SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549


                                    FORM 10-Q


    X    Quarterly  report  pursuant  to Section  13 or 15(d) of the  Securities
---------Exchange Act of 1934
                                                                            
         For the  quarterly  period ended   December  26, 1998  Commission  File
         Number 0-27050 
                -------

---------Transition  report  pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 For the transition period from _____ to _____

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

         PENNSYLVANIA                                          25-1466309
------------------------------------------------           ---------------------
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                    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     
                                                           --------------

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                            YES      X        No              
                                                   -----           -----

         Indicate by check mark whether the  registrant  has filed all documents
and reports  required to be filed by Sections 12, 13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court.

                                            YES      X        No              
                                                   -----           -----

As of January 13, 1999,  12,240,865 shares of the registrant's common stock were
outstanding .




<PAGE>  2


                         PHAR-MOR, INC. AND SUBSIDIARIES

                                    FORM 10-Q

                     FOR THE QUARTER ENDED DECEMBER 26, 1998


                                    I N D E X


                                                                            Page

Part I:  Financial Information

         Item 1.  Financial Statements

              Condensed Consolidated Balance Sheets as of December 26, 1998
              and June 27, 1998                                                3

              Condensed  Consolidated  Statements  of  Operations  for  the
              Thirteen  Weeks Ended December 26, 1998 and December 27, 1997    4

              Condensed  Consolidated  Statements  of  Operations  for  the
              Twenty-six  Weeks Ended  December  26, 1998 and  December 27,
              1997                                                             5

              Condensed Consolidated Statements of Comprehensive Income for
              the Thirteen  Weeks Ended  December 26, 1998 and December 27,
              1997                                                             6

              Condensed  Consolidated  Statements of  Comprehensive  Income
              (Loss) for the  Twenty-six  Weeks Ended December 26, 1998 and
              December 27, 1997                                                7

              Condensed  Consolidated  Statements  of  Cash  Flows  for the
              Twenty-six  Weeks Ended  December  26, 1998 and  December 27,
              1997                                                             8

              Notes to Condensed Consolidated Financial Statements             9

         Item  2.   Management's   Discussion  and  Analysis  of  Financial
         Condition and Results of Operations                                  11

Part II: Other Information

         Item 1.  Legal Proceedings                                           15
         Item 2.  Changes in Securities                                       15
         Item 3.  Defaults Upon Senior Securities                             15
         Item 4.  Submission of Matters to a Vote of Security Holders         15
         Item 5.  Other Information                                           15
         Item 6.  Exhibits and Reports on Form 8-K                            16
         Signatures                                                           17
         Exhibit Index                                                        18


<PAGE>  3


                         PHAR-MOR, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)
<TABLE>
<CAPTION>

ASSETS                                                             (Unaudited)  
                                                                  December 26,      June 27,
                                                                      1998            1998
                                                                  ------------    ------------
<S>                                                               <C>             <C>         
Current assets:
 Cash and cash equivalents                                        $     29,975    $     44,655
 Marketable securities                                                   3,648           9,065
 Accounts receivable - net                                              28,573          20,927
 Merchandise inventories                                               187,138         176,069
 Prepaid expenses and other current assets                               2,085           2,703
                                                                  ------------    ------------
         Total current assets                                          251,419         253,419

Property and equipment - net                                            82,518          75,512
Deferred tax asset                                                       8,923           9,281
Investments                                                              6,703           4,275
Investment in Avatex                                                     1,695           3,525
Other assets                                                             3,118           3,443
                                                                  ------------    ------------

         Total assets                                             $    354,376    $    349,455
                                                                     =========     ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                                 $     76,784    $     67,091
 Accrued expenses and other current liabilities                         37,950          39,316
 Current portion of long-term debt and capital lease obligations        10,320          10,327
                                                                  ------------    ------------
         Total current liabilities                                     125,054         116,734

Long-term debt and capital lease obligations                           125,904         130,993
Long-term self insurance reserves                                        8,021           7,680
Deferred rent and unfavorable lease liability - net                     11,488          11,074
                                                                  ------------    ------------
         Total liabilities                                             270,467         266,481
                                                                  ------------    ------------

Commitments and contingencies

Minority interests                                                         535             535
                                                                  ------------    ------------

Stockholders' equity:
 Preferred stock                                                          --              --
 Common stock                                                              122             122
 Additional paid-in capital                                             90,007          89,976
 Stock options outstanding                                               1,768           1,401
 Unrealized loss on investment in Avatex, net of related tax
   effect of $1,132 and $0, respectively                                (2,173)           (475)
 Retained deficit                                                       (6,350)         (8,585)
                                                                  ------------    ------------
         Total stockholders' equity                                     83,374          82,439
                                                                  ------------    ------------

         Total liabilities and stockholders' equity               $    354,376    $    349,455
                                                                     =========     ===========
</TABLE>


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


<PAGE>  4



                         PHAR-MOR, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Thirteen          Thirteen
                                                                Weeks Ended         Weeks Ended
                                                              December 26, 1998  December 27, 1997
                                                              -----------------  -----------------    
<S>                                                            <C>                <C>            
Sales                                                          $       296,989    $       292,212

