<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:    June 30, 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)
                                          
               DELAWARE                                  75-2441557
     (State or other jurisdiction of                  (I.R.S. Employer
      incorporation or organization)                Identification Number)
                                          
                               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 Securities Exchange Act of 1934 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:

         Title of Each Class                     Outstanding at August 14, 1998
Common stock, par value $.01 per share                      5,363,118


Transitional Small Business Disclosure Format (check one):  Yes [ ]  No [X] 
<PAGE>
                                                       
                                          
                                    FORM 10-QSB
                                 TABLE OF CONTENTS

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

          Consolidated Balance Sheets - December 31, 1997 and 
               June 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . .  3

          Consolidated Statements of Income - Three months ended 
               June 30, 1997 and 1998 (unaudited) and Six months 
               ended June 30, 1997 and 1998 (unaudited). . . . . . . . . . . . . .  4

          Consolidated Statement of Shareholders' Equity - Six months ended 
               June 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . .  5

          Consolidated Statements of Cash Flows - Six months ended 
               June 30, 1997 and 1998 (unaudited). . . . . . . . . . . . . . . . .  6

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

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

PART II.  OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

          Changes in Securities and Use of Proceeds  . . . . . . . . . . . . . . . 17

          Submission of Matters to a Vote of Security Holders. . . . . . . . . . . 17

          Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

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

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
                                          2
<PAGE>

                           PART I -- FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS.
                              HORIZON PHARMACIES, INC.
                             CONSOLIDATED BALANCE SHEETS

                                      ASSETS
<TABLE>
                                                                    June 30,
                                                    December 31,      1998 
                                                       1997        (unaudited)
                                                    ------------   -----------
<S>                                                <C>            <C>
Current assets:
  Cash and cash equivalents. . . . . . . . . . . . $  4,084,088   $  6,516,706
  Accounts receivable, net:
     Third-party providers . . . . . . . . . . . .    2,763,481      3,969,386
     Others. . . . . . . . . . . . . . . . . . . .    1,477,953      1,835,188
  Inventories. . . . . . . . . . . . . . . . . . .    7,900,994     11,503,730
  Prepaid expenses and deposits. . . . . . . . . .      120,915        260,463
  Deferred income taxes. . . . . . . . . . . . . .       42,000         42,000
                                                    -----------    -----------
Total current assets . . . . . . . . . . . . . . .   16,389,431     24,127,473
Property, equipment and capital lease assets:
  Property and equipment:
     Land and building . . . . . . . . . . . . . .      204,389        334,389
     Equipment . . . . . . . . . . . . . . . . . .    1,453,112      2,460,856
                                                    -----------    -----------
          Total. . . . . . . . . . . . . . . . . .    1,657,501      2,795,245
  Less accumulated depreciation. . . . . . . . . .      200,855        334,126
                                                    -----------    -----------
  Property and equipment, net. . . . . . . . . . .    1,456,646      2,461,119

  Equipment under capital leases . . . . . . . . .      374,209        404,826
     Less accumulated amortization . . . . . . . .       92,238        134,681
                                                    -----------    -----------
  Equipment under capital leases, net. . . . . . .      281,971        270,145
                                                    -----------    -----------
Total property, equipment and capital lease 
 assets, net . . . . . . . . . . . . . . . . . . .    1,738,617      2,731,264
Intangibles:
  Noncompete covenants . . . . . . . . . . . . . .      441,788        701,788
  Customer lists . . . . . . . . . . . . . . . . .      531,147        722,746
  Goodwill . . . . . . . . . . . . . . . . . . . .    1,879,782      4,091,109
                                                    -----------    -----------
                                                      2,852,717      5,515,643
     Less accumulated amortization . . . . . . . .      327,058        479,833
                                                    -----------    -----------
Intangibles, net . . . . . . . . . . . . . . . . .    2,525,659      5,035,810
                                                    -----------    -----------
                                                    $20,653,707    $31,894,547
                                                    -----------    -----------
                                                    -----------    -----------

