
calculation of diluted earnings per share for the three months ended March 31,
1997 and 1998 were 1,713,636 and 4,751,797, respectively.  The difference in the
number of shares for 1998 is attributable to dilutive stock options and warrants
of 259,221. 

NOTE 3

         Prior to completion of the Company's initial public offering (the
"Offering") on July 11, 1997, no historical provisions for income taxes were
included in the Company's financial statements as income taxes, if any, were
payable by the shareholders under provisions of subchapter S of the Internal
Revenue Code.  Upon completion of the Offering, the S status of the Company was
automatically terminated and the Company became subject to income taxes.

        The provision for income taxes included in the accompanying financial 
statements of income for the three months ended March 31, 1997 is a pro forma 
provision based on an estimated effective tax rate of 35% presented as if the 
Company was required to pay income taxes for the period. The income tax 
provision for the three months ended March 31, 1998 is based on an estimated 
actual tax rate of 40%.

NOTE 4

        At March 31, 1998, the Company operated 30 free-standing retail
pharmacies, all of which were acquired from third parties in purchase
transactions.  Such acquisitions have each been structured as asset purchases
and generally have included inventories, store fixtures and the assumption of
store operating lease arrangements. The acquisitions generally have been
financed by debt to the sellers and/or an inventory supplier. A summary of
acquisitions for the three months ended March 31, 1997 and 1998 follows:

<TABLE>
                                                    ASSETS ACQUIRED
                                        -------------------------------------- 
                                                                    ACCOUNTS
THREE MONTHS                                                       RECEIVABLE
    ENDED        STORES     PURCHASE                                   AND        DEBT        COMMON      
  MARCH 31      ACQUIRED     PRICE      INVENTORIES   INTANGIBLES   EQUIPMENT    INCURRED   STOCK ISSUED  
  --------      --------     -----      -----------   -----------   ---------    --------   ------------  
<S>             <C>        <C>          <C>           <C>           <C>         <C>         <C>
    1997           3       $  998,642   $  482,260    $  390,000    $126,382    $  998,642          --    
    1998           6        3,027,311    1,279,553     1,413,635     334,123     1,786,288    $290,000    
</TABLE>



                                       8

<PAGE>

        The following unaudited pro forma results of operations data gives
effect to the acquisitions completed during the three months ended March 31,
1997 and 1998 as if the transactions had been consummated as of January 1, 1997.
The unaudited pro forma results of operations data is presented for illustrative
purposes and is not necessarily indicative of the actual results that would have
occurred had the acquisitions been consummated as of January 1, 1997, or of
future results of operations. The data reflects adjustments for amortization of
intangibles resulting from the purchases, incremental interest expense resulting
from borrowings to fund the acquisitions, reductions in employee benefits and
rent expense and income taxes.

<TABLE>
                                                 THREE MONTHS ENDED MARCH 31,
                                                 ----------------------------
                                                     1997           1998
                                                     ----           ----  
<S>                                              <C>             <C>
Unaudited pro forma information:
         Net revenues                            $11,034,837     $11,802,915 
         Net income                              $   269,606     $   346,047
         Basic earnings per share                $       .10     $       .08
         Diluted earnings per share              $       .10     $       .07
</TABLE>

        In April and May 1998, the Company acquired from third parties in
purchase transactions one home healthcare agency, and one intravenous operation
and closed door institutional pharmacy.  The total purchase price of $360,000
has been preliminarily allocated to inventories ($20,000), property and
equipment ($235,000), intangibles ($60,000) and accounts receivable ($45,000). 
The purchases were financed by the issuance of shares of common stock (valued at
$192,500) and cash of $167,500.












                                       9

<PAGE>

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

OVERVIEW

        The following discussion and analysis reviews the operating results of
the Company for the three months ended March 31, 1998 and compares those results
to the comparable period of 1997.  Certain statements contained in this
discussion are not based on historical facts, but are forward-looking statements
that are based upon numerous assumptions about future conditions which may
ultimately prove to be inaccurate and actual events and results may materially
differ from anticipated results described in such statements.  The Company's
ability to achieve such results is subject to certain risks and uncertainties,
such as those inherent generally in the retail pharmacy industry and the impact
of competition, pricing and changing market conditions.  The Company disclaims,
however, any intent or obligation to update these forward-looking statements. 
As a result, the reader is cautioned not to place reliance on these 
forward-looking statements.

