<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, 1997

[ ]   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  333-25257

                            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 [ ]  No [X]

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 22, 1997
Common stock, par value $.01 per share                   2,462,424


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

<PAGE>
                                       
                                  FORM 10-QSB
                               TABLE OF CONTENTS

                                                                           Page

PART I.  FINANCIAL INFORMATION .............................................  3

         Balance Sheets - December 31, 1996 and June 30, 1997 (unaudited) ..  3

         Statements of Income - Three months ended June 30, 1996 and
           1997 (unaudited) and six months ended June 30, 1996 and June 30,
           1997 (unaudited) ................................................  5

         Statement of Stockholders' Equity - Six months ended June 30, 1997.  6

         Statements of Cash Flows - Six months ended June 30, 1996 
           and 1997 (unaudited) ............................................  7

         Notes to Financial Statements (unaudited) .........................  9

         Management's Discussion and Analysis of Financial 
           Condition and Results of Operations ............................. 12

PART II. OTHER INFORMATION ................................................. 18

         Submission of Matters to a Vote of Security Holders ............... 18

         Other Information ................................................. 19

         Exhibits and Reports on Form 8-K .................................. 20

SIGNATURES ................................................................. 21


                                       2
<PAGE>
                                       
                       PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.
                           HORIZON PHARMACIES, INC.
                                BALANCE SHEETS
<TABLE>
                                                                               DECEMBER 31,      JUNE 30,
                                                                                   1996            1997
                                                                               -----------     -----------
                                   ASSETS                                                      (Unaudited)
<S>                                                                            <C>             <C>
Current assets:
    Cash                                                                       $  153,260      $  229,052
    Accounts receivable, net of allowance for uncollectible
     accounts of $20,000 in 1996 and $25,000 in 1997:
         Third-party providers                                                  1,047,348       1,794,024
         Others                                                                   412,709         668,993
    Inventories, at the lower of specific identification cost or market         3,290,717       3,893,381
    Prepaid expenses                                                               31,071          41,096
                                                                               --------------------------
Total current assets                                                            4,935,105       6,626,546
Deferred offering costs (Note 5)                                                    -             344,518
Property, equipment and capital lease assets:
    Property and equipment, at cost:
         Land                                                                      10,000          10,000
         Building                                                                 193,220         194,389
         Equipment                                                                410,162         516,337
                                                                               --------------------------
                                                                                  613,382         720,726
    Less accumulated depreciation                                                  67,253         105,957
                                                                               --------------------------
    Property and equipment, net                                                   546,129         614,769
    Equipment under capital leases                                                158,339         252,953
    Less accumulated amortization                                                  33,884          55,060
                                                                               --------------------------
    Equipment under capital leases, net                                           124,455         197,893
                                                                               --------------------------
Property, equipment and capital lease assets, net                                 670,584         812,662
Intangibles, at cost (Note 7):
    Noncompete covenants                                                          146,788         146,788
    Customer lists                                                                211,605         279,996
    Goodwill                                                                      814,107       1,135,716
                                                                               --------------------------
                                                                                1,172,500       1,562,500
    Less accumulated amortization                                                 189,417         254,425
                                                                               --------------------------
Intangibles, net                                                                  983,083       1,308,075
                                                                               --------------------------

                                                                               $6,588,772      $9,091,801
                                                                               --------------------------
                                                                               --------------------------
</TABLE>

(Continued on next page) 
                                       3
<PAGE>

                            HORIZON PHARMACIES, INC.
                                BALANCE SHEETS
                                 (Continued)

<TABLE>
                     LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                     DECEMBER 31,    JUNE 30,
                                                                        1996           1997
                                                                     ------------  -----------
                                                                                   (Unaudited)
<S>                                                                  <C>           <C>
Current liabilities:
    Bank overdraft                                                   $  247,759    $  206,272
    Accounts payable                                                  1,491,789     2,916,532
    Accrued liabilities                                                 161,365       256,830
    Notes payable (Notes 5 and 7):
         Supplier                                                     1,215,000     1,156,667
         Other                                                            -           898,642
         Stockholder                                                      -            50,000
    Current portion of long-term debt (Note 5)                          228,759       339,436
    Current obligations under capital leases                             27,400        57,859
                                                                     ------------------------
Total current liabilities                                             3,372,072     5,882,238
Long-term debt                                                        1,363,858     1,141,410
Obligations under capital leases                                        102,769       149,624
Stockholders' equity (Notes 5 and 6):
    Preferred stock, $.01 par value, authorized 1,000,000
         shares; none issued
    Common stock, $.01 par value, authorized 14,000,000                                  
         shares; issued 1,082,424 shares                                 10,824        10,824
    Additional paid-in capital                                        1,760,303     1,760,303
    Retained earnings (accumulated deficit)                             (21,054)      147,402
                                                                     ------------------------
Total stockholders' equity                                            1,750,073     1,918,529
                                                                     ------------------------

                                                                     $6,588,772    $9,091,801
                                                                     ------------------------
                                                                     ------------------------
</TABLE>

                             See accompanying notes.