                 LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable . . . . . . . . . . . . . . . .  $ 3,670,123    $ 4,006,408
  Accrued liabilities. . . . . . . . . . . . . . .      394,526        459,611
  Notes payable. . . . . . . . . . . . . . . . . .      161,865        233,391
  Income taxes payable . . . . . . . . . . . . . .      220,000        278,338
  Current portion of long-term debt. . . . . . . .      572,254        963,191
  Current portion of capital leases. . . . . . . .       83,824         90,683
                                                    -----------    -----------
Total current liabilities. . . . . . . . . . . . .    5,102,592      6,031,622
Long-term debt . . . . . . . . . . . . . . . . . .    3,332,682      5,171,346
Obligations under capital leases . . . . . . . . .      197,775        173,540
Deferred income taxes. . . . . . . . . . . . . . .      182,000        157,000
Shareholders' equity
  Preferred stock. . . . . . . . . . . . . . . . .           --             --
  Common stock . . . . . . . . . . . . . . . . . .       44,365         53,631
  Additional paid-in capital . . . . . . . . . . .   11,516,834     19,607,948
  Retained earnings. . . . . . . . . . . . . . . .      277,459        769,659
                                                    -----------    -----------
                                                     11,838,658     20,431,238
  Treasury Stock, at cost; 6,081 shares in 1998. .           --        (70,199)
                                                    -----------    -----------
Total shareholders' equity . . . . . . . . . . . .   11,838,658     20,361,039
                                                    -----------    -----------
                                                    $20,653,707    $31,894,547
                                                    -----------    -----------
                                                    -----------    -----------
</TABLE>
                              SEE ACCOMPANYING NOTES.

                                        3
<PAGE>

                             HORIZON PHARMACIES, INC.
                         CONSOLIDATED STATEMENTS OF INCOME
                                          
                                    (UNAUDITED)
<TABLE>
                                                    Three Months ended June 30    Six Months ended June 30
                                                    --------------------------  -----------------------------
                                                       1997          1998          1997              1998
                                                    ----------    -----------   -----------       -----------
<S>                                                 <C>           <C>           <C>               <C>
Net revenues:
   Prescription drugs sales . . . . . . . . . . .   $4,842,834    $12,205,482   $ 8,903,150       $22,005,163
   Other sales and services . . . . . . . . . . .    1,103,978      3,661,461     2,156,909         6,684,029
                                                    ----------    -----------   -----------       -----------
Total net revenues. . . . . . . . . . . . . . . .    5,946,812     15,866,943    11,060,059        28,689,192
Costs and expenses:
   Cost of sales and services:
      Prescription drugs. . . . . . . . . . . . .    3,408,812      8,808,716     6,218,070        15,990,117
      Other . . . . . . . . . . . . . . . . . . .      715,268      1,988,515     1,364,514         3,657,507
   Depreciation and amortization. . . . . . . . .       66,192        179,311       124,888           329,822
   Selling, general and administrative expenses .    1,567,405      4,434,119     2,889,786         7,744,403
                                                    ----------    -----------   -----------       -----------
Total costs and expenses. . . . . . . . . . . . .    5,757,677     15,410,661    10,597,258        27,721,849
                                                    ----------    -----------   -----------       -----------
Income from operations. . . . . . . . . . . . . .      189,135        456,282       462,801           967,343
Other income (expense):
   Interest and other income. . . . . . . . . . .       (1,825)        33,266        (1,432)           84,098
   Interest expense . . . . . . . . . . . . . . .      (89,382)      (133,480)     (142,913)         (237,241)
                                                    ----------    -----------   -----------       -----------
Total other income (expense). . . . . . . . . . .      (91,207)      (100,214)     (144,345)         (153,143)
                                                    ----------    -----------   -----------       -----------
Income before provision for income taxes. . . . .       97,928        356,068       318,456           814,200
Provision for income taxes (Note 3) . . . . . . .       34,000        139,000       111,000           322,000
                                                    ----------    -----------   -----------       -----------
Net income. . . . . . . . . . . . . . . . . . . .   $   63,928    $   217,068   $   207,456       $   492,200
                                                    ----------    -----------   -----------       -----------
                                                    ----------    -----------   -----------       -----------
Basic earnings per share (Note 2) . . . . . . . .   $     0.04    $      0.05   $      0.12       $      0.11
Diluted earnings per share (Note 2) . . . . . . .   $     0.04    $      0.04   $      0.12       $      0.10
</TABLE>

                               See accompanying notes.

