SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D.C. 20549


                                  FORM 8-K/A
                               Amendment No. 1

                               CURRENT REPORT

   Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported): May 10, 1999




                               PHAR-MOR, INC.
           (Exact name of registrant as specified in its charter)

             1-7090                                 25-1466309
             ------                                 ---------- 
     (Commission File Number)           (I. R. S. Employer Identification No.)




     20 Federal Plaza West, Youngstown, Ohio          44501-0400
     ---------------------------------------          ----------
     (Address of principal executive offices)         (Zip code)


     Registrant's telephone number, including area code: (330) 746-6641
                                                         --------------



<PAGE>


Item 7:  FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS

     (a) Financial Statements of the Business Acquired

     The  following  financial  statements  for the acquired  business are filed
     herewith:

     Report of  Independent  Accountants on Pharmhouse  Corp.  and  subsidiaries
     Consolidated  Financial  Statements  for the Fiscal Years ended January 30,
     1999, January 31, 1998 and February 1, 1997

     Pharmhouse  Corp.  and  subsidiaries:  Consolidated  Balance  Sheets  as of
     January 30, 1999 and January 31, 1998

     Pharmhouse Corp. and subsidiaries:  Consolidated  Statements of Operations,
     Consolidated  Statements  of Cash Flows,  and  Consolidated  Statements  of
     Shareholders' Equity (Deficit) for the Fiscal Years ended January 30, 1999,
     January 31, 1998, and February 1, 1997

     Notes to the Consolidated Financial Statements

     (b) Unaudited Pro Forma Financial Information:

     The  following  unaudited  pro  forma  condensed   consolidated   financial
     statements are filed herewith:

     Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 26,
     1998

     Unaudited Pro Forma Condensed  Consolidated Statement of Operations for the
     Twenty-six weeks ended December 26, 1998

     Unaudited Pro Forma Condensed  Consolidated Statement of Operations for the
     Fifty-two weeks ended June 27, 1998

     Notes  to  the  Unaudited  Pro  Forma  Condensed   Consolidated   Financial
     Statements



<PAGE>

Report of Independent Accountants


April 9, 1999


To the Board of Directors and Shareholder of Pharmhouse Corp.

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated  statements of operations,  shareholders' equity (deficit) and cash
flows  present  fairly,  in all material  respects,  the  financial  position of
Pharmhouse  Corp. and its  subsidiaries  (the "Company") at January 30, 1999 and
January 31, 1998 and the  results of their  operations  and their cash flows for
each of the fiscal years ended  January 30, 1999,  January 31, 1998 and February
1, 1997 in conformity  with  generally  accepted  accounting  principles.  These
financial  statements are the  responsibility of the Company's  management;  our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management and  evaluating  the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

As discussed in Note 1, on March 15, 1999, the Company was acquired by Phar-Mor,
Inc. The accompanying  financial  statements do not reflect any adjustments as a
result of such acquisition.




Pricewaterhouse Coopers LLP
New York, New York




<PAGE>


                        PHARMHOUSE CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>

                                                             January 30,    January 31,
                                                                 1999           1998
                                                           -----------    -----------
<S>                                                        <C>            <C>        
ASSETS                                                                        
Current assets                                                       
Cash                                                       $     2,484    $     3,296
Receivables, net of allowances                                       
of $3,026 and $1,075, respectively                               2,939          4,518
Merchandise inventory                                           35,708         37,332
Prepaid expenses                                                 1,942          1,292
                                                           -----------    -----------

Total current assets                                            43,073         46,438

Property, fixtures and equipment, net                            5,255          4,795
Video rental inventory, net                                      1,353          1,972
Other assets                                                       323            487
                                                           -----------    -----------

Total assets                                               $    50,004    $    53,692
                                                           ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY                               
Current liabilities                                                
Bank overdraft                                             $     2,148    $     1,922
Current portion of long-term debt                               27,505          4,647
Accounts payable                                                19,656         18,791
Provision for store closure                                       --              284
Accrued expenses and other liabilities                           2,596          2,628
                                                           -----------    -----------

Total current liabilities                                       51,905         28,272

Long-term debt, net of current portion                            --           19,154
Other liabilities                                                1,051          1,372
                                                           -----------    -----------

Total liabilities                                               52,956         48,798
                                                           -----------    -----------

COMMITMENTS AND CONTIGENCIES                                      

SHAREHOLDERS' EQUITY (DEFICIT)                                    
Preferred stock, $.10 par; authorized                             
and unissued 2,500,000 shares                                     
Common stock, $.01 par; authorized                                
25,000,000 shares; issued 2,608,553                               
and 2,594,841 shares, respectively                                  26             26
Additional paid-in capital                                      21,740         21,728
Accumulated deficit                                            (24,717)       (16,859)
                                                           -----------    -----------
                                                                (2,951)         4,895
Treasury stock, at cost                                              1              1
                                                           -----------    -----------
Total shareholders' equity (deficit)                            (2,952)         4,894
                                                           -----------    -----------

Total liabilities and shareholders' equity (deficit)       $    50,004    $    53,692
                                                           ===========    ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>


                        PHARMHOUSE CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                         Fiscal Year Ended
                                            January 30,   January 31,   February 1,
                                                1999          1998        1997
                                            ----------    ----------    ----------
<S>                                         <C>           <C>           <C>       
Revenues:
Net sales                                   $  179,192    $  194,658    $  224,292
Video rental, service
and other income                                 4,769         6,093         7,437
                                            ----------    ----------    ----------
                                               183,961       200,751       231,729
                                            ----------    ----------    ----------

Costs and Expenses:
Cost of merchandise and
services sold                                  141,588       155,393       176,390
Selling, general and
administrative expenses                         48,608        47,548        56,344
Provision for store closure                       --            (185)          573
                                            ----------    ----------    ----------
                                               190,196       202,756       233,307
                                            ----------    ----------    ----------

Operating loss                                  (6,235)       (2,005)       (1,578)

Interest expense                                (2,776)       (3,032)       (4,230)
Other income, net                                1,765         1,346         7,142
                                            ----------    ----------    ----------

Earnings (loss) before extraordinary item       (7,246)       (3,691)        1,334
Extraordinary item                                (612)         --            --
                                            ----------    ----------    ----------

Net earnings (loss)                         $   (7,858)   $   (3,691)   $    1,334
                                            ==========    ==========    ==========


Basic earnings (loss) per share:
Earnings (loss) before extraordinary item   $    (2.81)   $    (1.48)   $     0.59
Extraordinary item                               (0.24)         --            --   
                                            ----------    ----------    ----------

Net earnings (loss)                         $    (3.05)   $    (1.48)   $     0.59
                                            ==========    ==========    ==========

Average number of shares                         2,580         2,491         2,267
                                            ==========    ==========    ==========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.



<PAGE>



                        PHARMHOUSE CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended
                                                       January 30,  January 31,  February 1,
                                                           1999         1998         1997
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>      
Cash Flows provided (used) by Operating Activities:
Net earnings (loss)                                    $  (7,858)   $  (3,691)   $   1,334
Adjustments to reconcile net earnings (loss) to
net cash flows from operating activities:
Depreciation and amortization                              2,678        3,135        2,775
Provision for store closure                                 --           (185)         573
Increase (decrease) in other non-current liabilities        (321)       1,128          (27)
Share grants to directors and restricted
share awards                                                --             69          113
Gain from litigation settlement                           (1,000)        --         (7,142)
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable, net                                   1,579        2,788       (1,470)
Merchandise inventory                                      1,624       12,464        3,982
Prepaid expenses                                            (800)         419         (211)
Other assets                                                 164         (231)         949
(Decrease) increase in:
Accounts payable                                             865       (1,637)       2,614
Accrued expenses and other liabilities                       (32)      (1,212)        (905)
Provision for store closure                                 (284)      (1,146)        --
                                                       ---------    ---------    ---------
Net Cash Flows (used) provided by
Operating Activities                                      (3,385)      11,901        2,585
                                                       ---------    ---------    ---------