                                       4
<PAGE>

                                    HORIZON PHARMACIES, INC.

                                STATEMENTS OF INCOME (UNAUDITED)

<TABLE>
                                                  THREE MONTHS ENDED JUNE 30,   SIX MONTHS ENDED JUNE 30,  
                                                  ---------------------------   -------------------------
                                                       1996          1997          1996          1997
                                                       ----          ----          ----          ----
<S>                                               <C>             <C>           <C>          <C>
Net sales:
     Prescription drugs                            $2,382,505     $4,842,834    $4,370,939   $ 8,903,150  
     Other                                            437,548      1,103,978       815,694     2,156,909 
                                                   ----------     ----------    ----------   ----------- 
Total net sales                                     2,820,053      5,946,812     5,186,633    11,060,059 
Cost of sales:
     Prescription drugs                             1,550,767      3,408,812     2,871,049     6,218,070 
     Other                                            353,174        715,268       636,404     1,364,514 
                                                   ----------     ----------    ----------   ----------- 
Total cost of sales                                 1,903,941      4,124,080     3,507,453     7,582,584 
                                                   ----------     ----------    ----------   ----------- 
Gross margin                                          916,112      1,822,732     1,679,180     3,477,475 

Depreciation and amortization:
     Property, equipment and capital lease assets      14,552         31,636        23,914        59,880 
     Intangibles                                       23,140         34,556        45,797        65,008 
Selling, general and administrative expenses          743,168      1,567,405     1,323,202     2,889,786 
                                                   ----------     ----------    ----------   ----------- 
Total costs and expenses                              780,860      1,633,597     1,392,913     3,014,674 
                                                   ----------     ----------    ----------   ----------- 
Income from operations                                135,252        189,135       286,267       462,801 
                                                   ----------     ----------    ----------   ----------- 
Other income (expense):
     Interest and other income (expense)                1,779         (1,825)        2,939        (1,432)
     Interest expense                                 (53,464)       (89,382)      (96,124)     (142,913)
                                                   ----------     ----------    ----------   ----------- 
Total other income (expense)                          (51,685)       (91,207)      (93,185)     (144,345)
                                                   ----------     ----------    ----------   ----------- 
Income before pro forma provision for income taxes     83,567         97,928       193,082       318,456 

Pro forma provision for income taxes (Note 4)          29,000         34,000        68,000       111,000 
                                                   ----------     ----------    ----------   ----------- 
Pro forma net income                               $   54,567     $   63,928    $  125,082   $   207,456 
                                                   ----------     ----------    ----------   ----------- 
                                                   ----------     ----------    ----------   ----------- 
Pro forma net income per share (Note 3)            $     0.05     $     0.06    $     0.12   $      0.18 
                                                   ----------     ----------    ----------   ----------- 
                                                   ----------     ----------    ----------   ----------- 
Weighted average shares outstanding (Note 3)        1,058,000      1,142,424     1,058,000     1,142,424 
</TABLE>

                              See accompanying notes.


                                       5

<PAGE>

                                    HORIZON PHARMACIES, INC.
                               STATEMENT OF STOCKHOLDERS' EQUITY
                                SIX MONTHS ENDED JUNE 30, 1997

<TABLE>
                                          COMMON STOCK          
                                      ---------------------     ADDITIONAL      RETAINED EARNINGS          TOTAL
                                        SHARES     AMOUNT    PAID-IN CAPITAL  (ACCUMULATED DEFICIT)  STOCKHOLDERS' EQUITY  
                                        ------     ------    ---------------  ---------------------  --------------------  
<S>                                   <C>         <C>         <C>              <C>                    <C>
Balance at December 31, 1996          1,082,424   $  10,824   $  1,760,303         $  (21,054)           $  1,750,073      
Net income (unaudited)                    -           -              -                318,456                 318,456      
Distributions to stockholders  
  (unaudited)                             -           -                              (150,000)               (150,000)
                                      ---------   ---------   ------------         ----------            ------------ 
Balance at June 30, 1997 (unaudited)  1,082,424   $  10,824   $  1,760,303         $  147,402            $  1,918,529
                                      ---------   ---------   ------------         ----------            ------------ 
                                      ---------   ---------   ------------         ----------            ------------ 
</TABLE>


                                       See accompanying notes.