Less:
 Cost of goods sold, including occupancy and
    distribution costs                                                 238,285            234,220
 Selling, general and administrative expenses                           43,675             45,766
 Chief Executive Officer severance expenses                               --                  234
 Depreciation and amortization                                           5,603              5,717
                                                               ---------------    ---------------

Income from operations before interest expense,
    interest income, investment loss and income taxes                    9,426              6,275

Interest expense                                                        (3,893)            (4,163)
Interest income                                                            283                666
Investment loss                                                           (579)              --
                                                               ---------------    ---------------


Income before income taxes                                               5,237              2,778

Income taxes                                                             1,490               --
                                                               ---------------    ---------------


Net Income                                                     $         3,747    $         2,778
                                                               ===============    ===============

Basic income per common share                                  $           .31    $           .23
                                                               ===============    ===============

Diluted income per common share                                $           .30    $           .23
                                                               ===============    ===============
                                                                                                      

Weighted average number of basic common shares outstanding          12,240,865         12,165,353
Weighted average number of diluted common shares outstanding        12,362,089         12,212,527
</TABLE>

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


<PAGE>  5


                         PHAR-MOR, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (Dollars in thousands, except per share amounts)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Twenty-six         Twenty-six
                                                                Weeks Ended        Weeks Ended
                                                              December 26, 1998  December 27, 1997
                                                              -----------------  -----------------   
<S>                                                            <C>                <C>            
Sales                                                          $       566,401    $       548,544

Less:
 Cost of goods sold, including occupancy and
    distribution costs                                                 456,882            442,422
 Selling, general and administrative expenses                           86,199             87,598
 Chief Executive Officer severance expenses                               --                5,667
 Depreciation and amortization                                          11,278             11,055
                                                               ---------------    ---------------

Income from operations before interest expense,
    interest income, investment loss and income taxes                   12,042              1,802

Interest expense                                                        (7,884)            (8,368)
Interest income                                                            771              1,773
Investment loss                                                         (1,204)              --
                                                               ---------------    ---------------


Income (loss) before income taxes                                        3,725             (4,793)

Income taxes                                                             1,490               --
                                                               ---------------    ---------------


Net income (loss)                                              $         2,235    $        (4,793)
                                                               ===============    ===============

Basic income (loss) per common share                           $           .18    $           (39)
                                                               ===============    ===============

Diluted income (loss) per common share                         $           .18    $          (.39)
                                                               ===============    ===============


Weighted average number of basic common shares outstanding          12,240,343         12,162,276
Weighted average number of diluted common shares outstanding        12,300,955         12,162,276

</TABLE>

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


<PAGE>  6


                         PHAR-MOR, INC. AND SUBSIDIARIES
            CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                Thirteen             Thirteen
                                                               Weeks Ended          Weeks Ended
                                                             December 26, 1998    December 27, 1997
                                                             -----------------    ----------------- 
<S>                                                         <C>                  <C>               
Net income                                                  $            3,747   $            2,778


Other comprehensive income:
 Unrealized gain (loss) on securities:
  Unrealized holding loss on investment in Avatex
    arising during period net of tax benefit of $1,132                     610                 --
                                                            ------------------   ------------------
Comprehensive income                                        $            4,357   $            2,778
                                                            ==================   ==================
                                                                                          
</TABLE>



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


<PAGE>  7


                         PHAR-MOR, INC. AND SUBSIDIARIES
        CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                 (In thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 Twenty-six           Twenty-six
                                                                Weeks Ended          Weeks Ended
                                                             December 26, 1998    December 27, 1997
                                                             -----------------    ----------------- 
<S>                                                         <C>                  <C>                
Net income (loss)                                           $            2,235   $           (4,793)


Other comprehensive loss:
 Unrealized loss on securities:
  Unrealized holding loss on investment in Avatex
    arising during period net of tax benefit of $1,132                  (1,698)                --
                                                            ------------------   ------------------
Comprehensive income (loss)                                 $              537   $           (4,793)
                                                            ==================   ==================

</TABLE>

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


<PAGE>  8


                         PHAR-MOR, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                         Twenty-six         Twenty-six
                                                                        Weeks Ended        Weeks Ended
                                                                      December 26, 1998  December 27, 1997
                                                                      -----------------  -----------------     
<S>                                                                    <C>                <C>             
OPERATING ACTIVITIES
Net income (loss)                                                      $         2,235    $        (4,793)
Adjustments to reconcile net income (loss) to net cash provided by
 (used for) operating activities:
 Items not requiring the outlay of cash:
  Depreciation                                                                   7,712              6,982
  Amortization of video rental tapes                                             3,566              4,073
  Stock option expense                                                             367               --
  Amortization of deferred financing costs and goodwill                            138                210
  Deferred income taxes                                                          1,490               --
  Deferred rent                                                                    414              1,162
  Gain on equity method investment                                                (387)              --
 Changes in assets and liabilities:
  Accounts receivable                                                           (5,646)            (3,404)
  Marketable securities                                                          5,417               --
  Merchandise inventories                                                      (10,723)           (13,992)
  Prepaid expenses                                                                 618              1,146
  Other assets                                                                     164               (898)
  Accounts payable                                                               9,693              7,636
  Accrued expenses and other current liabilities                                (1,025)             1,207
                                                                       ---------------    ---------------
 Net cash provided by (used for) operating activities                           14,033               (671)
                                                                       ---------------    ---------------