Cash Flows used by Investing Activities:
Capital expenditures                                      (1,612)        (373)        (993)
Purchase of video rental inventory, net of disposals        (745)      (1,268)      (2,036)
                                                       ---------    ---------    ---------
Net Cash Flows used by Investing Activities               (2,357)      (1,641)      (3,029)
                                                       ---------    ---------    ---------

Cash Flows provided (used) by Financing Activities:
Net borrowings from New Senior Credit Facility            23,562         --           --
Proceeds from Subordinated Convertible Note                2,000         --           --
Payment of Prior Senior Credit Facility                  (21,401)        --           --
Net borrowings from Prior Senior Credit Facility            --         (7,639)       1,552
Proceeds from Subordinated Loan                            1,038         --           --
Payment of Subordinated Loan                                (495)        (600)        (550)
Bank overdraft                                               226       (1,805)        (608)
Proceeds from issuance of common stock and
exercise of stock options and warrants                      --            165           81
                                                       ---------    ---------    ---------
Net Cash Flows provided (used) by Financing
Activities                                                 4,930       (9,879)         475
                                                       ---------    ---------    ---------

Net (decrease) increase in cash                             (812)         381           31
Cash, beginning of year                                    3,296        2,915        2,884
                                                       ---------    ---------    ---------
Cash, end of year                                      $   2,484    $   3,296    $   2,915
                                                       =========    =========    =========

Supplemental information:
Interest payments                                      $   2,768    $   3,038    $   3,381
Income taxes paid                                             14         --           --
</TABLE>

See accompanying Notes to Consolidated Financial Statements.


<PAGE>


                                        PHARMHOUSE CORP. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                                  (In thousands, except share amounts)
<TABLE>
<CAPTION>


                                 Common stock issued             Treasury Stock
                                 -------------------  Additional --------------
                                 Number of     Par    paid-in    Number of         Accumulated
                                  shares      value   capital    shares     Cost     deficit      Total
                                 ---------    -----   -------    ------    -----    --------    -------
<S>                              <C>          <C>     <C>       <C>        <C>      <C>           <C>  
Balance, February 3, 1996        2,245,715    $  22   $21,305   (16,734)   $  (1)   $(14,502)     6,824

Fiscal 1997:
Exercise of warrants                85,867        1        80                                        81
Share grants to directors           10,000                 38                                        38
Restricted share awards             17,500                 75                                        75
Purchase of fractional shares          (18)                                                        --
Net income for the year                                                                1,334      1,334
                                 ---------    -----   -------    ------    -----    --------    -------

Balance, February 1, 1997        2,359,064       23    21,498   (16,734)      (1)    (13,168)     8,352

Fiscal 1998:
Exercise of warrants               209,195        2       111                                       113
Share grants to directors           10,000                 69                                        69
Exercise of stock options           16,592        1        50                                        51
Purchase of fractional shares          (10)                                                        --
Net loss for the year                                                                 (3,691)    (3,691)
                                 ---------    -----   -------    ------    -----    --------    -------

Balance, January 31, 1998        2,594,841       26    21,728   (16,734)      (1)    (16,859)     4,894

Fiscal 1999:
Share grants to directors           13,728                 12                                        12
Purchase of fractional shares          (16)                                                        --
Net loss for the year                                                                 (7,858)    (7,858)
                                 ---------    -----   -------    ------    -----    --------    -------

Balance, January 30, 1999        2,608,553    $  26   $21,740   (16,734)   $  (1)   $(24,717)   $(2,952)
                                 =========    =====   =======    ======    =====    ========    =======
</TABLE>


See accompanying Notes to Consolidated Financial Statements.


<PAGE>


                        PHARMHOUSE CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -  DESCRIPTION  AND  ACQUISITION  OF BUSINESS AND SUMMARY OF  SIGNIFICANT
ACCOUNTING POLICIES
Description of Business and Background
Pharmhouse  Corp.  (the  "Company")  operates a chain of 32 discount drug stores
located  in eight  states in the  mid-Atlantic  and New  England  regions of the
United States,  13 of which operate under the name Pharmhouse  (the  "Pharmhouse
Stores") and 19 of which operate under the name Rx Place (the "Rx Stores"),  the
latter stores having been  acquired  from F. W.  Woolworth  Co., a subsidiary of
Woolworth Corporation (collectively "Woolworth"), in April 1995. During the last
three fiscal years, the Company closed or returned to Woolworth seven stores and
did not open any new stores.

Acquisition of the Company
On December 17,  1998,  the Company and  Phar-Mor,  Inc.  ("Phar-Mor")  signed a
definitive  Agreement  and Plan of  Merger  (the  "Merger  Agreement")  to merge
Pharmacy Acquisition Corp., a Phar-Mor subsidiary,  with the Company. The Merger
Agreement  between the Company and Phar-Mor was  consummated  on March 15, 1999,
resulting in the Company being  wholly-owned by Phar-Mor.  The consideration for
the acquisition payable by Phar-Mor to the Company's  shareholders  consisted of
cash which, after giving effect to the adjustments provided for under the Merger
Agreement, amounted to $2.88 per share. In connection with the Merger Agreement,
the Company received a $2 million loan from Phar-Mor  pursuant to a Subordinated
Convertible  Note  Purchase  Agreement.  In addition,  subsequent  to the merger
consummation date,  Phar-Mor  effectively paid the outstanding  borrowings under
the New Senior Credit Facility and the Subordinated Loan (see Note 4).

These  financial  statements do not reflect any  adjustments as a result of such
acquisition.

Significant Accounting Policies
Fiscal Year
The fiscal year is the 52 or 53 week  reporting  period  ending on the  Saturday
closest to January 31 of each year.  References  to fiscal  1999,  1998 and 1997
refer to the fiscal years ended January 30, 1999,  January 31, 1998 and February
1, 1997, respectively, each of which comprised 52 weeks.

Principles of Consolidation
These consolidated financial statements include the accounts of Pharmhouse Corp.
and its two wholly-owned real estate  subsidiaries,  Nichols Realty, Inc. and Rx
Realty Corp.  (collectively the "Company").  All inter-company  transactions and
balances have been eliminated.

Reclassification
As a result of a review of the Company's  fiscal 1998 and fiscal 1997  financial
statements by the  Securities  and Exchange  Commission  in connection  with the
Merger  Agreement,  the  Company  revised  the  fiscal  1997  presentation  of a
litigation  settlement,  which  resulted in income in the amount of  $7,142,000,
from extraordinary  item, as originally  reported,  to other income, as reported
herein.

Certain  other  fiscal 1998 and fiscal 1997 amounts  have been  reclassified  to
conform with the presentation used in fiscal 1999.

Use of Estimates
The  consolidated  financial  statements  have been prepared in conformity  with
generally  accepted  accounting  principles  which  require  management  to make
estimates and assumptions  that affect the amounts  reported in the consolidated
financial  statements.  Actual  results could differ from these  estimates.  The
Company's  merchandise  inventory  shrink  accrual for fiscal 1999 was raised to
approximately 3% of sales and was adequate.




Receivables
Receivables  are primarily  generated by third party  pharmacy  revenues  (i.e.,
Medicare,  Medicaid and health insurance plans). Receivables also include vendor
coupons and advertising and promotional allowances receivable.

Merchandise Inventory
Merchandise  inventory  is  carried  at the lower of cost or  market,  with cost
determined on the first-in first-out retail inventory method.

Pre-opening Costs
Store  pre-opening  costs are  expensed in the fiscal year in which the store is
opened.

Property, Fixtures and Equipment and Video Rental Inventory, Net
Property,  fixtures and equipment,  including significant  improvements thereto,
are recorded at cost.  Expenditures  for repairs and  maintenance are charged to
expense as incurred. The cost of property, fixtures and equipment is depreciated
over  estimated  useful lives of 5 to 25 years using the straight-  line method.
Leasehold  improvements  are amortized over the shorter of the estimated  useful
life of the asset or the remaining term of the lease.  Video rental inventory is
amortized over two years.

Provision for Store Closure
Provision is made for net costs and expenses associated with store closures when
a decision is made to close the store.