                                                 6

<PAGE>
                           HORIZON PHARMACIES, INC.
                     STATEMENTS OF CASH FLOWS (UNAUDITED)

<TABLE>
                                                                      SIX MONTHS ENDED JUNE 30, 
                                                                      ------------------------- 
                                                                         1996           1997    
                                                                      ----------     ---------- 
<S>                                                                   <C>            <C>        
OPERATING ACTIVITIES

Income before pro forma provision for income taxes                    $  193,082     $  318,456 
Adjustments to reconcile income before pro forma provision for 
  income taxes to net cash provided by operating activities:
     Depreciation and amortization of property, equipment and 
       capital lease assets                                               23,914         59,880 
           Amortization of intangibles                                    45,797         65,008 
           Provision for uncollectible accounts receivable                 5,940          7,193 
           Changes in operating assets and liabilities,
             net of acquisitions of businesses:
                 Accounts receivable                                    (170,484)      (943,771)
                 Inventories                                            (350,360)      (120,404)
                 Prepaid expenses                                          1,477        (10,025)
                 Bank overdraft                                          234,065        (41,487)
                 Accounts payable                                        267,350      1,423,127 
                 Accrued liabilities                                      51,320         97,081 
                                                                      ----------     ----------
Total adjustments                                                        109,019        536,602 
                                                                      ----------     ----------
Net cash provided by operating activities                                302,101        855,058 
INVESTING ACTIVITIES
 
Purchases of property and equipment                                      (14,949)       (47,344)
Proceeds from sales of property and equipment                              5,557              - 
                                                                      ----------     ----------
Net cash used in investing activities                                     (9,392)       (47,344)

FINANCING ACTIVITIES

Borrowings on notes payable                                              350,000              - 
Principal payments on notes payable                                            -       (108,333)
Principal payments on long-term debt                                     (73,530)      (111,771)
Principal payments on obligations under capital leases                    (7,349)       (17,300)
Payments for deferred offering costs                                           -       (344,518)
</TABLE>

(Continued on next page)

                                      7 
<PAGE>
                                       
                           HORIZON PHARMACIES, INC.
                    STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (Continued)

<TABLE>
                                                                      SIX MONTHS ENDED JUNE 30, 
                                                                      ------------------------- 
                                                                         1996           1997    
                                                                      ----------     ---------- 
<S>                                                                   <C>            <C>        

Distributions to stockholders                                         $ (120,000)    $ (150,000)
                                                                      ----------     ---------- 
Net cash provided by (used in) financing activities                      149,121       (731,922)
                                                                      ----------     ---------- 
Net increase in cash                                                     441,830         75,792 
Cash at beginning of period                                              135,633        153,260 
                                                                      ----------     ---------- 
Cash at end of period                                                 $  577,463     $  229,052 
                                                                      ----------     ---------- 
                                                                      ----------     ---------- 
Supplemental disclosure of interest paid                              $   90,124     $  152,913 

NONCASH INVESTING AND FINANCING ACTIVITIES
 
Additions to property and equipment for long-term debt                $  150,000     $        - 
Equipment leased under capital leases                                     14,308         94,614 
Acquisitions of businesses financed by debt:
   Accounts receivable and other                                      $    1,176     $   66,382 
   Inventories                                                           460,327        482,260 
   Property and equipment                                                 75,000         60,000 
   Intangibles                                                           125,000        390,000 
                                                                      ----------     ---------- 
   Assets acquired                                                    $  661,503     $  998,642 
                                                                      ----------     ---------- 
                                                                      ----------     ---------- 

Financed by:
   Notes payable                                                      $  200,000     $  898,642 
   Advance by stockholder                                                      -        100,000 
   Long-term debt                                                        461,503              - 
                                                                      ----------     ---------- 
                                                                      $  661,503     $  998,642 
                                                                      ----------     ---------- 
                                                                      ----------     ---------- 

</TABLE>
                                       
                            See accompanying notes.