        The Company's principal business strategy since commencing operations in
1994 has been to establish a chain of retail pharmacies through the acquisition
of free standing full-line retail pharmacies and related businesses.  In
evaluating a retail pharmacy for potential acquisition, the Company (i)
evaluates the target store's profits and losses for preceding years; (ii)
reviews the store's income tax returns for preceding years; (iii) reviews
computer-generated prescription reports showing historical information including
prescriptions sold, average price of each prescription, gross margins and trends
in prescription sales; (iv) analyzes the store's location and competition in the
immediate area; (v) reviews the store's lease agreement, if any; and (vi)
assesses targeted areas for growth patterns and trends.  Based on the Company's
analysis of the foregoing items, the Company prepares an offer to purchase the
particular store. To assess the reasonableness of the seller's purchase price,
the Company considers the anticipated rate of return, payback period and the
availability and terms of seller financing, it being generally desired that 50%
of the purchase price be seller-financed with the balance split between cash and
other consideration such as Company stock.

        During the three months ended March 31, 1997 and 1998, the Company
acquired three and six retail pharmacies, respectively.  The primary measurement
of the effect of acquisitions on the Company's operating performance is the
number of store operating months, which is the number of months all stores were
owned by the Company during the relevant measuring period.  Acquisitions are
expected to continue as the most significant factor in the Company's growth
strategy.  Since March 31, 1998, the Company has acquired a home healthcare
agency in McKinney, Texas and an intravenous operation and closed door
institutional pharmacy in Brookfield, Missouri.  The financial information for
these two operations is not included in the financial statements presented in
this Quarterly Report on Form 10-QSB.

        Currently, the Company's primary source of revenue is the sale of
prescription drugs. During the three months ended March 31, 1997, sales of
prescription drugs generated 79.4% of the Company's net sales; during the three
months ended March 31, 1998, prescription drugs generated 76.4% of net sales. 
Management expects the Company's prescription drug business to increase on an
annual basis as a result of the demographic trends towards an aging population
and the continued development of new pharmaceutical products. However, the
Company anticipates that such sales will decrease as a percentage of the
Company's overall sales and gross margins as the Company expands its home
healthcare and other non-pharmaceutical sales and services which have
historically generated higher margins.

        The Company's sales and profits are higher during peak holiday periods
and from Christmas through Easter.  Sales of health-related products peak during
seasonal outbreaks of cough and cold/flu viruses, which typically occur during
the winter and spring. Accordingly, sales and profits are typically highest in
the fourth quarter and the first quarter of the ensuing year.


                                      10

<PAGE>

RESULTS OF OPERATIONS

        The following table sets forth the percentage relationship of certain
income statement data for the periods indicated:

<TABLE>
                                                     THREE  MONTHS ENDED  
                                                           MARCH 31,
                                                           ---------
                                                      1997          1998
                                                      ----          ---- 
<S>                                                   <C>           <C>
INCOME STATEMENT DATA

NET REVENUES:
  Prescription drugs sales                           79.4%         76.4%
  Other sales and services                           20.6%         23.6%
                                                    -----         ----- 
      Total net revenues                            100.0%        100.0%
                                                    -----         ----- 
                                                    -----         ----- 
COSTS AND EXPENSES:
  Cost of sales -- prescription drugs(1)             69.2%         73.3%
  Cost of sales -- other(2)                          61.7%         55.2%
  Selling, general and administrative expenses(3)    25.9%         25.8%
  Depreciation and amortization(3)                    1.1%          1.2%
  Interest expense net(3)                             1.0%           .4%
  Income before provision for income taxes(3)         4.3%          3.6%
  Net Income (3)                                      2.8%          2.1%
</TABLE>

-------------------- 
  (1)  As a percentage of prescription drugs sales.
  (2)  As a percentage of other sales and services.
  (3)  As a percentage of total net revenues.