Stock-Based Compensation
The Company  accounts for  stock-based  compensation  under the  requirements of
Accounting  Principles Board Opinion No. 25 and, in accordance with Statement of
Financial  Accounting  Standards  ("SFAS")  No. 123,  "Accounting  for Awards of
Stock-Based Compensation to Employees",  which was adopted by the Company during
fiscal 1997,  has provided the additional  required  disclosures in the Notes to
the Consolidated Financial Statements (see Note 6).

Income Taxes
Income taxes are provided based on the liability  method of accounting  pursuant
to SFAS  No.109,  "Accounting  for  Income  Taxes".  Deferred  income  taxes are
recorded to reflect the tax consequences on future years of differences  between
the tax basis of assets and liabilities and their financial reporting amounts at
each year-end. Where appropriate, valuation reserves are recorded.

Basic and Diluted Earnings (Loss) per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
per Share".  SFAS No. 128 replaced the  calculation of primary and fully diluted
earnings  per share with basic and diluted  earnings per share.  Unlike  primary
earnings per share,  basic earnings per share  excludes any dilutive  effects of
options,  warrants and  convertible  securities.  It is calculated as net income
available  to common  shareholders  divided by the  weighted  average  number of
common shares outstanding. All earnings (loss) per share amounts for all periods
have been presented to conform to SFAS 128 requirements. Diluted earnings (loss)
per share has not been presented because such amounts are anti-dilutive.

Leased Department Revenues
Leased department revenues of $50,000, $27,000 and $229,000 in fiscal 1999, 1998
and 1997, respectively, is included in video rental, service and other income.

Significant Supplier
Approximately  45%, 40% and 30% of the Company's total purchases in fiscal years
1999, 1998 and 1997,  respectively,  represented purchases from one unaffiliated
supplier.

NOTE  2 - FINAL DISPOSITION OF  THE WOOLWORTH DISPUTE
In April 1995, the Company acquired, and accounted for as a purchase, the assets
and business of 24 Rx Place discount drug stores from Woolworth for a total cost
of $39.5 million, including $23.5 million in cash, $12.5 million in notes issued
to Woolworth (the "Purchase Money Notes") and $2.9 million for the related costs
of  acquisition.  The Company also  assumed  Woolworth's  obligations  under the
leases of the acquired  stores.  The assets  acquired,  consisting  primarily of
merchandise inventory and store property and equipment,  were financed through a
senior secured  revolving  credit facility (the "Prior Senior Credit  Facility")
provided by a financial institution, a $3 million secured subordinated term loan
(the  "Subordinated  Loan") provided by an  unaffiliated  trade supplier and the
Purchase  Money Notes.  In January  1996,  the Company  instituted  legal action
against  Woolworth in the Supreme Court of the State of New York seeking,  among
other relief,  damages and  indemnification  arising out of Woolworth's  alleged
fraud and breach of certain  covenants,  representations  and warranties made by
Woolworth  in  connection  with  the  acquisition.  Pending  resolution  of  the
Company's  claims,  the Company withheld payment of all further  installments of
principal  and  interest  arising  out of  the  Purchase  Money  Notes  held  by
Woolworth.

On January 31, 1997, the Company and Woolworth entered into a Mutual Release and
Settlement  Agreement resolving all outstanding  disputes and settling all legal
proceedings  arising out of the  Acquisition.  On June 24, 1997, the Company and
Woolworth  amended the Mutual Release and Settlement  Agreement  (such agreement
and amendment are collectively referred to herein as the "Woolworth Settlement")
to  provide  for a final  disposition  of the  seven Rx  Stores  (the  "Affected
Stores")  that were part of the  dispute.  The major  aspects  of the  Woolworth
Settlement include:

-    Debt and Interest Forgiveness - Woolworth  surrendered for cancellation two
     of the three outstanding Purchase Money Notes in principal amounts totaling
     $5.5 million and  modified  the third such Note (in the original  principal
     amount of $2.9 million,  and  originally  due April 1998) so that such Note
     constituted a non-interest bearing Contingent Note obligation of $1 million
     which,  upon the Company meeting  specified  conditions,  was  subsequently
     surrendered  by  Woolworth  for  cancellation  effective  on July 30, 1998.
     Woolworth also released the Company from its $1.1 million accrued  interest
     obligation  on the Purchase  Money Notes.  By reason of the  foregoing,  in
     fiscal 1997, the Company  recorded other income of $7.1 million  consisting
     of $8.5 million in debt and  interest  forgiveness  less certain  costs and
     provisions  (including a $1 million store closure  provision related to two
     Affected  Stores) and, in fiscal 1999, the Company recorded other income of
     $1 million  related to the  cancellation  of the Contingent  Note which was
     surrendered by Woolworth effective in July 1998 (see Note 4).

-    Return of Stores  and  Reimbursement  of Rental and  Occupancy  Costs - The
     Company received an option to terminate its occupancy and obligations under
     the leases  governing the Affected Stores,  subject to certain  conditions.
     Woolworth  further  agreed to pay the rent and other fixed monthly  charges
     and  occupancy  costs for the Affected  Stores  through  stipulated  dates.
     Pursuant to the  Woolworth  Settlement  provisions,  during fiscal 1997 and
     fiscal 1998 the Company  elected to close five of the  Affected  Stores and
     reassigned to Woolworth  the leases for these stores.  Of the two remaining
     Affected Stores, the Company operated one such store with the assistance of
     the  Woolworth  subsidy  until  September  1997,  at which time the Company
     negotiated a new lease with the landlord of the property and has  continued
     to operate this store without any further subsidy or other  obligation from
     Woolworth.  With respect to the last remaining  Affected  Store,  Woolworth
     exercised  its option to recapture the premises of such store during fiscal
     1999  pursuant to which the Company  vacated the premises and returned this
     store to Woolworth.

-    Use of "The Rx Place"  Name -  Woolworth  agreed to  extend  the  Company's
     license to use the service mark "The Rx Place" for an additional three year
     period  through April 28, 2001,  subject to the  Company's  right to extend
     such license for one additional year upon proper  notification,  as defined
     in the agreement.



<PAGE>


NOTE  3 - PROPERTY, FIXTURES AND EQUIPMENT AND VIDEO RENTAL INVENTORY, NET
A summary of property, fixtures and equipment and video rental inventory, net at
January 30, 1999 and January 31, 1998 follows (000's omitted):

                                             January 30,     January 31,
                                                 1999            1998 
                                              --------        --------
Property, fixtures and equipment              $ 13,459        $ 11,874
Less accumulated depreciation
   and amortization                              8,204           7,079
                                              --------        --------
                                              $  5,255        $  4,795
                                              ========        ========   

                                             January 30,     January 31,
                                                 1999            1998
                                              --------        --------
Video rental inventory                        $  5,501        $  6,435
Less accumulated amortization                    4,148           4,463
                                              --------        --------    
                                              $  1,353        $  1,972
                                              ========        ========   

Total depreciation and amortization expense of property,  fixtures and equipment
and video rental  inventory was $2,516,000,  $2,985,000 and $2,775,000 in fiscal
1999,  1998 and 1997,  respectively.  Included in these amounts is  amortization
expense of video rental  inventory of  $1,364,000,  $1,827,000 and $1,629,000 in
fiscal 1999, 1998 and 1997, respectively.

At the date of acquisition  in April 1995, the property,  fixtures and equipment
located  in  the Rx  Stores  were  recorded  at  zero  value  in  the  Company's
Consolidated  Financial Statements pursuant to the purchase method of accounting
which requires allocation of the total acquisition cost to estimated fair values
of assets  acquired.  Substantially  all of such  costs  were  allocated  by the
Company  to  merchandise  inventory  and  video  rental  inventory,  leaving  no
available balance to allocate to property, fixtures and equipment.

For  information  concerning  the  return  of  stores  to  Woolworth  and  other
provisions of the Woolworth Settlement, see Note 2.