                                          4
<PAGE>

                               HORIZON PHARMACIES, INC.
                    CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                            SIX MONTHS ENDED JUNE 30, 1998
                                     (UNAUDITED)

<TABLE>

                                                    COMMON STOCK                                                        TOTAL 
                                                 -------------------    ADDITIONAL        RETAINED        TREASURY  SHAREHOLDERS'
                                                  SHARES     AMOUNT  PAID-IN CAPITAL      EARNINGS          STOCK      EQUITY
                                                  ------     ------  ---------------      --------          -----      ------
<S>                                              <C>         <C>       <C>                <C>                 <C>   <C>
Balance at December 31, 1997 . . . . . . . . .   4,436,494   $44,365   $11,516,834        $277,459            $0    $11,838,658

Exercise of stock options. . . . . . . . . . .     116,101     1,161       463,243              --                      464,404

Tax benefit from exercise of stock options . .          --        --        50,228              --                       50,228

Issuance of stock to acquire stores. . . . . .      63,077       631       681,869              --                       682,500

Issuance of stock to acquire land. . . . . . .       6,250        63        49,937              --                        50,000
                                                                                                                     
Issuance of stock to reduce debt . . . . . . .       4,361        43        44,957                                        45,000
                                                                                 
Sales of common stock (net of offering costs).     736,838     7,368     6,800,880                                     6,808,248

Acquisition of treasury stock (6,081 shares) .          --        --                                     (70,199)        (70,199)

Net income . . . . . . . . . . . . . . . . . .          --        --            --         492,200                       492,200
                                                 -------------------------------------------------------------------------------
Balance at June 30, 1998 . . . . . . . . . . .   5,363,121   $53,631   $19,607,948        $769,659      ($70,199)    $20,361,039
                                                 -----------------------------------------------------------------------------
                                                 -----------------------------------------------------------------------------
</TABLE>

                               See accompanying notes.
 
                                          5
<PAGE>

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

<TABLE>

                                                       SIX MONTHS ENDED JUNE 30,
                                                       -------------------------
                                                           1997          1998
                                                       ----------    -----------
<S>                                                    <C>           <C>
OPERATING ACTIVITIES

Net income . . . . . . . . . . . . . . . . . . . . .   $  207,456    $   492,200
Adjustments to reconcile net income to net cash 
  provided by (used in) operating activities:
  Depreciation and amortization of property, 
     equipment and capital lease assets. . . . . . .       59,880        177,047
  Amortization of intangibles. . . . . . . . . . . .       65,008        152,775
  Provision for uncollectible accounts receivable. .        7,193         35,444
  Pro forma provision for income taxes . . . . . . .      111,000             --
  Credit for deferred income taxes . . . . . . . . .           --        (25,000)
  Changes in operating assets and liabilities, 
   net of acquisitions of businesses:
     Accounts receivable . . . . . . . . . . . . . .     (943,771)    (1,532,525) 
     Inventories . . . . . . . . . . . . . . . . . .     (120,404)    (1,469,626) 
     Prepaid expenses and deposits . . . . . . . . .      (10,025)      (139,548)
     Bank overdraft. . . . . . . . . . . . . . . . .      (41,487)            --
     Accounts payable. . . . . . . . . . . . . . . .    1,423,127        336,285
     Accrued liabilities . . . . . . . . . . . . . .       97,081         65,085
     Income taxes payable. . . . . . . . . . . . . .           --        108,566
                                                       -------------------------
Total adjustments. . . . . . . . . . . . . . . . . .      647,602     (2,291,497) 
                                                       -------------------------
Net cash used provided by (used in) operating 
  activities . . . . . . . . . . . . . . . . . . . .      855,058     (1,799,297) 

INVESTING ACTIVITIES
Purchase of land . . . . . . . . . . . . . . . . . .           --        (80,000)
Purchases of property and equipment. . . . . . . . .      (47,344)      (255,637)
Purchases of home medical equipment. . . . . . . . .           --        (10,817)
                                                          998,642      5,604,718
Assets acquired for cash in acquisitions of 
  businesses . . . . . . . . . . . . . . . . . . . .           --     (1,966,355)
                                                       -------------------------
Net cash used in investing activities. . . . . . . .      (47,344)    (2,312,809) 

FINANCING ACTIVITIES
Borrowings on notes to supplier. . . . . . . . . . .           --        650,000
Principal payments on notes payable. . . . . . . . .     (108,333)      (243,551)  
Principal payments on long-term debt . . . . . . . .     (111,771)      (366,185)
Principal payments on notes to supplier. . . . . . .           --       (650,000)
Principal payments on obligations under 
  capital leases . . . . . . . . . . . . . . . . . .      (17,300)       (47,993)
Issuance of common stock, net of offering costs 
  of $344,518 and $191,751 in 1997 and 1998, 
  respectively . . . . . . . . . . . . . . . . . . .     (344,518)     7,272,652
Purchase of treasury stock . . . . . . . . . . . . .           --        (70,199)
Distributions to shareholders. . . . . . . . . . . .     (150,000)            --
                                                       -------------------------
Net cash provided by (used in) financing 
  activities . . . . . . . . . . . . . . . . . . . .     (731,922)     6,544,724
                                                       -------------------------
Net increase in cash and cash equivalents. . . . . .       75,792      2,432,618
Cash and cash equivalents at beginning of period . .      153,260      4,084,088
                                                       -------------------------
Cash and cash equivalents at end of period . . . . .   $  229,052    $ 6,516,706
                                                       -------------------------
                                                       -------------------------
Supplemental disclosure of interest paid . . . . . .   $  152,913    $   237,241
</TABLE>