        Intangible assets, including but not limited to goodwill, pharmacy files
and non-compete covenants, have historically represented a substantial portion
of the Company's acquisition costs.  Such assets are generally amortized over a
period of not more than 40 years.  Accordingly, the amortization of intangible
assets is not expected to have a significant effect on the Company's future
results of operations.

NET SALES

        The Company's total net revenues increased $7,709,002 or 151%, to
$12,822,249 for the three months ended March 31, 1998 compared to $5,113,247 for
the three months ended March 31, 1997.  The increase was attributable primarily
to the increase in store operating months from 36 in the first three months of
1997 to 81 in the first three months of 1998.

        The following tables show the Company's prescription drug gross margins
and total sales margins for the three months ended March 31, 1997 and 1998:

<TABLE>
                                    GROSS MARGINS ON        GROSS MARGINS ON
                                PRESCRIPTION DRUG SALES        TOTAL SALES
                                -----------------------   ----------------------
THREE MONTHS ENDED MARCH 31,      AMOUNT     PERCENTAGE     AMOUNT    PERCENTAGE
----------------------------      ------     ----------     ------    ----------
<S>                             <C>          <C>          <C>         <C>
           1998                 $2,681,280      26.7%     $3,971,856     31.0%
           1997                 $1,251,058      30.8%     $1,654,743     32.4%
</TABLE>


                                      11

<PAGE>

        The decrease in the gross margin on prescription drug sales from 1997 to
1998 was primarily the result of an increase in third-party sales, which have
lower margins and the acquisition of new stores which historically have had
lower margins than those of the Company.

        Sales of prescription drugs decreased from 79.4% of total revenues for
the three months ended March 31, 1997 to 76.4% of total revenues for three
months ended March 31, 1998. The Company expects that prescription drug revenues
will continue to decrease as a percentage of total revenues as the Company
expands its home healthcare and other non-pharmaceutical sales and services,
whose gross margins exceed those of pharmaceutical sales.

        Same store sales for the Company's first 11 stores increased from
$4,799,200 in the first three months of 1997 to $5,447,200 in the first three
months of 1998.  Management believes that the increase of 13.5% is primarily the
result of increased advertising and promotions as well as an enhanced product
mix.

COSTS AND EXPENSES

        Cost of sales increased $5,391,889 or 156%, from $3,458,504 in the three
months ended March 31, 1997 as compared to $8,850,393 in the three months ended
March 31, 1998.  This increase is primarily the result of increased sales volume
resulting from the increased number of store operating months.  

        Cost of sales as a percentage of total net sales increased 1.4% from 
67.6% in the three months ended March 31, 1997 to 69.0% in the three months 
ended March 31, 1998.  This increase is primarily the result of an increase 
in third party prescriptions, offset by the effects of management's continual 
monitoring and adjustment of prices to the consumer and the addition of 
non-pharmaceutical sales and services with lower cost of sales.

        Selling, general and administrative expenses increased from 
$1,322,381 in the three months ended March 31, 1997 to $3,310,284 in the 
three months ended March 31, 1998.  Such expenses, expressed as a percentage 
of net revenues, were 25.9% and 25.8% for the three months ended March 31, 
1997 and 1998, respectively.  The amount increased principally due to 
increased store count and resulting increased store operating months.  The 
percentage decrease of 0.1% is primarily due to efficiencies achieved as 
revenues increase.

        Interest expense was $53,531 in the first three months of 1997 compared
to $103,762 during the first three months of 1998.  The increase in interest
expense resulted primarily from the increase in the Company's indebtedness
associated with the Company's acquisitions.

        Interest income was $393 in the first three months of 1997 compared to
$50,832 in the first three months of 1998.

EARNINGS

        Net income for the first three months of 1998 rose to $275,131 from
$143,528 in the comparable period of 1997; an increase of 91.7%. 

LIQUIDITY AND CAPITAL RESOURCES

        Net cash used in operating activities for the three months ended March
31, 1998 was $603,841 as compared to net cash provided of $253,939 for the three
months ended March 31, 1997.  Increases in accounts receivable and inventories,
which were partially offset by an increase in accounts payable, were the primary
reasons for the increased usage of cash.