NOTE 4 - BORROWINGS
A summary of the  Company's  borrowings at January 30, 1999 and January 31, 1998
is set forth below (000's omitted):
<TABLE>
<CAPTION>
                                      January 30, 1999              January31, 1998
                                --------------------------     ---------------------------
                                          Current  Non-current           Current  Non-current
                                 Total    portion   portion     Total    portion   portion
                                -------   -------   ---------  -------   -------   ---------
<S>                             <C>       <C>       <C>        <C>       <C>       <C>  
New Senior Credit Facility      $23,562   $23,562   $   --     $  --     $  --     $  --
Prior Senior Credit Facility       --        --         --      21,401     2,247    19,154
Subordinated Loan                 1,943     1,943       --       1,400     1,400      --
Subordinated Convertible Note     2,000     2,000       --        --        --        --
Contingent Note (see Note 2)       --        --         --       1,000     1,000      --   
                                -------   -------   ---------  -------   -------   ---------

Total                           $27,505   $27,505   $   --     $23,801   $ 4,647   $19,154
                                =======   =======   =========  =======   =======   =========
</TABLE>

New Senior Credit Facility
On May 14,  1998,  the Company and  Foothill  Capital  Corporation  ("Foothill")
entered into a Loan and Security  Agreement (the "New Senior Credit Facility" or
"New  Facility")  providing  for  aggregate  credit to the  Company of up to $35
million. The New Facility consists of: (i) a Term Loan up to $3 million and (ii)
revolving  advances  equal to the lesser of (a) 65% of  eligible  inventory  (at
cost) or (b) $35 million less the outstanding principal amount of the Term Loan.
Under the New Facility,  subject to the foregoing formula, the maximum revolving
advances  could  increase up to an aggregate  of $35 million as the  outstanding
principal amount of the Term Loan is reduced. The duration of both the revolving
and term loans under the New Senior  Credit  Facility is five years,  subject to
minor  amortization  of the Term Loan during that period.  The total loans which
may be  advanced  by  Foothill  to the  Company is subject to an  increase to an
aggregate  of $40  million  upon the  satisfaction  of certain  conditions.  The
initial  funds  advanced  under the New  Facility  were used to pay  outstanding
borrowings,  charges,  fees and temporary cash  collateral  account  aggregating
$22.6 million owing by the Company to its prior senior  secured  lender  ("Prior
Lender"). The cash collateral of $1 million, less any potential draw-downs,  was
subsequently  returned by the Prior  Lender to the  Company.  In  addition,  the
Company  incurred  other  transaction  fees of  approximately  $1  million,  the
unamortized balance of which at January 30, 1999 was $.9 million and is included
in prepaid expenses.

<PAGE>

Indebtedness under the New Senior Credit Facility is secured by a first priority
lien on substantially  all of the Company's assets and, among other  conditions,
restricts  the payment of  dividends  and  requires  that the  Company  maintain
specified  minimum  tangible  net worth and EBITDA  (earnings  before  interest,
taxes, depreciation and amortization) levels. The New Facility is at a borrowing
rate of prime plus 1.125%,  subject to decrease if the Company  reaches  certain
EBITDA levels during the term of the facility.

The Company did not meet the specified  quarterly minimum tangible net worth and
EBITDA levels required under the New Senior Credit Facility at the end of fiscal
1999. However, in light of the Merger Agreement between the Company and Phar-Mor
which was consummated on March 15, 1999, the Company's  non-compliance  with its
debt covenants  under the New Senior Credit  Facility was  effectively  remedied
(see Note 1).

Prior Senior Credit Facility
The  borrowing  availability  with the  Company's  Prior Lender was based on the
lesser of 60% of eligible inventory at cost or $45 million. The weighted average
interest rate under the Senior Credit Facility during fiscal 1999, including the
effect of facility  fees, was 11.2%.  On May 14, 1998, the Company  entered into
the New Senior Credit  Facility with Foothill and thereby repaid all outstanding
indebtedness  to the Prior  Lender,  described  above,  including a $1.4 million
over-advance  extended by Foothill  to the Company  during the first  quarter of
fiscal 1999.  In  connection  with the  termination  of the Prior Senior  Credit
Facility,  the Company  incurred  fees and costs of $.6 million  which have been
recorded as an extraordinary item.

Subordinated Loan
During fiscal 1999, the Company and the subordinated  lender  re-negotiated  the
terms of the Subordinated  Loan. Under the revised  Subordinated Loan terms, the
lender  provided the Company with an additional $1 million loan and extended the
repayment terms of the entire outstanding loan balance. The loan is being repaid
in 62 monthly  installments of $35,282 plus interest  computed at prime plus 3%,
which  approximates  10.75% as of January 30, 1999. The subordinated  lender has
been  granted  a second  priority  lien on  substantially  all of the  Company's
assets. The subordinated lender is an unaffiliated trade supplier.

Subordinated Convertible Note
In connection with the Merger Agreement,  in December 1998,  Phar-Mor loaned the
Company $2 million,  bearing  interest at the rate of 11% per annum and due June
30, 1999,  pursuant to a Subordinated  Convertible Note Purchase Agreement which
provided for the  conversion  of such note into  Pharmhouse  common shares under
certain conditions.

The weighted average  interest rate,  including the effect of facility fees, for
all of the Company's borrowings during fiscal 1999 was 10.7%.

NOTE 5 - INCOME TAXES
The Company is not subject to federal income taxes in fiscal 1999 as the Company
did not generate  taxable  earnings.  The Company has  significant net operating
loss carry-forwards  which are available to offset future taxable income.  State
and local income  taxes,  which are computed on a basis other than income (e.g.,
capital stock, etc.), are not material and such amounts are included in selling,
general and administrative expenses.

The Company has available two classes of net operating loss ("NOL") which may be
used to  offset  future  taxable  income.  NOL  Class  #1 is the  NOL  generated
pre-petition  (e.g.,  prior to the 1990 Chapter 11 filing of the  Company).  The
Company's  use of NOL Class #1 is limited by  formula,  pursuant  to the federal
income tax code, to $255,000 per annum,  plus the unused  carry-forward  balance
(which, at January 30, 1999, was $697,000).  The total available NOL Class #1 at
January 30, 1999 amounts to approximately $2.7 million and expires in 2006.

<PAGE>

NOL Class #2 is the NOL generated subsequent to the filing and is not subject to
annual  limitation.  The NOL Class #2  available  at January 30, 1999 amounts to
approximately $17.7 million.

Deferred income tax temporary differences are determined in accordance with SFAS
No. 109.  The  temporary  differences  giving rise to deferred  taxes  primarily
relate to property and  equipment,  employee  stock options and  allowances  for
doubtful  accounts.  At January 30, 1999 and January 31,  1998,  the Company has
established  a valuation  allowance of 100% since it does not appear more likely
than not that a tax asset will be realized.

NOTE 6 - STOCK OPTION AND COMPENSATION PLANS
The Company has three stock  option  plans (a 1991  Non-Qualified  Stock  Option
Plan;  a 1991  Incentive  Stock  Option  Plan;  and a  1995  Stock  Option  Plan
(collectively  the "Stock Option  Plans")) and one equity  compensation  plan in
effect, all of which have been approved by the Company's shareholders.

1991 Non-Qualified Stock Option Plan
Under the 1991  Non-Qualified  Stock Option Plan (the  "Non-Qualified  Plan"), a
total of 274,604  Common  Shares were  reserved for issuance to employees of the
Company.  The  exercise  price of such  options is not less than 25% of the fair
market value of the Common Shares subject to such options on the date of grant.

Participation  in the  Non-Qualified  Plan  was  voluntary  but an  election  to
participate  was  irrevocable.   Seven  employees  of  the  Company  elected  to
participate (two such employees are no longer employed by the Company),  each of
whom  specified the dollar amount by which his or her  respective  annual salary
was reduced during each of the Company's three fiscal years commencing  February
2, 1992. In return for such salary  reductions,  each employee  participating in
the  Non-Qualified  Plan received  discounted  stock options  entitling  each to
purchase  Common Shares at 25% of the fair market value of such Common Shares on
the date of grant of the  options.  On June 30,  1992,  253,525  of the  options
available  for grant under the Non-  Qualified  Plan were granted at an exercise
price of $.544 per Common  Share  (equal to 25% of the fair market  value on the
date of grant), of which 34,942 were subsequently forfeited. During fiscal 1997,
45,000  restricted  Common  Shares  were  granted to an  executive  at a nominal
purchase price. As a result of the termination of this  executive's  employment,
15,000 of such shares were issued to him and 30,000 were  forfeited  pursuant to
vesting provisions governing their issuance.