                                        6
<PAGE>

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

<TABLE>
<S>                                                      <C>          <C>
NONCASH INVESTING AND FINANCING ACTIVITIES
Equipment leased under capital leases. . . . . . . .     $ 94,614     $    30,617
Issuance of common stock to reduce long-term debt. .     $     --     $    45,000
Issuance of common stock to purchase land. . . . . .     $     --     $    50,000
Reduction of income taxes payable from exercise of 
  stock options. . . . . . . . . . . . . . . . . . .     $     --     $    50,228
Acquisitions of businesses financed by debt and 
  common stock:
     Accounts receivable and other . . . . . . . . .     $ 66,382     $    67,144
     Inventories . . . . . . . . . . . . . . . . . .      482,260       2,133,110
     Property and equipment. . . . . . . . . . . . .       60,000         294,870
     Home medical equipment. . . . . . . . . . . . .           --         448,420
     Intangibles . . . . . . . . . . . . . . . . . .      390,000       2,661,174
                                                         ------------------------
                                                          998,642       5,604,718
     Less cash paid. . . . . . . . . . . . . . . . .           --      (1,966,355)
                                                         ------------------------
     Assets acquired . . . . . . . . . . . . . . . .     $998,642     $ 3,638,363
                                                         ------------------------
                                                         ------------------------
Financed by:
     Notes payable . . . . . . . . . . . . . . . . .     $898,642     $   315,077
     Long-term debt. . . . . . . . . . . . . . . . .           --       2,640,786
     Advance by shareholder. . . . . . . . . . . . .      100,000              --
     Common stock. . . . . . . . . . . . . . . . . .           --         682,500 
                                                         ------------------------
                                                         $998,642     $ 3,638,363
                                                         ------------------------
                                                         ------------------------
</TABLE>
                                          
                             See accompanying notes.   
                                           
                                        7
<PAGE>

                                       
                           HORIZON PHARMACIES, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1

     The unaudited consolidated 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 six months ended 
June 30, 1998, are not necessarily indicative of the results to be expected 
for the full year ending December 31, 1998.  The Company's revenues 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 and six 
month periods ended June 30, 1997 and 1998.

NOTE 2

     Common shares used in the calculation of basic and diluted earnings for 
the three months and six month periods ended June 30, 1997 totaled 1,713,636. 
Weighted average common shares outstanding used in the calculation of basic 
earnings per share for the three months and six months ended June 30, 1998 
totaled 4,681,154 and 4,586,865, respectively.  Common shares used in the 
calculation of diluted earnings per share for the three months and six months 
ended June 30, 1998 were 4,968,993 and 4,859,802, respectively.  The 
difference in the number of shares for 1998 is attributable to dilutive stock 
options and warrants. 

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 provisions for income taxes included in the accompanying statements 
of income for the  three and six month periods ended June 30, 1997 are pro 
forma provisions based on an estimated effective tax rate of 35% presented as 
if the Company was required to pay income taxes for the periods.  The income 
tax provisions for the three and six month periods ended June 30, 1998 are 
based on an estimated actual tax rate of 39%.

NOTE 4

     At June 30, 1998, the Company operated 33 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 six months ended June 30, 1997 and 1998 follows:

                                      8
<PAGE>

                           HORIZON PHARMACIES, INC.