                                       8 
<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 Registration Statement on Form SB-2, as 
amended, for the year ended December 31, 1996 related to the Company's 
initial public offering (the "Offering") (Note 5).  The results of operations 
for the six months ended June 30, 1997, are not necessarily indicative of the 
results to be expected for the full year ending December 31, 1997.  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 cost of sales for 
the three months and the six months ended June 30, 1997 and 1996.

NOTE 2

In addition to the expansion capital available from the proceeds of the 
Offering, the Company has obtained a $2,000,000 credit facility with Bank 
One, Texas, N.A.  Although the terms have not fully been approved, such terms 
will include restrictive covenants such as financial ratio requirements.  
Management believes operations will not be adversely impacted by these 
restrictive covenants. No funds have been borrowed under this credit facility.

NOTE 3

Pro forma net income per share is based upon the weighted average number of 
shares of common stock and dilutive common stock equivalent shares 
outstanding during each period adjusted in all periods presented for the 
effect of the number of shares of stock used to pay a non-recurring 
distribution of $300,000 to stockholders from the proceeds of the Offering.  
The pro forma net income per share calculation has been rounded up to the 
next even number.

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share", which is required to be adopted by the Company in the 
reporting period ending December 31, 1997.  At that time, the Company will be 
required to change the method currently used to compute earnings per share 
and to restate all prior periods.  Under the new requirements for calculating 
basic earnings per share, the dilutive effect of stock options will be 
excluded.  The Company has determined that the impact of SFAS 128 on the 
calculation of earnings per share for the three months and six months ended 
June 30, 1997 and 1996 would not be material.

NOTE 4

No historical provisions for income taxes have been included in the 
accompanying financial statements as income taxes, if any, are payable by the 
stockholders under provisions of subchapter S of the Internal Revenue Code.  
At June 30, 1997, the net bases of assets and liabilities for financial 
reporting purposes exceeds such bases for income tax purposes by 
approximately $400,000.


                                        9

<PAGE>

The pro forma provisions for income taxes included in the accompanying 
statements of income are based on an estimated effective tax rate of 35% and 
are presented as though the Company was required to pay income taxes in the 
periods presented.

The financial statements for the three months ending September 30, 1997 will 
include a provision (non-recurring) for deferred income taxes, resulting from 
a change in S corporation status as a result of the Offering in July 1997, 
related to the tax effect of cumulative differences in financial and tax 
bases of net assets of approximately $149,000.

NOTE 5

In April 1997, the Board of Directors of the Company approved a two-for-one 
split of the Company's common stock.  The split and an amendment to the 
Company's articles of incorporation to change the authorized capitalization 
from 1,000,000 shares of $1.00 par common stock to 14,000,000 shares of $.01 
par common stock and 1,000,000 shares of $.01 par preferred stock were 
approved by the stockholders on May 31, 1997.  The Board of Directors has the 
authority to issue preferred stock in one or more classes or series and to 
fix from time to time the number of shares to be included in each such class 
or series and the designations, preferences, qualifications, limitations, 
restrictions and rights of the shares of each such class or series.  The 
effects of the stock split and recapitalization have been reflected 
retroactively in the accompanying financial statements.
 
In July 1997, the Company completed the Offering pursuant to which 1,380,000 
shares of common stock were sold at $5.00 per share. The proceeds of the 
Offering, after deducting the underwriting discount and offering expenses, 
were approximately $6,000,000.  A portion of the proceeds (approximately 
$1,575,000) was used to repay certain notes payable and long-term debt.

NOTE 6

In March 1997, the Board of Directors approved the 1997 Stock Option Plan 
(the "Plan").  The Plan was amended by the Board of Directors and was 
approved by the stockholders on May 31, 1997.  Under the Plan, options for up 
to 246,243 shares of common stock may be granted until March 2007 to key 
employees and directors at prices as specified in the Plan on the dates the 
options are granted.  Except as provided in the option agreements, options 
are exercisable at any time during a ten-year term. Options for 246,243 
shares were granted by the Company in July 1997.

NOTE 7

At June 30, 1997, the Company operates 14 conventional, free-standing retail 
pharmacies, all of which were acquired from third parties in purchase 
transactions beginning February 27, 1994.  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, 1996 and 1997 follows:     


                                      10
<PAGE>

<TABLE>
                                                        ASSETS ACQUIRED
   SIX MONTHS          STORE        PURCHASE   ------------------------------------     DEBT  
  ENDED JUNE 30      OPERATIONS       PRICE    INVENTORIES    INTANGIBLES    OTHER    INCURRED
  -------------      ----------     ---------  -----------    -----------  -------    ----------
<S>                  <C>            <C>        <C>            <C>          <C>        <C>

      1996               1           $661,503    $460,327      $125,000    $ 76,176    $661,503
      1997               3            998,642     482,260       390,000     126,382     998,642

</TABLE>


The following unaudited pro forma results of operations data gives effect to 
the acquisitions completed during the six months ended June 30, 1996 and 1997 
as if the transactions had been consummated as of January 1, 1996 and 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, 1996 or 1997, respectively, 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 and income taxes.