As of January 30, 1999,  71,011 of the options  granted under the  Non-Qualified
Plan were forfeited, 15,000 were exercised and 212,514 remain exercisable.

1991 Incentive Stock Option Plan
Under the 1991 Incentive  Stock Option Plan (the "Incentive  Plan"),  a total of
298,850  Common  Shares were  reserved for issuance to employees of the Company.
Each of the options  granted  under the  Incentive  Plan is an  incentive  stock
option,  as that term is defined in Section 422 of the Internal  Revenue Code of
1986,  as amended,  the exercise  price of which is the fair market value of the
Common Shares on the date the options were granted. Of the options available for
grant under the  Incentive  Plan,  286,902 were  granted in December  1991 at an
exercise price of $1.914 per Common Share,  of which 92,149 of such options were
subsequently  canceled.  During fiscal 1997,  70,415 options under the Incentive
Plan were  granted at exercise  prices per Common  Share  ranging  from $3.19 to
$3.75,  such amounts being equal to or above the fair market values on the dates
of the respective grants.

As of January 30, 1999,  122,035 of the options granted under the Incentive Plan
lapsed owing to the termination of optionees' employment,  19,879 were exercised
and 206,213 remain exercisable.

1995 Stock Option Plan
Under the 1995 Stock Option Plan (the "1995  Plan"),  a total of 500,000  Common
Shares have been  reserved for issuance  upon the exercise of stock  options and
related stock appreciation rights ("SARs").

<PAGE>

Pursuant  to the 1995  Plan,  the  Company  may grant  incentive  stock  options
("ISOs"),  non-qualified stock options ("NSOs") and SAR's to officers, directors
and  key  employees  of the  Company.  The  1995  Plan  is  administered  by the
Compensation  Committee of the  Company's  Board of Directors  which selects the
optionees, authorizes the grant of options and determines the exercise price and
other terms of the options,  including the vesting schedule thereof, if any. The
per  share  exercise  price of each ISO  granted  under the 1995 Plan must be at
least 100% of the fair market value of a Common Share (and not less than 110% of
the fair market  value in the case of any  optionee  of an ISO who  beneficially
owns more than 10% of the total  combined  voting  power of the  Company) on the
date such option is granted.  The per share  exercise price of an NSO must be at
least 25% of the fair market  value of a Common Share on the date such option is
granted.

The 1995 Plan also  provides  for the grant of SAR's,  which may be granted on a
stand-alone  basis or in tandem with stock options,  which may be surrendered to
the Company in exchange for cash,  Common  Shares or a combination  thereof,  as
determined by the committee administering the 1995 Plan, having a value equal to
the dollar amount  obtained by  multiplying  (x) the number of shares subject to
the  surrendered  SAR or option by (y) the amount by which the fair market value
per Common Share exceeds the exercise price per share specified in the agreement
governing the surrendered SAR's or options.

As of January 30,  1999,  472,585  options had been issued under the 1995 Option
Plan, at exercise  prices of $3.1875 to $5.8750 (such amounts being equal to the
fair market values on the date of grant), 49,000 lapsed owing to the termination
of optionees' employment resulting in 423,585 options outstanding.

The combined activity in the Stock Option Plans for the three fiscal years ended
January 30, 1999 was as follows:
                                          Number of 
                                            shares     Exercise price per share
                                          ---------    ------------------------
Outstanding at February 3, 1996             416,773    $0.544 - $1.914
Fiscal 1997 Activity:
Granted                                     588,000    $3.188 - $5.875
Exercised                                      --
Canceled                                    (16,724)   $0.544 - $1.914
                                          ---------

Outstanding at February 1, 1997             988,049
Fiscal 1998 Activity:
Granted                                        --
Exercised                                   (31,592)   $1.914 - $3.750
Canceled                                    (62,655)   $1.914 - $3.750
                                          ---------

Outstanding at January 31, 1998             893,802
Fiscal 1999 Activity:
Granted                                        --
Exercised                                      --
Canceled                                    (51,490)   $1.914 - $3.750
                                          ---------

Outstanding at January 30, 1999             842,312    $0.544 - $5.875
                                          =========

Available for grant at January 30, 1999     196,264
                                          =========

1992 Equity Compensation Plan for Non-Employee Directors
Under the 1992 Equity Compensation Plan for Non-Employee  Directors,  as amended
in fiscal 1996, (the  "Independent  Directors  Plan"),  a total of 50,000 Common
Shares were  reserved  for  issuance to members of the Board of Directors of the
Company who do not serve as officers or  employees  of the Company or any of its
subsidiaries  (the  "Independent  Directors").  The  Independent  Directors Plan
provides that each Independent Director elected by shareholders, commencing with
the  shareholders  meeting  held June 30, 1992  through  the 1998  shareholders'
meeting,  shall be entitled to an award of 2,000 Common Shares (2,500  effective
in fiscal 1996) upon his or her election or  re-election.  The fair market value
of such  shares  is  expensed  upon  issuance  and added to  Additional  Paid-in
Capital.

<PAGE>

The Board of Directors further amended the Directors Plan to increase the number
of  shares  reserved  under  such  plan  to  80,000  and to  provide  that  each
Independent Director, at his or her election,  may receive, in lieu of cash fees
of $500  per  Board  Meeting,  and in lieu of cash  fees of $250  per  Committee
Meeting,  Common  Shares of the  Company for each Board  Meeting  and  Committee
Meeting  attended by such  Independent  Director  during each year of his or her
incumbency as a Director. The number of such Common Shares per Board Meeting and
per Committee  Meeting  attended shall be determined by dividing the sum of $500
($250 for  Committee  Meetings) by the closing price of the Common Shares on the
NASDAQ  SmallCap  Market on the  trading  day  immediately  preceding  each such
Meeting. This amendment,  which is subject to shareholder  ratification,  became
effective as of the date of the Board of  Directors  Meeting held on January 22,
1998. All of the  Independent  Directors of the Company elected to accept Common
Shares in lieu of cash fees for  attendance  at that Board  Meeting  and for all
subsequent Board Meetings and Committee Meetings to be held during their current
terms as Directors.  Pursuant to such  amendment,  the  termination  date of the
Directors  Plan was extended to the date  immediately  preceding the date of the
Shareholders'  meeting of the  Company in the year 2001 in which  directors  are
elected.  During fiscal 1999,  the Company issued 3,432 Common Shares to each of
four  non-employee  directors  (13,728  Common  Shares in total  were  issued to
non-employee directors) consisting of an annual award of 2,500 Common Shares and
932 Common Shares issued in lieu of cash fees for  attendance at Board  Meetings
and Committee Meetings.

During fiscal 1997, the Company issued 2,500 Common Shares to a former  director
for past services rendered to the Company.

Application  of SFAS  No.123 - Pro Forma Net  Income  and Net  Income Per Common
Share
SFAS No.  123  requires  the  Company to  disclose  pro forma net income and net
income per share  determined  as if the Company had  accounted  for  stock-based
compensation  awards granted after December 31, 1994 under the fair value method
of that Statement.  The fair values of options under SFAS No. 123 were estimated
at each grant date using a Black-Scholes option pricing model with the following
assumptions:  a risk-free  interest  rate of 6.1%,  a dividend  yield of zero, a
volatility  factor of the expected market price of the Company's common stock of
1.05 and an expected option life of seven and one-half years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For these pro forma  disclosures,  the estimated fair value of options and other
stock-based  awards is amortized to expense over the award's vesting period. The
Company's  fiscal  1999,  fiscal  1998 and fiscal  1997  reported  and pro forma
information is as follows:
<TABLE>
<CAPTION>

                                             Fiscal 1999      Fiscal 1998      Fiscal 1997 
                                            ------------    -------------     ------------
<S>                                        <C>              <C>              <C>          
Net (loss) income, as reported             $  (7,858,000)   $  (3,691,000)   $   1,334,000
Pro forma net (loss) income                   (8,194,000)      (4,027,000)       1,007,000
Net (loss) income per share, as reported           (3.05)           (1.48)            0.59
Pro forma net (loss) income per share              (3.18)           (1.61)            0.44
</TABLE>

NOTE 7 - EMPLOYEE BENEFIT PLAN
The  Company  has a  defined  contribution  401(k)  savings  plan  which  allows
employees to  contribute  a percentage  of  compensation  not to exceed  amounts
permitted under the Internal Revenue Code. The Company matches 100% of the first
$1 of employee  contribution  each week plus 25% of any additional  compensation
contributed,  up to a  maximum  of  3% of  annual  compensation.  The  Company's
contribution  into the 401(k)  savings plan  amounted to $111,000,  $111,000 and
$105,000 in fiscal 1999, 1998 and 1997, respectively.