                                      12

<PAGE>

        Net cash used in investing activities was $7,819 and $1,086,505 for the
three months ended March 31, 1997 and 1998, respectively.  The principal cause
of this difference was the increase in the number of stores acquired by the
Company during the three months ended March 31, 1998.

        Net cash decreased $1,695,800 during the three months ended March 31,
1998 from $4,084,088 at December 31, 1997 to $2,388,288 at March 31, 1998.

        On April 30, 1998, the Company obtained a commitment from McKesson
Corporation ("McKesson") to provide certain credit facilities (the "Credit
Facilities") aggregating up to $33 million for financing the Company's
acquisitions, working capital and general corporate purposes.  McKesson's
obligation to provide the Credit Facilities, which will include a term loan, a
factoring facility for eligible on-line adjudicated third-party receivables and
a revolving credit facility, is subject to the parties execution of definitive
credit agreements which, among other things, will require the Company to meet
certain restrictive ratios and covenants and to provide adequate collateral. 
Management believes the Company's operations will not be adversely impacted by
these restrictive ratios and covenants.  In addition, the Credit Facilities are
also contingent on the Company's use of McKesson as a primary supplier and, in
accordance with such requirement, on April 30, 1998, the Company and McKesson
entered into a Supply Agreement (the "McKesson Supply Agreement") which is
described in Item 5, below.

        Management expects that the proceeds generated from income from
operations, seller-financing of acquisitions, the Credit Facilities and possible
future equity offerings will be sufficient to support the Company's current
expansion schedule and ongoing acquisition activities for the next 12 months,
although there can be no assurance that such proceeds will be adequate to
support the Company's acquisitions during such period.

         In addition, management expects to convert, during the next 12 to 18
months, between two and three of its existing stores to "healthcare centers,"
although there can be no assurance that all or any part of such conversions will
be effected.  In the event such conversions are undertaken, management expects
to incur a minimum of $20,000 to $40,000 in conversion costs per store
converted. The costs of such conversion are expected to be funded from
operations.

YEAR 2000

        The Company is in the process of conducting a Year 2000 compliance
assessment of its information technology systems.  The Year 2000 issue relates
to the ability of date-sensitive software to properly recognize the year 2000 in
calculating and processing computer system data.  The Company has determined
that some existing software will need to be modified.  Modifications to existing
software are expected to be completed well in advance of 2000.  The Company
anticipates that timely completion of these modifications will mitigate the Year
2000 issue internally.

        The Company has not determined the potential impact of the year 2000
issue on its significant vendors or suppliers at this time.  Because third
party failures could have a material impact on the Company's ability to conduct
business, plans are being developed to address the Year 2000 issue with these
third parties.  The Company anticipates completing this assessment process
during 1998.  Based upon current expenditures and estimates, the costs of
addressing the Year 2000 issue are not expected to have a material impact on
future operating results or financial position.


                                      13

<PAGE>

IMPACT OF INFLATION AND CHANGING PRICES

        Though not significant, inflation continues to cause increases in
product, occupancy and operating expenses, as well as the cost of acquiring
capital assets. The effect of higher costs is minimized by achieving operating
efficiencies and passing vendor price increases along to the consumers.

FACTORS AFFECTING OPERATIONS

        DEPENDENCE ON ACQUISITIONS FOR GROWTH.  The Company has grown rapidly in
recent periods and intends to continue to pursue an aggressive growth strategy. 
The Company's growth strategy depends upon its ability to continue to acquire,
consolidate and operate existing free-standing pharmacies and related businesses
on a profitable basis.  The Company continually reviews acquisition proposals
and is currently engaged in discussions with third parties with respect to
possible acquisitions.  The Company will compete for acquisition candidates with
buyers who have greater financial and other resources, and may be able to pay
higher acquisition prices, than the Company.  To the extent the Company is
unable to acquire suitable retail pharmacies, or to integrate such acquisitions
successfully, its ability to expand its business would be reduced significantly.