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) CONTINUED


   Note 4 (Continued)

<TABLE>
                                               ASSETS ACQUIRED
                                     -------------------------------------
                                                                 ACCOUNTS
SIX MONTHS                                                      RECEIVABLE
  ENDED       STORES     PURCHASE                                   AND       DEBT       COMMON
 JUNE 30     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          9       5,604,718     2,133,110    2,661,174      810,434   2,955,863    $682,500
</TABLE>


The following unaudited pro forma results of operations data give effect to the
acquisitions completed during the six month periods ended June 30, 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>
                                                     SIX MONTHS ENDED JUNE 30,
                                                     -------------------------
                                                       1997             1998
                                                       ----             ----
<S>                                               <C>               <C>
 Unaudited pro forma information:
          Net revenues                            $ 27,147,681      $ 33,724,791
          Net income                                   636,101           640,871
          Basic earnings per share                $        .23      $       0.14
          Diluted earnings per share              $        .23      $       0.13
</TABLE>


In July and August 1998, the Company acquired from third parties  in purchase 
transactions six retail pharmacies, two home medical equipment operations, 
one intravenous operation and one closed door institutional pharmacy.  The 
total purchase price of $5,563,922 has been preliminarily allocated to 
inventories ($2,484,672), property and equipment ($224,440), intangibles 
($2,642,450) and accounts receivable ($212,360).  The purchases were financed 
by the issuance of shares of common stock (valued at $2,137,448), notes 
payable ($1,022,659) and cash ($2,403,815). 


                                      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 and six months ended June 30, 1998 and compares 
those results to the comparable periods 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 shares of the Company's common stock, par value $.01 
per share (the "Common Stock").

     During the six months ended June 30, 1997 and 1998, the Company acquired 
three and nine 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 June 30, 1998, the Company has acquired a retail 
pharmacy in Kansas City, Missouri; three retail pharmacies in Houston, Texas; 
a retail pharmacy, closed door pharmacy, IV pharmacy operation and home 
medical equipment operation in Blair, Nebraska; and a retail pharmacy and 
home medical equipment operation in Borger, Texas.  Each of these 
acquisitions was considered significant as such term is defined in Form 8-K 
and has been or will be reported in a Current Report on Form 8-K. The audited 
financial statements for these operations are 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 June 30, 1997 and June 30, 
1998, sales of prescription drugs generated 81.4% and 76.9% respectively of 
the Company's net revenues; during the six months ended June 30, 1997 and 
1998, prescription drugs generated 80.5% and 76.7% respectively of net 
revenues. 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 total revenues and gross margins as the Company 
expands its home healthcare and other non-pharmaceutical sales and services 
which have historically generated higher margins.

                                      10
<PAGE>

     The Company's revenues 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, revenues and profits are 
typically highest in the fourth quarter and the first quarter of the ensuing 
year.

RESULTS OF OPERATIONS

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

<TABLE>
                                         THREE MONTHS ENDED      SIX MONTHS ENDED
                                               JUNE 30,              JUNE 30,
                                               --------              --------
                                           1997      1998         1997      1998
                                           ----      ----         ----      ----
<S>                                       <C>       <C>          <C>        <C>
INCOME STATEMENT DATA
NET REVENUES:
   Prescription drugs sales                81.4%     76.9%        80.5%      76.7%
   Other sales and services                18.6%     23.1%        19.5%      23.3%
                                          ------    ------       ------     ------
        Total net revenues                100.0%    100.0%       100.0%     100.0%
                                          ------    ------       ------     ------
                                          ------    ------       ------     ------

COSTS AND EXPENSES:
Cost of sales -- prescription drugs(1)     70.4%     72.2%        69.8%      72.7%
   Cost of sales -- other(2)               64.8%     54.3%        63.3%      54.7%
   Selling, general and administrative                          
    expenses(3)                            26.4%     27.9%        26.1%      27.0%
   Depreciation and amortization(3)         1.1%      1.1%         1.1%       1.1%
   Interest expense net(3)                  1.5%       .6%         1.3%        .5%
   Income before provision for income                           
    taxes(3)                                1.6%      2.2%         2.9%       2.8%
   Net income (3)                           1.1%      1.4%         1.9%       1.7%
</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 REVENUES

     The Company's total net revenues increased $9,920,131 or 167% to 
$15,866,943 for the three months ended June 30, 1998 compared to $5,946,812 
for the three months ended June 30, 1997.  The increase was attributable 
primarily to the increase in store operating months from 42 in the second 
quarter of 1997 to 92 in the second quarter of 1998.  For the six months 
ended June 30, 1998, the Company's total net revenue increased $17,629,133 or 
159% to $28,689,192 compared to $11,060,059 for the six months ended June 30, 
1997.  Operating store months increased to 170 in the six months ended June 
30, 1998 as compared to 78 in the six months ended June 30, 1997. 