                                           SIX MONTHS ENDED JUNE 30,
                                         ----------------------------
                                             1996            1997
                                             ----            ----
Unaudited pro forma information:

  Net sales                               $6,433,533     $11,839,059
  Net income                              $  190,914     $   228,456
  Net income per share                    $      .18     $       .20

In August 1997, the Company acquired from third parties three retail 
pharmacies in purchase transactions.  The total purchase price of $1,504,262 
has been preliminarily allocated to inventories ($1,047,787), property and 
equipment ($60,000), intangibles ($341,500) and other assets ($54,975).  The 
purchases were financed by the issuance of 8% to 9% notes payable to the 
sellers for $966,850, cash of $475,000 and the assumption of certain trade 
payables to suppliers of $62,412.  The notes to the sellers are secured by the 
assets acquired and are due in monthly installments from 60 to 84 months.


                                           11

<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 and the six months ended June 30, 1997 and 
compares those results to the comparable periods of 1996.  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.  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 purchase price offered by a seller, 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 six months ended June 30, 1996 and 1997, the Company acquired 
one and three 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, 1997 the Company has acquired three more 
retail pharmacies located in Butte, Montana, Moriarty, New Mexico and 
Mesquite, Texas, respectively. The financial information for these three 
stores 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 six months ended June 30, 1996, sales of 
prescription drugs generated 84.3% of the Company's net sales; during the six 
months ended June 30, 1997, prescription drugs generated 80.5% 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.

                                      12 
<PAGE>

RESULTS OF OPERATIONS

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

                                            THREE MONTHS       SIX MONTHS   
                                           ENDED JUNE 30,    ENDED JUNE 30, 
                                           ---------------   -------------- 
                                            1996     1997     1996    1997  
                                           ------   ------   ------  ------ 
INCOME STATEMENT DATA
SALES:
   Prescription drugs                       84.5%    81.4%    84.3%   80.5% 
   Other                                    15.5%    18.6%    15.7%   19.5% 
                                           ------   ------   ------  ------ 
     Total net sales                       100.0%   100.0%   100.0%  100.0% 
                                           ------   ------   ------  ------ 
                                           ------   ------   ------  ------ 

COSTS AND EXPENSES:
   Cost of sales -- prescription drugs(1)   65.1%    70.4%    65.7%   69.8% 
   Cost of sales -- other(2)                80.7%    64.8%    78.0%   63.3% 
   Selling, general and administrative 
     expenses(3)                            26.4%    26.4%    25.5%   26.1% 
   Depreciation and amortization(3)          1.3%     1.1%     1.3%    1.1% 
   Interest expense(3)                       1.9%     1.5%     1.9%    1.3% 
PRO FORMA NET INCOME(3)(4)                   1.9%     1.1%     2.4%    1.9% 

-------------------
     (1)  As a percentage of prescription drug sales.
     (2)  As a percentage of other sales.
     (3)  As a percentage of total net sales.
     (4)  After pro forma provisions for income taxes.

     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 20 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 sales increased $5,873,426 or 113.2%, to 
$11,060,059 for the six months ended June 30, 1997 compared to $5,186,633 for 
the six months ended June 30, 1996, and $3,126,759 or 110.9%, to $5,946,812 
for the three months ended June 30, 1997 compared to $2,820,053 for the three 
months ended June 30, 1996. The increase was attributable primarily to the 
increase in store operating months from 44 in the first six months of 1996 to 
78 in the first six months of 1997, and from 23 in the first three months of 
1996 to 42 in the first three months of 1997.