<PAGE>

NOTE 8 - RELATED PARTY TRANSACTIONS
One of the Company's  directors is a member of a law firm which  provided  legal
services  to  the  Company  for  fees  and  disbursements  aggregating  $173,000
(including $90,000 related to the acquisition of the Company by Phar-Mor, Inc.),
$79,000 and $71,000 in fiscal 1999, 1998 and 1997, respectively.

NOTE 9 - OTHER INCOME, NET
During fiscal 1999, the Company recorded other income totaling $1.8 million, net
of $.3 million of other expense, as follows:

The Company recorded other income of $1 million  resulting from the cancellation
of a $1 million Contingent Note in connection with the Woolworth Settlement (see
Note 2).

The Company  received  $1.1 million in connection  with a partial  settlement of
certain  Brand-Name  Prescription Drug Antitrust  Litigation.  This class action
suit was brought by certain drug retailers, including the Company as a member of
the  class,  against  certain  name-brand  drug  manufacturers  and  wholesalers
pertaining  to  purchases  made by the Company from these  suppliers  during the
period  from  October 1, 1989 to December  31,  1994.  Additional  income may be
received by the Company in the future as a result of this pending  class action;
however, the amount of additional income and timing of payments related thereto,
if any, is not presently determinable.

The Company incurred other expenses of $.3 million during the fiscal 1999 fourth
quarter for costs related to the Merger Agreement with Phar-Mor.

NOTE 10 - PROVISION FOR STORE CLOSURE
During fiscal 1997, the Company recorded a $1.6 million  provision for estimated
costs related to the closing of three stores, including two Rx stores which were
returned to Woolworth in connection with the Woolworth  Settlement.  The Company
closed  three Rx Stores in fiscal 1998 and one Rx Store in fiscal  1999,  all of
which were returned to Woolworth in connection with the Woolworth Settlement. No
additional  provision  for store  closure was  provided  for these stores as the
unused provision  remaining from fiscal 1997 was sufficient to cover the closure
costs for these  four Rx  Stores.  The  provision  for store  closure  primarily
includes costs for inventory  mark-downs,  employee  severance and miscellaneous
wind-down  expenses.  As of January 30, 1999, there was no remaining  balance in
provision for store closure.

The following table summarizes  activity during the last three fiscal years with
respect to the provision for store closure (000's):

                                       Fiscal    Fiscal     Fiscal
                                        1999      1998       1997 
                                       ------    ------     ------
Balance, beginning of year             $  284    $1,615     $ --
Activity:
 Provision                               --        --        1,615
 Amounts charged against accrual         (284)   (1,146)      --
 Reversal of prior year over-accrual     --        (185)      -- 
                                       ------    ------     ------
Balance, end of year                   $ --      $  284     $1,615
                                       ======    ======     ======

For further  information  concerning the return of stores to Woolworth and other
provisions of the Woolworth Settlement, see Note 2.



<PAGE>


NOTE 11 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company's  operating leases are principally for retail store locations and a
distribution  facility.  At January 30, 1999,  future  minimum  rental  payments
required under  operating  leases that have initial or remaining  non-cancelable
lease terms in excess of one year, without regard to potential sublease revenue,
is set forth below (000's):

                           Fiscal Year                Amount
                           -----------                ------
                           2000                       $6,285
                           2001                        6,045
                           2002                        3,483
                           2003                        1,986
                           2004                        1,664
                           Thereafter                  4,474

The Company operates two stores under  month-to-month  leases, each of which may
be canceled by the landlord of the  respective  store under  appropriate  notice
provisions. One such store lease may be canceled at the option of the Company.

During fiscal 1999,  the lease for the Company's  executive  offices in New York
City  expired,  subsequent  to which the  Company  operated  such  premises on a
month-to-month  basis.  In January  1999,  the Company  relocated  its executive
offices to the  Company's  store  located in East  Brunswick,  New  Jersey.  The
executive  offices were constructed  within the premises of this store and, as a
result, no additional leasing cost was incurred by the Company.

Rent expense,  excluding certain real estate tax and maintenance  costs, for all
operating leases is comprised of the following (000's):
                            Fiscal     Fiscal     Fiscal
                             1999       1998       1997 
                            ------     ------     ------
   Minimum rentals          $7,156     $7,198     $8,466
   Contingent rentals            6         34         93
   Sublease revenue           (794)      (788)      (904)
                            ------     ------     ------
                            $6,368     $6,444    $ 7,655
                            ======     ======     ======

Legal Matters
In the normal  course of  business,  the  Company  is  subject to various  legal
proceedings  and claims.  In the opinion of management,  any ultimate  liability
arising  from or related  to these  claims  should  not have a material  adverse
effect on future results of operations or the consolidated financial position of
the Company.

Supply Agreement
During fiscal 1999, the Company's  supply  agreement with McKesson Drug Company,
originally due to expire in April 1998, was extended for an additional five year
period  through  April 2003.  The  agreement  requires the Company to purchase a
minimum  of  90%  of its  pharmaceutical  and  certain  other  merchandise  from
McKesson.

Letters of Credit
At  January  30,  1999,  the  Company  had  letters  of  credit  outstanding  of
approximately $940,000.


<PAGE>


UNAUDITED PRO FORMA FINANCIAL INFORMATION

         The following  unaudited  pro forma  condensed  consolidated  financial
statements give the effect to the acquisition of Pharmhouse Corp. ("Pharmhouse")
by Phar-Mor, Inc. (the "Company"), through its wholly owned subsidiary, Pharmacy
Acquisition  Corp. The acquisition of Pharmhouse by the Company (the "Pharmhouse
Acquisition") was consummated pursuant to an Agreement and Plan of Merger, dated
as of December 17, 1998 by and among the Company, Pharmacy Acquisition Corp. and
Pharmhouse.

         In  consummation  of the  acquisition,  a total  of $31.8  million  was
disbursed as follows:
     i)  $7.5 million to common shareholders
     ii) $24.3 million to Foothill Financial Corp. in payment of the outstanding
         Pharmhouse revolving credit facility

         The Pharmhouse  Acquisition was funded by the Company's excess cash and
the Company's Amended and Restated Revolving Credit Facility dated September 10,
1998 between  BankAmerica  Business  Credit,  Inc., as agent,  the lenders party
thereto, and the Company.

         The  Pharmhouse  Acquisition  will be accounted  for under the purchase
method of accounting,  and as such, the final calculated  purchase price will be
allocated  to the  fair  value  of the  tangible  net  assets  acquired  and the
liabilities  assumed with the excess  recorded as goodwill (the excess cost over
net assets acquired).

         The pro forma condensed  consolidated  balance sheet as of December 26,
1998  assumes  the  acquisition  took  place  on that  date  and is based on the
unaudited  historical  condensed  consolidated  balance  sheet  prepared for the
Company as of that date and the audited  historical  consolidated  balance sheet
for Pharmhouse as of January 30, 1999. The pro forma adjustments  record the pro
forma purchase price of $7.9 million, which includes professional fees and other
costs, and allocates the pro forma purchase price to the net assets acquired and
the liabilities assumed based on their preliminary  estimated fair values on the
date of acquisition.

         The pro forma condensed  consolidated  statements of operations for the
twenty-six  weeks ended December 26, 1998 and for the fifty-two weeks ended June
27, 1998 ("Fiscal  1998") assume that the  transaction  was  consummated  at the
beginning  of  Fiscal  1998,  and  are  based  on  the   respective   historical
consolidated  statements  of  operations  reported  on both  the  Company's  and
Pharmhouse's Form 10-Q and Form 10-K.