                                      11
<PAGE>

     The following tables show the Company's prescription drug gross margins 
and total revenues margins for the three and six months ended June 30, 1997 
and 1998: 

<TABLE>
                                  GROSS MARGINS ON           GROSS MARGINS ON
                               PRESCRIPTION DRUG SALES        TOTAL REVENUES
                               -----------------------    ---------------------
THREE MONTHS ENDED JUNE 30,      AMOUNT    PERCENTAGE      AMOUNT    PERCENTAGE
---------------------------      ------    ----------      ------    ----------
<S>                           <C>          <C>           <C>         <C>
         1998                 $ 3,396,766    27.8%       $ 5,069,712   32.0%
         1997                 $ 1,434,022    29.6%       $ 1,822,732   30.7%
 SIX MONTHS ENDED JUNE 30,                              
         1998                 $ 6,015,046    27.3%       $ 9,041,568   31.5%
         1997                 $ 2,685,080    30.2%       $ 3,477,475   31.4%
</TABLE>

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 81.4% of total revenues for 
the three months ended June 30, 1997 to 76.9% of total revenues for three 
months ended June 30, 1998.  For the six months ended June 30, 1998, sales of 
prescription drugs decreased to 76.7% of total revenues as compared to 80.5% 
for the six months ended June 30, 1997.  The Company expects that 
prescription drug sales 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 increased from $5,946,811 in the second quarter of 1997 
to $6,718,709 in the second quarter of 1998, an increase of 13.0%.  Same 
store sales for the six month period increased from $10,746,011 in 1997 to 
$12,173,702, in 1998, an increase of 13.3%.  Management believes that the 
increases are primarily the result of increased advertising and promotions as 
well as an enhanced product mix.

COSTS AND EXPENSES

     Cost of sales increased $6,673,151 or 162%, from $4,124,080 in the three 
months ended June 30, 1997 as compared to $10,797,231 in the three months 
ended June 30, 1998.  For the six month period cost of sales increased 
$12,065,040 or 159% from $7,582,584 in 1997 to $19,647,624 in 1998.  These 
increases are 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 revenues decreased 1.3% from 
69.3% in the three months ended June 30, 1997 to 68.0% in the three months 
ended June 30, 1998. For the six month period cost of sales as a percentage 
of net revenues decreased 0.1% from 68.6% in 1997 to 68.5% in 1998.  These 
decreases are primarily the result of increases 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 $1,567,405 
in the three months ended June 30, 1997 to $4,434,119 in the three months 
ended June 30, 1998.  Such expenses, expressed as a percentage of net 
revenues, were 26.4% and 27.9% for the three months ended June 30, 1997 and 
1998, respectively. For the six month period selling, general and 
administrative expenses increased from $2,889,786 in 1997 to $7,744,403 in 
1998.  Such expenses expressed as a percentage of net revenues, were 

                                      12
<PAGE>

26.1% and 27.0% for the six months ended June 30, 1997 and 1998, 
respectively.  The amount of selling, general and administrative expenses in 
both the three and six month periods increased primarily from the increase in 
the number of stores and store operating months.  The percentage increases of 
1.5% and 0.9% in the three and six month periods ended June 30, 1998 as 
compared to the same periods in 1997 are primarily the result of costs 
incurred in connection with the Company's change of domicile from Texas to 
Delaware; an increase in personnel costs to handle additional acquisitions; 
and a change in the Company's primary supplier from Bergen Brunswig to 
McKesson Corporation ("McKesson").

     Interest expense was $89,382 in the second quarter of 1997 compared to 
$133,480 during the second quarter of 1998.  For the six month period 
interest expense increased from $142,913 in 1997 to $237,241 in 1998.  The 
increase in interest expense resulted primarily from the increase in the 
Company's indebtedness associated with the Company's acquisitions.

     Interest and other income was a negative $1,825 in the second quarter of 
1997 compared to $33,266 in the second quarter of 1998.  For the six month 
period interest and other income (expense) increased from a negative $1,432 in 
1997 to $84,098 in 1998.

EARNINGS

     Net income for the three months ended June 30, increased $153,140 or 240% 
from $63,928 in 1997 to $217,068 in 1998.  For the six months ended June 30, 
net income increased $284,744 or 137% from $207,456 in 1997 to $492,200 in 
1998.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash used in operating activities for the six months ended June 30, 
1998 was $1,799,297 as compared to net cash provided of $855,058 for the six 
months ended June 30, 1997.  Increases in accounts receivable and 
inventories, which were partially offset by an increase in accounts payable 
and net income, were the primary reasons for the increased usage of cash.