     The following tables show the Company's prescription drug gross margins 
and total sales margins for six months and the three months ended June 30, 
1996 and 1997:

                                       13 
<PAGE>

                                GROSS MARGINS ON           GROSS MARGINS ON   
                            PRESCRIPTION DRUG SALES          TOTAL SALES      
                            -----------------------   ------------------------
SIX MONTHS ENDED JUNE 30,     AMOUNT    PERCENTAGE      AMOUNT      PERCENTAGE
-------------------------   ----------  ----------    ----------    ----------
       1997                 $2,685,080    30.2%       $3,477,475      31.4% 
       1996                 $1,499,890    34.3%       $1,679,180      32.4% 


                                GROSS MARGINS ON           GROSS MARGINS ON   
                            PRESCRIPTION DRUG SALES          TOTAL SALES      
                            -----------------------   ------------------------
THREE MONTHS ENDED JUNE 30,    AMOUNT   PERCENTAGE      AMOUNT      PERCENTAGE
--------------------------- ----------  ----------    ----------    ----------
       1997                 $1,434,022    29.6%       $1,822,732      30.7% 
       1996                 $  831,738    34.9%       $  916,112      32.5% 


     The decrease in the gross margin on prescription drug sales from 1996 to 
1997 was primarily the result of an increase in third-party sales, which have 
lower margins, and the cost of sales during such period.

     Sales of prescription drugs decreased from 84.3% of total sales for the 
six months ended June 30, 1996 to 80.5% of total sales for six months ended 
June 30, 1997 and from 84.5% of total sales for the three months ended June 
30, 1996 to 81.4% for the three months ended June 30, 1997. The Company 
expects that prescription drug sales will continue to decrease as a 
percentage of total sales 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 seven stores increased from 
$4,585,125 in the first six months of 1996 to $5,093,220 in the first six 
months of 1997, and from $2,218,545 in the three months ended June 30, 1996 
to $2,534,465 in the three months ended June 30, 1997.  Management believes 
that these respective increases of 11.1% and 14.2% are primarily the result 
of increased advertising and promotions as well as an enhanced product mix.

COSTS AND EXPENSES

     Cost of sales increased $4,075,131 or 116.2%, to $7,582,584 in the six 
months ended June 30, 1997 as compared to $3,507,453 in the six months ended 
June 30, 1996.  For the three months ended June 30, 1997, the cost of sales 
increased $2,220,139, or 116.6%, to $4,124,080 as compared to $1,903,941 in 
the three months ended June 30, 1996.  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 sales increased 1.0% and 1.8% 
during the respective periods. These increases are primarily the result of 
increased drug prices from the wholesaler, offset by the effects of 
management's continual monitoring and adjustment of prices to the consumer.

     Selling, general and administrative expenses increased from $1,323,202 
in the six months ended June 30, 1996 to $2,889,786 in the six months ended 
June 30, 1997 and from $743,168 in the three months ended June 30, 1996 to 
$1,567,405 in the three months ended June 30, 1997.  Such expenses, expressed 
as a percentage of net sales, were 26.1% and 25.5% for the six months ended 
June 30, 1997 and 1996, respectively, and 26.4% for the three months ended 
June 30 in each of 1997 and 1996.  This increase is principally due to 
increased store count and resulting increased store operating months, as well 
as the 

                                      14 
<PAGE>

employment of additional executive personnel and an increase in salaries 
payable to the Company's executive officers in connection with the execution 
of employment agreement with such persons.

     Interest expense was $142,913 in the first six months of 1997 compared 
to $96,124 during the first six months of 1996, and $89,382 in the three 
months ended June 30, 1997 compared to $53,464 in the three months ended June 
30, 1996.  The increase in interest expense resulted primarily from the 
increase in the Company's indebtedness associated with the Company's 
acquisition of six stores and its corporate office building.

EARNINGS

     Pro forma net income for the first six months of 1997 rose to $207,456 
from $125,082 in the comparable period of 1996; an increase of 65.9%.  Pro 
forma net income for the first three months of 1997 rose to $63,928 from 
$54,567 in the comparable period of 1996, an increase of 17.2%. 

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities for the six months ended June 
30, 1997 and 1996 was $855,058 and $302,101, respectively.  Typically, cash 
provided by operations is adequate to supply working capital, and contribute 
to investing activities. External sources of cash are used mainly to help 
finance store acquisitions. The Company believes that the operating needs to 
be incurred in connection with its capital expansion program, including 
growth in accounts receivable and inventory, will be funded by cash flow from 
operations supplemented by the approximately $750,000 of the proceeds 
designated for working capital in the Offering.

     Net cash used in financing activities was $731,922 for the six months 
ended June 30, 1997 compared to net cash provided by financing activities of 
$149,121 in the six months ended June 30, 1996.  The principal cause of this 
difference was deferred offering costs of $344,518 and an increase in 
distributions to stockholders for the six months ended June 30, 1997.  Net 
cash used in financing activities was the principal factor in the $75,792 net 
increase in cash for the six months ended June 30, 1997.