         The unaudited  pro forma  financial  information  and related notes are
provided for informational  purposes only and are not necessarily  indicative of
what the Company's actual financial position or results of operations would have
been had the foregoing  transaction  been consummated on such dates, nor does it
give effect to the synergies,  cost savings and other charges expected to result
from  the  Pharmhouse   Acquisition.   Accordingly,   the  pro  forma  financial
information  does  not  purport  to be  indicative  of the  Company's  financial
position or results of  operations as of the date hereof or for any period ended
on the date hereof or as of or for any other future dates or periods.





<PAGE>


                       Phar-Mor, Inc and Pharmhouse, Inc.

            Unaudited Pro Forma Condensed Consolidated Balance Sheet

                             As of December 26, 1998

                                 (In thousands)


<TABLE>
<CAPTION>

                                                             December    January
                                                             26, 1998   30, 1999    Pro Forma          Pro Forma
                                                             Phar-Mor   Pharmhouse  Adjustments (1)    Consolidated
                                                             --------   --------    --------           ---------
<S>                                                          <C>        <C>         <C>         <C>     <C>   
ASSETS                                                                                                          
Current assets:                                                                                                 
Cash and cash equivalents                                      29,975      2,484     (15,379)   (a)       17,080
Marketable securities                                           3,648       --          --                 3,648
Accounts receivable - net                                      28,573      2,939        (480)   (b)       31,032
Merchandise inventories & video tapes, net                    187,138     37,061      (2,125)   (c)      222,074
Prepaid expenses & other current assets                         2,085      1,942        (935)   (d)        3,092
                                                             --------   --------    --------           ---------
Total current assets                                          251,419     44,426     (18,919)            276,926

Property and equipment, net                                    82,518      5,255       6,129    (e)       93,902
Deferred tax asset                                              8,923       --          --                 8,923
Investment in Avatex                                            1,695       --          --                 1,695
Investments                                                     6,703       --          --                 6,703
Goodwill                                                        1,645       --        12,868    (f)       14,513
Other assets                                                    1,473        323       3,632    (g)        5,428
                                                             --------   --------    --------           ---------
Total assets                                                 $354,376   $ 50,004    $  3,710            $408,090
                                                             ========   ========    ========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable                                               76,784     21,804         457    (h)       99,045
Accrued expenses and other current liabilities                 37,950      2,596       6,400    (i)       46,946
Current portion long-term debt & capital lease obligations     10,320     27,505     (27,505)   (j)       10,320
                                                             --------   --------    --------           ---------
Total current liabilities                                     125,054     51,905     (20,648)            156,311

Long term debt & capital lease obligations                    125,904       --          --               125,904
Revolving credit facility                                        --         --        20,000    (k)       20,000
Long-term self insurance reserves                               8,021       --           380    (l)        8,401
Deferred rent & unfavorable lease liability - net              11,488      1,051       1,026    (m)       13,565
                                                             --------   --------    --------           ---------
Total liabilities                                             270,467     52,956         758             324,181

Minority interest                                                 535       --          --                   535

Stockholders' equity                                           83,374     (2,952)      2,952    (n)       83,374
                                                             --------   --------    --------           ---------

Total liabilities and stockholders' equity                   $354,376   $ 50,004    $  3,710            $408,090
                                                             ========   ========    ========           =========

</TABLE>


(1)  All letter  references  correspond  to Note 1 of the Notes to the Unaudited
     Pro Forma Condensed Consolidated Financial Statements.



<PAGE>


                       Phar-Mor, Inc and Pharmhouse, Inc.

       Unaudited Pro Forma Condensed Consolidated Statement of Operations

                For the Twenty-six weeks ended December 26, 1998

                    (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                               Phar-Mor     Pharmhouse       
                                              Twenty-six   Twenty-six    
                                              weeks ended  weeks ended       Pro Forma Adjustments       Pro forma
                                                                             ---------------------
                                                December      January
                                                26, 1998     30, 1999    Conforming   (2)  Acquisition  Consolidated
                                               ---------    ---------    ----------         ---------    ---------
<S>                                            <C>          <C>          <C>          <C>  <C>          <C>      
Sales                                          $ 566,401    $  93,677    $     --           $    --      $ 660,078

Less:
Cost of goods sold, including occupancy and
distribution costs                               456,882       72,912         3,914   (a)        (458)     533,250
Selling, general and administrative expenses      86,199       26,265        (5,079)  (b)                  107,385
Depreciation and amortization                     11,278         --           1,165   (c)         448       12,891
                                               ---------    ---------    ----------         ---------    ---------

Income from operations                            12,042       (5,500)         --                  10        6,552

Interest expense                                  (7,884)      (1,451)         --     (d)         751       (8,584)
Investment loss                                   (1,204)        --            --                --         (1,204)
Interest income                                      771         --            --     (e)        (384)         387
Other income                                        --            766          --                --            766
                                               ---------    ---------    ----------         ---------    ---------

Income (loss) before taxes                         3,725       (6,185)         --                 377       (2,083)

Income taxes                                       1,490         --            --     (f)      (1,490)           0
                                               ---------    ---------    ----------         ---------    ---------

Net income (loss)                              $   2,235    $  (6,185)         --           $   1,867    $  (2,083)
                                               =========    =========    ==========         =========    =========

BASIC NET INCOME (LOSS) PER COMMON SHARE
Income (loss)                                  $     .18    $   (2.40)                                   $    (.17)
                                               =========    =========                                    =========
Weighted average number of common shares
outstanding                                       12,240        2,578                                       12,240
                                               =========    =========                                    =========

DILUTED NET INCOME (LOSS) PER COMMON SHARE
Loss                                           $     .18                                                 $    (.17)
                                               =========                                                 =========
Weighted average number of common shares
outstanding                                       12,301                                                    12,240
                                               =========                                                 =========  
</TABLE>


(2)  All letter  references  correspond  to Note 2 of the Notes to the Unaudited
     Pro Forma Condensed Consolidated Financial Statements.





<PAGE>


                       Phar-Mor, Inc and Pharmhouse, Inc.

       Unaudited Pro Forma Condensed Consolidated Statement of Operations

                   For the Fifty-two weeks ended June 27, 1998

                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>

                                                Phar-Mor    Pharmhouse
                                               Fifty-two    Fifty-two
                                              weeks ended  weeks ended       Pro Forma Adjustments       Pro forma
                                                                             ---------------------
                                                  June        August 
                                                27, 1998      1, 1998    Conforming   (2)  Acquisition  Consolidated
                                               ---------    ---------    ----------         ---------    ---------   
<S>                                            <C>          <C>          <C>          <C>   <C>         <C>       
Sales                                          $1,100,851   $ 191,275    $     --           $    --     $1,292,126

Less:
Cost of goods sold, including occupancy and
distribution costs                               887,657      148,445         8,070   (a)        (916)   1,043,256
Selling, general and administrative expenses     173,982       46,668       (10,647)  (b)        --        210,003
Executive severance                                6,787         --            --                --          6,787
Loss on disposal of equipment                      4,615         --            --                --          4,615
Depreciation and amortization                     22,047         --           2,577   (c)         895       25,519
                                               ---------    ---------    ----------         ---------    ---------

Income from operations                             5,763       (3,838)         --                  21        1,946

Interest expense                                 (16,639)      (2,776)         --     (d)       1,376      (18,039)
Investment loss                                   (1,105)        --            --                --         (1,105)
Interest income                                    3,151         --            --     (e)        (769)       2,382
Other income                                        --          2,346          --                --          2,346
                                               ---------    ---------    ----------         ---------    ---------

Net loss from continuing operations
                                                  (8,830)      (4,268)         --                 628      (12,470)
                                               =========    =========    ==========         =========    =========

BASIC AND DILUTED NET LOSS PER COMMON SHARE:
Loss                                           $    (.72)                                               $    (1.02)
                                               =========                                                 =========
Weighted average number of common shares
outstanding                                       12,197                                                    12,197
                                               =========                                                 ========= 

</TABLE>


(2)  All letter  references  correspond  to Note 2 of the Notes to the Unaudited
     Pro Forma Condensed Consolidated Financial Statements.