        SALES TO THIRD-PARTY PAYORS.  A growing percentage of the Company's
prescription drug sales has been accounted for by sales to customers who are
covered by third-party payment programs.  Although contracts with third-party
payors may increase the volume of prescription sales and gross profits, 
third-party payors typically negotiate lower prescription prices than those 
of non third-party payors.  Accordingly, there has been downward pressure on 
gross profit margins on sales of prescription drugs which is expected to 
continue in future periods.

        RELIANCE ON MEDICARE AND MEDICAID REIMBURSEMENTS.  Substantially all of
the Company's home healthcare revenues are attributable to third-party payors,
including Medicare and Medicaid, private insurers, managed care plans and HMOs.
The amounts received from government programs and private third-party payors are
dependent upon the specific benefits included under the program or the patient's
insurance policies.  Any substantial delays in reimbursement or significant
reductions in the coverage or payment rates of third-party payors, or from
patients enrolled in the Medicare or Medicaid programs, would have a material
adverse effect on the Company's revenues and profitability.

        EXPANSION.  The Company's expansion will require the implementation and
integration of enhanced operational and financial systems and additional
management, operational and financial resources.  Failure to implement and
integrate these systems and add these resources could have a material adverse
effect on the Company's results of operations and financial condition. There can
be no assurance that the Company will be able to manage its expanding operations
effectively or that it will be able to maintain or accelerate its growth. While
the Company experienced growth in net revenues and net income in 1996 and 1997,
there can be no assurance that the Company will continue to experience growth
in, or maintain the present level of, net sales or net earnings.

        GOVERNMENT REGULATION AND HEALTHCARE REFORM.  The Company's pharmacists
and pharmacies are subject to a variety of state and Federal regulations, and
may be adversely affected by certain changes in such regulations.  In addition,
the Company relies on prescription drug sales for a significant portion of its
revenues and profits, and prescription drug sales represent a significant
segment of the Company's business. These revenues are affected by regulatory
changes within the healthcare industry, including changes in programs providing
for reimbursement of the cost of prescription drugs by third-party payment
plans, such as government and private plans, and regulatory changes relating to
the approval process for prescription drugs.


                                      14

<PAGE>

        REGULATION OF HOME HEALTHCARE SERVICES.  The Company's home healthcare
business is subject to extensive Federal and state regulation. In addition, the
requirements that the Company must satisfy to conduct its businesses vary from
state to state.  Changes in the law or new interpretations of existing laws
could have a material effect on permissible activities of the Company, the
relative costs associated with doing business and the amount of reimbursement
for the Company's products and services paid by government and other third-party
payors.

        MALPRACTICE LIABILITY.  The provision of home healthcare services
entails an inherent risk of claims of medical and professional malpractice
liability.  The Company may be named as a defendant in such malpractice
lawsuits, and is subject to the attendant risk of substantial damage awards. 
While the Company believes it has adequate professional and medical malpractice
liability insurance coverage, there can be no assurance that a future claim or
claims will not be successful or if successful will not exceed the limits of
available insurance coverage or that such coverage will continue to be available
at acceptable costs and on favorable terms.

        COMPETITION.  The retail pharmacy and home healthcare businesses are
highly competitive.  In each of its markets, the Company competes with one or
more national, regional and local retail pharmacy chains, independent retail 
pharmacies, deep discount retail pharmacies, supermarkets, discount 
department stores, mass merchandisers and other retail stores and mail order 
operations.  Similarly, the Company's stores offering home healthcare 
services will compete with other larger providers of home healthcare services 
including chain operations and independent single unit stores which are more 
established in that market and which offer more extensive home healthcare 
services than the Company. Most of the Company's competitors in the retail 
pharmacy and home healthcare markets have financial resources that are 
substantially greater than those of the Company.  There can be no assurance 
the Company will be able to successfully compete with its competitors in the 
retail pharmacy and/or home healthcare industry. 

        GEOGRAPHIC CONCENTRATION.  Currently, 14 of the Company's 30 retail
pharmacies are located in Texas, and other retail pharmacies located in Texas
may be acquired by the Company.  Consequently, the Company's results of
operations and financial condition are dependent upon general trends in the
Texas economy and any significant healthcare legislative proposals enacted in
the state of Texas. 