     The Company has available approximately $2,375,000 from the proceeds of 
the Offering which will be used to support an aggressive store acquisition 
program.  Historically, the average acquisition price paid by the Company per 
store has been approximately $500,000 to $700,000; however, because the 
acquisition price is based on variables such as store sales and profits, 
there can be no assurance that future acquisition prices will fall within the 
referenced range.  Management believes it will be able to obtain seller 
financing for approximately 50% of the cost of each such acquisition.

     In addition to the expansion capital provided by the proceeds of the 
Offering, the Company has available a $2,000,000 credit facility provided by 
Bank One, Texas, N.A.  Although all of the terms of such credit facility have 
not received final approval, the Company believes that such terms will 
include restrictive covenants such as financial ratio requirements with which 
the Company will have to comply to maintain the facility.  Management 
believes the Company's operations will not be adversely impacted by these 
restrictive covenants.  No funds have been borrowed under this credit 
facility.

     Management expects that the proceeds generated from the Offering 
combined with the above-described credit facility will be sufficient to 
support the Company's current expansion schedule and ongoing 

                                      15 
<PAGE>

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.  The Company expects to fund ongoing 
acquisitions after 1997 with proceeds from the Offering, income from current 
operations, seller financing of acquisitions and possible future equity 
offerings.

      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. The costs of such conversion are expected to be funded from 
operations.

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 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 than the Company 
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 sales and net income in 
1995 and 1996, there can 

                                      16 
<PAGE>

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 
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, 10 of the Company's 17 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 


                                      17

<PAGE>

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 Offering combined with operating revenues 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.  The Company currently purchases 
approximately 84% of its inventory from Bergen Brunswig Drug Co. ("Bergen 
Brunswig").  Bergen Brunswig 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 
Bergen Brunswig 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.

                           PART II -- OTHER INFORMATION

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

     The Company held its annual meeting of stockholders on May 31, 1997.

     The following matters were voted upon at the annual meeting:

     1.   The stockholders approved the Company's Amended and Restated Articles
          of Incorporation with 467,903 votes in favor, no votes against and 
          no abstentions.

     2.   The stockholders approved the Company's Amended and Restated Bylaws
          with 467,903 votes in favor, no votes against and no abstentions.

     3.   The stockholders ratified the appointment of Ernst & Young LLP as the
          independent auditors of the Company with 467,903 votes in favor, no
          votes against and no abstentions.

     4.   The stockholders approved the HORIZON Pharmacies, Inc. 1997 Stock 
          Option Plan with 467,903 votes in favor, no votes against and no 
          abstentions.
  
     5.   The stockholders ratified all prior acts of the Company's officers
          and directors with 467,903 votes in favor, no votes against and no
          abstentions.


                                      18

<PAGE>

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

                                               Affirmative    Votes Withheld
                                               -----------    --------------

          Carson A. McDonald (Class I)           467,903           -0-
          Philip H. Yeilding (Class I)           467,903           -0-
          David W. Frauhiger (Class II)          467,903           -0-
          Robert D. Mueller, R.Ph. (Class II)    467,903           -0-
          Sy S. Shahid (Class II)                467,903           -0-
          Rick D. McCord, R.Ph. (Class III)      467,903           -0-
          Charlie K. Herr, R.Ph. (Class III)     467,903           -0-

ITEM 5.   OTHER INFORMATION

     ACQUISITION OF MORIARTY, NEW MEXICO STORE.  On August 2, 1997, the 
Company acquired substantially all of the assets of Sun Country Drug, Inc. 
("Sun Country Drug") comprising primarily pharmacy files, equipment, 
inventory and supplies.  The Company acquired the assets through arm's-length 
negotiations with Sun Country and Sun Country's sole shareholder, Dale Kemper.

     Prior to this transaction, no material relationships existed between Sun 
Country and the Company or any of its affiliates, any director or officer of 
the Company, or any associate of such director or officer, except to the 
extent that Carson A. McDonald, a director of the Company, is employed by 
Bergen Brunswig Drug Co. ("Bergen Brunswig"), a creditor of Sun Country.

     The consideration for the acquisition consisted of $175,000 cash, 
assumption of an aggregate $62,412.48 of trade accounts owing to Bergen 
Brunswig and one other creditor, and a promissory note in the amount of 
$197,406.28 payable over 60 months in equal monthly installments bearing 
interest at 9% per annum.  The cash portion of the purchase price was derived 
from proceeds of the Company's initial public offering which closed July 11, 
1997 (the "Offering").  