<PAGE>


Notes to the Unaudited Pro Forma Condensed Consolidated Financial Statements.

Note 1 - Pro forma adjustments as of December 26, 1998.

The pro forma  adjustments  to the  unaudited pro forma  condensed  consolidated
balance sheet reflect the purchase of Pharmhouse  and the  allocation of the pro
forma purchase price to the acquired assets and the assumed liabilities based on
the preliminary estimate of their fair value at the date of the acquisition. The
pro forma adjustments include the impact of conforming  Pharmhouse's  accounting
policies to those of the Company.



(a)  Cash and cash equivalents -The adjustment  reflects the excess cash used in
     connection with the purchase of the Pharmhouse  common stock and the payoff
     of the outstanding Pharmhouse revolving credit facility.

(b)  Receivables  -  The  adjustment   reflects  a  writedown  for   anticipated
     unrealizable  receivables  that  are  not  expected  to be  collected  post
     acquisition as a result of discontinued business relationships.

(c)  Merchandise  inventories  - The  adjustment  reflects  the  write  down  of
     inventory  to be  discontinued  to the value  expected to be realized and a
     reserve to reduce the inventory to replacement cost.

(d)  Prepaid  expenses and other current  assets - The  adjustment  reflects the
     write  off of  prepaid  financing  fees  recorded  in  connection  with the
     Pharmhouse revolving credit facility.

(e)  Property and equipment, net - The adjustment reflects the write up of land,
     buildings, leasehold improvements,  fixtures and computer equipment to fair
     value.

(f)  Goodwill-  The  adjustment  reflects the  purchase  price in excess of fair
     value of net assets  acquired  recorded in connection  with the  Pharmhouse
     acquisition.

(g)  Other assets - The adjustment reflects the value assigned to the Pharmhouse
     pharmacy prescription customer files.

(h)  Accounts  payable - The adjustment  reflects the anticipated  vendor claims
     that  are  expected  to  be  paid  post  acquisition  as a  result  of  the
     termination of Pharmhouse administrative personnel.

(i)  Accrued expenses - The adjustment  reflects the severance pay,  transaction
     fees and the anticipated costs associated with the closing of the warehouse
     expected to be incurred in connection with the Pharmhouse Acquisition.

(j)  Current  portion of long-term  debt and capital  lease  obligations  -- The
     adjustment  reflects  the payoff of the  outstanding  Pharmhouse  revolving
     credit facility.

(k)  Revolving  credit  facility  -  The  adjustment  reflects  the  anticipated
     borrowing on the Company's revolving credit facility in connection with the
     purchase of the Pharmhouse  common stock and the payoff of the  outstanding
     Pharmhouse revolving credit facility.

(l)  Long-term  self  insurance  reserves - The  adjustment  reflects  the value
     assigned to the Pharmhouse  self insured workers  compensation  and general
     liability reserves

(m)  Deferred  rent  and  unfavorable  lease  liability,  net -  The  adjustment
     reflects the net unfavorable lease value assigned to the Pharmhouse leases.

(n)  Stockholders'  equity - The  adjustment  reflects  the  elimination  of the
     historical stockholders' equity of Pharmhouse.





<PAGE>


Note 2 - Pro forma  adjustments for the twenty-six weeks ended December 26, 1998
and the fifty-two weeks ended June 27, 1998 (dollars in thousands).

The pro forma  adjustments  to the  unaudited pro forma  condensed  consolidated
statements of operations  reflect the purchase of Pharmhouse  and the conforming
of Pharmhouse's financial statements presentation to that of the Company.

(a)  Cost of goods sold - The adjustments reflect the following:

<TABLE>
<CAPTION>

                                                        Twenty-six          Fifty-two
                                                       weeks ended         weeks ended
                                                    December 26, 1998     June 27, 1998
                                                     ---------------    ---------------
<S>                                                  <C>                <C>            
Occupancy costs reclassified from Selling,
   General and Administrative Expenses               $         3,911    $         8,399

Warehouse costs reclassified from Selling,
   General and Administrative Expenses                           652              1,245

Video rental tape amortization reclassified to
   Depreciation and Amortization Expense                        (649)            (1,574)
                                                     ---------------    ---------------
Total Reclassifications                              $         3,914    $         8,070
                                                     ===============    ===============


Cost of Goods Sold was adjusted to reflect the
   fair value revaluation of the Pharmhouse
   leases                                            $          (458)   $          (916)
</TABLE>



(b) Selling,  General and Administrative  Expenses - The adjustments reflect the
following:
<TABLE>
<CAPTION>
                                                         Twenty-six         Fifty-two
                                                        weeks ended        weeks ended
                                                    December 26, 1998     June 27, 1998
                                                     ---------------    ---------------
<S>                                                  <C>                <C>
Occupancy costs reclassified to Cost of
   Goods Sold                                        $        (3,911)  $         (8,399)

Warehouse costs reclassified to Cost of
   Goods Sold                                                   (652)            (1,245)

Depreciation and amortization reclassified to
   Depreciation and Amortization Expense                        (516)            (1,003)
                                                     ---------------    ---------------
Total Reclassifications                              $        (5,079)   $       (10,647)
                                                     ===============    ===============


</TABLE>

(c) Depreciation and Amortization - The adjustments reflect the following:
<TABLE>
<CAPTION>

                                                        Twenty-six         Fifty-two
                                                       weeks ended        weeks ended
                                                    December 26, 1998    June 27, 1998
                                                     ---------------    ---------------
<S>                                                  <C>                <C>   
Video rental tape amortization reclassified from
   Cost of Goods Sold                                $           649    $         1,574

Depreciation and amortization reclassified from
   Selling, General and Administrative Expense                   516              1,003
                                                     ---------------    ---------------
Total Reclassifications                              $         1,165    $         2,577
                                                     ===============    ===============
</TABLE>



<PAGE>
<TABLE>
<CAPTION>
 
                                                        Twenty-six         Fifty-two
                                                       weeks ended        weeks ended
                                                    December 26, 1998    June 27, 1998
                                                     ---------------    ---------------
<S>                                                  <C>                <C>   
Amortization of goodwill 
   (25 year amortization period)                     $           257             $  514

Amortization of Pharmacy prescription customer files
   (20 year amortization period)                                  91                182

Depreciation and amortization expense adjustment
   to reflect the fair value adjustment of
   property and equipment                                        100                199
                                                     ---------------       ------------

Total adjustments                                    $           448    $           895
                                                     ===============       ============
</TABLE>



(d)  Interest  Expense was adjusted to reflect the elimination of the Pharmhouse
     revolving  credit facility and the addition of interest  expense on $20,000
     of borrowings  under the Company's  revolving credit facility at an assumed
     interest rate of 7%.

(e)  Interest  Income was  adjusted to reflect the  elimination  of the interest
     income at an assumed 5% interest rate on $15,379  excess cash that was used
     to fund the transaction.

(f)  Income taxes were eliminated  since the combined  operations  reflect a net
     loss and a full valuation  reserve would be recorded  against  deferred tax
     assets.



Note 3

The costs of closing the  Pharmhouse  warehouse and  corporate  office have been
accrued in the pro forma  condensed  consolidated  balance sheet.  The pro forma
condensed  consolidated  statements  of  operations  have not been  adjusted  to
reflect  the  impact  that  closing  these   facilities  will  have  on  ongoing
operations.



<PAGE>


                                   SIGNATURES
Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                       PHAR-MOR, INC.

Date:  May 10, 1999             By:  /s/ Sankar Krishnan
                                    Sankar Krishnan
                                    Senior Vice President and Chief
                                       Financial Officer


Date:  May 10, 1999             By:  /s/ John R. Ficarro
                                    John R. Ficarro
                                    Senior Vice President and Chief
                                       Administrative Officer




<PAGE>
                                 Phar-Mor, Inc.
                               INDEX TO EXHIBITS


Ehibit No.

   23   Consent Of Independent Accountants