        SUBSTANTIAL INDEBTEDNESS. In connection with the Company's acquisition
of  retail pharmacies, the Company has incurred substantial debt and may incur
additional indebtedness in the future in connection with its planned
acquisition of additional stores.  The Company's ability to make cash payments
to satisfy its substantial indebtedness will depend upon its future operating
performance, which is subject to a number of factors including prevailing
economic conditions and financial, business and other factors beyond the
Company's control. If the Company is unable to generate sufficient earnings and
cash flow to meet its obligations with respect to its outstanding indebtedness,
refinancing of certain of these debt obligations or disposition of certain
assets may be required.  In the event debt refinancing is required, there can be
no assurance that the Company can effect such refinancing on satisfactory terms.

        POSSIBLE NEED FOR ADDITIONAL CAPITAL.   Although the Company believes
that the proceeds from the Company's initial public offering of the Company's
common stock, par value $.01 per share (the "Common Stock") which closed July
11, 1997 (the "Offering") and the private placement of the Common Stock which
closed October 23, 1997, combined with operating revenues and the Credit
Facilities will be adequate to satisfy its capital requirements for the next 12
months, circumstances, including the acquisition of additional stores, may
require the Company to obtain long or short-term financing to realize certain
business opportunities.  No assurance can be made that such financing will be
obtained. 

        RELIANCE ON SINGLE SUPPLIER.  During the three months ended March 31,
1998, the Company purchased approximately 90% of its inventory from Bergen
Brunswig Drug Co. ("Bergen Brunswig").  


                                      15

<PAGE>

Bergen Brunswig also provided the Company with order entry machines, shelf 
labels and other supplies used in connection with the Company's purchase and 
sale of such inventory.  On April 30, 1998, the Company entered into the 
McKesson Supply Agreement pursuant to which McKesson will replace Bergen 
Brunswig as the Company's primary supplier. The Company believes that the 
wholesale pharmaceutical and non-pharmaceutical distribution industry is 
highly competitive because of the consolidation of the retail pharmacy 
industry and the practice of certain large retail pharmacy chains to purchase 
directly from product manufacturers.  Although the Company believes that it 
could obtain its inventory through another similar distributor at competitive 
prices and upon competitive payment terms in the event its relationship with 
McKesson was terminated, there can be no assurance that the termination of 
such relationship would not adversely affect the Company's business.  See 
Item 5. Other Information - Change in Primary Supplier.

        POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY.  The Company's
results of operations depend significantly upon the net sales generated during
the first and fourth quarters, and any decrease in net sales for such periods
could have a material adverse effect upon the Company's profitability.  As a
result, the Company believes that period-to-period comparisons of its results of
operations are not and will not necessarily be meaningful, and should not be
relied upon as an indication of future performance.

                             PART II -- OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        RECENT SALES OF UNREGISTERED SECURITIES. On February 1, 1998, the 
Company issued to a corporation 13,206 unregistered shares of Common Stock in 
partial consideration of its acquisition of a store located in Colorado.  On 
February 28, 1998, the Company issued to a corporation 5,252 unregistered 
shares of Common Stock in partial consideration of its acquisition of a store 
located in Missouri.  On March 7, 1998, the Company issued to a corporation 
4,115 unregistered shares of Common Stock in partial consideration of its 
acquisition of a store located in Texas.  On March 30, 1998, the Company 
issued to a corporation 8,709 unregistered shares of Common Stock in partial 
consideration of its acquisition of a store located in Arizona. The Company 
claimed exemption from registration of such shares under Section 4(2) of the 
Securities Act of 1933 on the basis that such issuances did not involve any 
public offering.

        On February 11, 1998, the Company issued to an individual 2,222
unregistered shares of Common Stock in connection with the conversion of $20,000
of long-term debt owed by the Company in connection with the acquisition of
substantially all of the assets of Mart Super Drugs, a Missouri partnership. 
The Company claimed exemption from registration of such shares under Section
4(2) of the Securities Act of 1933 on the basis that such issuance did not
involve any public offering.

ITEM 5.  OTHER INFORMATION.