     The Company intends to continue Sun Country's retail pharmacy operations 
under the HORIZON Pharmacies, Inc. name.  In connection therewith, the 
Company has secured a real estate lease covering Sun Country's current retail 
location and has secured a valid New Mexico license to do business at that 
location under the HORIZON Pharmacies, Inc. name. 

     ACQUISITION OF MESQUITE, TEXAS STORE.  On August 12, 1997, the Company 
acquired substantially all of the assets utilized in connection with and as 
a part of certain retail drug store operations of  Revco, Inc.  d/b/a 
Northridge Pharmacy ("Northridge") located in Mesquite, Texas, comprising 
primarily pharmacy files, equipment, inventory and supplies.  The Company 
acquired the assets through arm's-length negotiations with Northridge.

     Prior to this transaction, no material relationships existed between 
Northridge and the Company or any of its affiliates, any director or officer 
of the Company, or any associate of such director or officer.

     The consideration for the acquisition consisted of $150,000 cash and a 
promissory note in the amount of $154,931.65 payable over 72 months in equal 
monthly installments bearing interest at 8.5% per annum.  The cash portion of 
the purchase price was derived from proceeds of the Offering.  

     The Company intends to continue the retail pharmacy operations of 
Northridge Pharmacy under the HORIZON Pharmacies, Inc. name. In connection 
therewith, the Company secured a real estate lease 


                                      19

<PAGE>

covering the current retail location of Northridge Pharmacy and secured a 
valid Texas license to conduct business as a retail pharmacy at that location 
under the HORIZON Pharmacies, Inc. name.

     ACQUISITION OF BUTTE, MONTANA STORE.  On August 16, 1997, the Company 
acquired substantially  all of the assets of Downey Drug, Inc. ("Downey 
Drug") comprising primarily pharmacy files, equipment, inventory and 
supplies.  The Company acquired the assets through arm's-length negotiations 
with Downey Drug and its sole shareholders, James and Tim Downey.

     Prior to this transaction, no material relationships existed between 
Downey Drug and the Company or any of its affiliates, any director or officer 
of the Company, or any associate of such director or officer.

     The consideration for the acquisition consisted of $150,000 cash and 
three promissory notes in the aggregate amount of $614,511.79.  The first 
note executed in favor of Downey Drug in the amount of $344,511.79 is 
payable over 84 months in equal monthly installments bearing interest at 8% 
per annum.  The other two notes, each in the amount of $135,000, are executed 
in favor of James Downey and Tim Downey, respectively and are payable over 60 
months in equal monthly installments bearing interest at 8% per annum.  The 
cash portion of the purchase price was derived from proceeds of the Offering. 

     The Company intends to continue Downey Drug's retail pharmacy operations 
under the HORIZON Pharmacies, Inc. name.  In connection therewith, the 
Company secured a real estate lease covering Downey Drug's current retail 
location and secured a valid Montana license to conduct business as a retail 
pharmacy at that location under the HORIZON Pharmacies, Inc. name.

     FINANCIAL STATEMENTS.  It is impracticable at this time to provide the 
required financial statements of the acquired businesses described in Item 5 
and the required pro forma financial information.  This information will be 
provided within 60 days by an amendment to this report.


                                      20

<PAGE>


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

(a)    Exhibits

 Exhibit No.   Name of Exhibit

    2.1        Purchase Agreement dated August 2, 1997 by and between Sun 
               Country Drug, Inc. and the Company (incorporated by reference
               to the Company's Current Report on Form 8-K filed electronically
               on August 18, 1997).

    2.2        Purchase Agreement dated August 12, 1997 by and between Revco 
               Inc. d/b/a Northridge Pharmacy and the Company (filed 
               electronically herewith).

    2.3        Purchase Agreement dated August 16, 1997 by and between Downey 
               Drug, Inc. and the Company (filed  electronically herewith).

    27.1       Financial Data Schedule (filed electronically herewith).
  
(b)    Reports on Form 8-K

  The Company was not required to file and did not file any report on Form 
8-K during the three months ended June 30, 1997.



                                        21
<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 21, 1997                    /s/ Ricky D. McCord
                                        -------------------------------------
                                          Ricky D. McCord
                                          Chief Executive Officer

Date:  August 21, 1997                    /s/ David W. Frauhiger             
                                        -------------------------------------
                                          David W.  Frauhiger              
                                          Chief Financial Officer








                                      22