     Net cash used in investing activities was $47,344 and $2,312,809 for the 
six months ended June 30, 1997 and 1998, respectively.  The principal cause 
of this difference was the increase in the number of stores acquired by the 
Company during the six months ended June 30, 1998.

     Net cash increased $2,432,618 during the six months ended June 30, 1998 
from $4,084,088 at December 31, 1997 to $6,516,706 at June 30, 1998.

     On June 16, 1998, the Company closed a private placement (the "1998 
Private Placement") of 736,838 shares (the "Shares") of Common Stock and 
warrants (the "Warrants") to purchase 41,000 shares of Common Stock.  In 
connection with the 1998 Private Placement, the Company paid a finder's fee 
of $150,000 and other expenses of approximately $42,000.  The Company also 
agreed to register the Shares and the Common Stock issuable upon exercise of 
the Warrants and will incur approximately $75,000 of expenses in connection 
with such registration.

     On July 2, 1998, the Company, entered into a Credit Agreement with 
McKesson pursuant to which McKesson will provide the Company with a revolving 
loan facility up to $15,000,000 and a term loan of $3,000,000 for general 
corporate purposes and acquisitions (collectively, the "Credit Facilities").  
Availability of the revolving loan facility is subject to borrowing base 
requirements and compliance with loan covenants. 

     Management expects that seller-financing of acquisitions, the 1998 
Private Placement and the Credit Facilities will be sufficient to support the 
Company's current expansion schedule and ongoing acquisition 

                                      13
<PAGE>

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.

     Additionally, management has evaluated and selected a point-of-sale 
("POS") system which will be installed in all the Company's retail locations 
during the next six to nine months.  The POS system will enable the Company 
to more closely monitor pricing, inventory turns and promotions of 
nonpharmaceutical merchandise in the stores.  It is estimated that the POS 
system will cost between $25,000 and $30,000 per location depending on the 
number of terminals installed.  The Company expects to finance the POS system 
with capital leases.

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.

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 

                                      14
<PAGE>

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.
  
     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 

                                      15
<PAGE>

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, 18 of the Company's 39 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 and other related businesses, 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 1998 Private Placement 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.  On April 30, 1998, the Company entered 
into a Supply Agreement with McKesson pursuant to which the Company agreed to 
purchase a substantial portion of its pharmaceutical and non-pharmaceutical 
inventory from McKesson.  McKesson also provides the Company with order entry 
machines, shelf labels and other supplies used in connection with the 
Company's purchase and sale of such inventory. 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. 

     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.

                                      16
<PAGE>

                        PART II -- OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         RECENT SALES OF UNREGISTERED SECURITIES.  

            ACQUISITIONS.  On April 13, 1998 the Company issued to an 
individual 5,266 unregistered shares of Common Stock in partial consideration 
of its acquisition of a home health care agency located in Texas.  On May 1, 
1998 the Company issued to a corporation 9,910 unregistered shares of Common 
Stock in partial consideration of its acquisition of an intravenous operation 
and closed door pharmacy located in Missouri.  On May 28, 1998 the Company 
issued to a corporation 8,237 unregistered shares of Common Stock in partial 
consideration of its acquisition of a pharmacy located in New Mexico.  On May 
29, 1998, the Company issued to a corporation 6,250 unregistered shares of 
common stock in partial consideration of its acquisition of land located in 
Texas.  On May 30, 1998 the Company issued to a corporation 8,382 
unregistered shares of Common Stock in partial consideration of its 
acquisition of a pharmacy located in New Mexico.  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.

            DEBT CONVERSION.  On June 6, 1998 the Company issued to a 
corporation 2,139 unregistered shares of Common Stock in connection with the 
conversion of $25,000 of long-term debt owed by the Company in connection 
with the acquisition substantially all of the assets of Sun Country Drug, 
Inc., a New Mexico corporation.  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.

            PRIVATE PLACEMENT.  On June 16, 1998, the Company, closed the 
1998 Private Placement of 736,838 shares of Common Stock and Warrants to 
purchase 41,000 shares of Common Stock.  In connection with the 1998 Private 
Placement, the Company paid a finder's fee of $150,000 and other expenses of 
approximately $42,000.  The Warrants may be exercised any time prior to June 
15, 2003 at a price per share of $9.50.  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 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     a)   The Company held its Annual Meeting of Shareholders on June 4, 1998.

     b)   The following matters were voted upon at the annual meeting: 

          1)  Following are the directors elected at the annual meeting and 
the tabulation of votes related to each nominee.