        CHANGE IN PRIMARY SUPPLIER.  On April 30, 1998, the Company entered into
the McKesson Supply Agreement pursuant to which  McKesson will supply the
Company with prescription drugs, health and beauty care products and durable
medical products for a term of five years beginning June 1, 1998.  Management
believes that the McKesson Supply Agreement which among other things, provides a
declining cost of sales based on volume, will enable the Company to remain 
competitive.

        ACQUISITIONS.  As indicated in the table below, during the period from
January 1, 1998 to the date of filing of this Quarterly Report on Form 10-QSB,
the Company acquired substantially all of the assets of seven separate
pharmacies located throughout Arizona, Colorado, Missouri and Texas, a HME
operation located in Colorado, a home healthcare agency located in Texas, and an
intravenous operation and closed door pharmacy located in Missouri.  None of the
referenced acquisitions exceeded 10% of the Company's total 


                                      16

<PAGE>

assets or involved a "significant" business; accordingly, the financial 
statements of such businesses have not been filed herein or on any Current 
Report on Form 8-K.

<TABLE>
DATE OF ACQUISITION            PHARMACY NAME                            STATE
-------------------            -------------                            ----- 
<S>                    <C>                                       <C>
      1/1/98           Health Call Equipment Rental              Canon City, Colorado
     1/12/98           Conoly-Herry Drugs, Inc.                  Floresville, Texas
     1/31/98           Tom and Jim Pharmacy, Inc. d/b/a
                         Canon Pharmacy                          Canon City, Colorado
      2/1/98           Lemtko, Inc. d/b/a Highlands Ranch
                         Pharmacy and Southside Medical, Inc.    Highlands Ranch, Colorado 
     2/28/98           Steelville Drugs, Inc.                    Steelville, Missouri
      3/7/98           Hesser Drug Co. d/b/a Towne Pharmacy      Ennis, Texas
     3/28/98           Belen Sav-On Drug, Inc.                   Belen, New Mexico
     3/30/98           St. Johns Drug Co.                        St. Johns, Arizona
     4/13/98           Community Home Care                       McKinney, Texas
      5/1/98           Gardner Pharmacy Services, Inc.           Brookfield, Missouri
</TABLE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits

<TABLE>
               EXHIBIT NO.   NAME OF EXHIBIT
               -----------   ---------------
               <S>           <C>
                 10.1        Supply Agreement dated April 30, 1998 by and between HORIZON 
                             Pharmacies, Inc. and McKesson Corporation (filed electronically
                             herewith).
                 10.2        Term Sheet dated April 30, 1998 by and between HORIZON Pharmacies,
                             Inc. and McKesson Corporation (filed electronically herewith).  
                             Omitted from this agreement, as filed, are the exhibits thereto.  
                             The Company will furnish supplementally a copy of any such omitted 
                             exhibits to the Commission upon request.
                 27.1        Financial Data Schedule (filed electronically herewith).
</TABLE>

(b)     Reports on Form 8-K

        During the three months ended March 31, 1998, the Company filed the
following Current Reports on Form 8-K:

<TABLE>
  REPORT DATE   DATE FILED                   ITEM REPORTED                   FINANCIAL STATEMENTS  
  -----------   ----------                   --------------                  --------------------  
  <S>           <C>          <C>                                             <C>
     1/1/98       1/7/98     Item 2 - Acquisition or Disposition of Assets             No
    1/29/98      2/12/98     Item 2 - Acquisition or Disposition of Assets             No
   12/19/97      2/19/98     Item 7 - Financial Statements and Exhibits               Yes
    2/28/98      3/13/98     Item 2 - Acquisition or Disposition of Assets             No
</TABLE>


                                      17

<PAGE>

                                      SIGNATURES

        In accordance with the requirements of the Exchange Act, the Company
caused the report to be signed on its behalf by the undersigned, thereunto duly
authorized.  

                                       HORIZON PHARMACIES, INC.,
                                       a Texas corporation


Date: May 14, 1998                     /s/ Ricky D. McCord
                                       ---------------------------------------
                                       Ricky D. McCord
                                       President, Chief Executive Officer


Date: May 14, 1998                     /s/ John N. Stogner
                                       ---------------------------------------
                                       John N. Stogner
                                       Chief Financial Officer














                                      18