<TABLE>
          Director                Affirmative     Votes Withheld
          --------                -----------     --------------
<S>                               <C>             <C>
          Michael F. Loy           3,587,567          15,336
          Carson A. McDonald       3,574,364          28,539
          Philip H. Yeilding       3,587,567          15,336
</TABLE>

In addition to the foregoing, Charlie K. Herr, Ricky D. McCord, Robert D. 
Mueller and Sy S. Shahid are directors whose terms of office continued after 
the meeting.

                                      17
<PAGE>

     2)  The shareholders approved the HORIZON Pharmacies, Inc.1998 Stock 
Option Plan.  Affirmative votes were 2,309,943; negative votes were 40,219; 
and abstentions were 3,600.

     3)  The shareholders ratified the appointment of Ernst & Young LLP as 
independent public accountants for 1998.  Affirmative votes were 3,590,228; 
negative votes were 11,649; and abstentions were 1,026.

     4)  At an adjourned session of the annual meeting held June 30, 1998, 
the shareholders approved an Agreement and Plan of Merger pursuant to which 
the Company changed its state of incorporation from Texas to Delaware. 
Affirmative votes were 3,160,701; negative votes were 213,168; and 
abstentions were 8,481. 

ITEM 5.  OTHER INFORMATION.

     CHANGE IN PRIMARY SUPPLIER.  On April 30, 1998, the Company and McKesson 
entered into a  Supply Agreement pursuant to which McKesson the Company 
agreed to purchase a substantial portion of its  prescription drugs, health 
and beauty care products and durable medical products from McKesson for a 
term of five years beginning June 1, 1998.

     ACQUISITIONS.  During the period from March 31, 1998 to the date of 
filing of this Report, the Company acquired six retail pharmacies, two home 
medical equipment operations, a closed door pharmacy and an intravenous 
operation as described below:

<TABLE>
  DATE OF
ACQUISITION               PHARMACY NAME                           STATE
-----------               -------------                           -----
<S>          <C>                                            <C>
 5/30/98     Graham's Pharmacy and Home Health, Inc.        Las Vegas, New Mexico
            
 7/24/98     Martin Drug Corp. d/b/a Interurban Pharmacy    Houston, Texas
            
 7/25/98     Carlen, Inc. d/b/a Briargrove Pharmacy         Houston, Texas
            
 7/26/98     Stirnimann, Inc d/b/a Kirkwood Pharmacy        Houston, Texas
            
 7/31/98     CCB Consulting, Inc. d/b/a Barr Pharmacy,      Blair, Nebraska
             Blair Medical Supply, Barr Long Term Care
             Pharmacy
            
 8/6/98      Borger Pharmacy, Inc. d/b/a Moore's            Borger, Texas
             Pharmacy and Moore's Home Health Care, Inc.
</TABLE>

                                      18
<PAGE>

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

(a)  Exhibits

     Exhibit No.            Name of Exhibit
     -----------            ---------------

     2.1            Certificate of Merger of HORIZON Pharmacies, Inc., a
                    Delaware corporation and HORIZON Pharmacies, Inc., a Texas
                    corporation, filed in the State of Delaware.
     2.2            Articles of Merger of HORIZON Pharmacies, Inc., a Delaware
                    corporation and HORIZON Pharmacies, Inc., a Texas
                    corporation, filed in the State of Texas.
     3.1            Certificate of Incorporation of HORIZON Pharmacies, Inc.
     3.2            Bylaws of HORIZON Pharmacies, Inc.
     27.1           Financial Data Schedule
     

(b)  Reports on Form 8-K

     During the three months ended June 30, 1998, the Company filed the 
following Current Reports on Form 8-K:

<TABLE>
                                                                   FINANCIAL STATEMENTS
 REPORT DATE   DATE FILED              ITEM REPORTED                       FILED
 -----------   ----------              -------------               --------------------
<S>            <C>          <C>                                    <C>
   5/30/98      6/15/98     Item 2 - Acquisition of Assets Graham           No(1)
                            Pharmacy and Home Health Center, Inc.
   6/16/98      6/25/98     Item 2 - Private Placement of 736,838           Yes 
                            shares of the Company's common stock.
</TABLE>

---------------
(1) Filed by amendment on August 14, 1998.





                                      19
<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:     August 14, 1998          /s/ Ricky D. McCord
                                   ----------------------------------
                                   Ricky D. McCord
                                   President, Chief Executive Officer

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





                                      20