INVESTING ACTIVITIES
 Additions to rental videotapes                                                 (3,889)            (4,324)
 Additions to property and equipment                                           (14,831)           (10,299)
 Proceeds on sale of property and equipment                                        113               --
 Investment in Avatex                                                           (1,000)              --
 Loan to Pharmhouse Corp.                                                       (2,000)              --
 Investment in equity securities                                                (2,041)              --
                                                                       ---------------    ---------------
 Net cash used for investing activities                                        (23,648)           (14,623)
                                                                       ---------------    ---------------

FINANCING ACTIVITIES
 Principal payments on long-term debt                                           (1,828)            (1,093)
 Principal payments on capital lease obligations                                (3,518)            (3,510)
 Additions to long-term debt                                                       250               --
 Issuance of common stock                                                           31                280
                                                                       ---------------    ---------------
 Net cash used for financing activities                                         (5,065)            (4,323)
                                                                       ---------------    ---------------

 Decrease in cash and cash equivalents                                         (14,680)           (19,617)
 Cash and cash equivalents, beginning of period                                 44,655             79,847
                                                                       ---------------    ---------------
 Cash and cash equivalents, end of period                              $        29,975    $        60,230
                                                                       ===============    ===============

</TABLE>



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


<PAGE>  9 


PHAR-MOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts) 
--------------------------------------------------------------------------------

1.       BASIS OF PRESENTATION
         The accompanying  unaudited  interim condensed  consolidated  financial
         statements  have been prepared in accordance  with  generally  accepted
         accounting  principles for interim financial  information.  They do not
         include  all  information  and  footnotes  which  would be  required by
         generally  accepted   accounting   principles  for  complete  financial
         statements.  In the  opinion  of  management  of  Phar-Mor,  Inc.  (the
         "Company") and its  subsidiaries,  these interim  financial  statements
         contain all adjustments considered necessary for a fair presentation of
         financial position, results of operations,  comprehensive income (loss)
         and cash flows for the periods  presented.  Reference should be made to
         the Company's Annual Report on Form 10-K for the fiscal year ended June
         27,  1998  for  additional  disclosures,  including  a  summary  of the
         Company's  accounting  policies,  which  have not  changed,  except  as
         discussed in Note 3. Operating  results for the twenty-six  weeks ended
         December 26, 1998 are not  necessarily  indicative  of the results that
         may be expected for the fifty-three weeks ending July 3, 1999.

2.       CHIEF EXECUTIVE OFFICER RESIGNATION
         On September 19, 1997,  Robert Haft and Avatex  Corporation  ("Avatex")
         finalized  an  agreement   regarding  Hamilton  Morgan  LLC  ("Hamilton
         Morgan"), (the "Hamilton Morgan Agreement").  In exchange for 3,750,000
         shares of the Company's stock and the return of a voting proxy on other
         Company  shares,  Hamilton Morgan redeemed the 69.8% Avatex interest in
         Hamilton  Morgan,   repaid  certain  indebtedness  and  received  other
         consideration.   Avatex   beneficially  owns  39.1%  of  the  Company's
         outstanding  common  stock.  In  conjunction  with the Hamilton  Morgan
         Agreement,  the Company entered into a Severance  Agreement with Robert
         Haft  whereby he resigned his  positions  as Chairman of the  Company's
         Board of Directors and as the  Company's  Chief  Executive  Officer and
         received  a lump sum cash  payment  of  $4,417.  Under the terms of the
         Severance  Agreement,  the Company will continue to provide benefits to
         him through  September 19, 2000. He is indemnified  and entitled to tax
         reimbursement  in  respect  to  any  payments  that  constitute  excess
         parachute  payments  under  Federal  Income Tax laws.  The  Company has
         provided  a letter of credit in the amount of  approximately  $2,900 to
         secure its contractual obligations under the Severance Agreement.

3.       NEW ACCOUNTING PRONOUNCEMENTS
         In June 1997, the Financial Accounting Standards Board issued Statement
         of  Financial   Accounting   Standard   ("SFAS")  No.  130   "Reporting
         Comprehensive Income." SFAS No. 130 establishes standards for reporting
         comprehensive  income  and its  components,  some of  which  have  been
         historically  excluded from the  Statement of  Operations  and recorded
         directly to the equity  section of an entities  statement  of financial
         position.  SFAS No. 130 also  requires that the  cumulative  balance of
         these items of other comprehensive  income are reported separately from
         retained earnings and additional  paid-in capital in the equity section
         of a statement of financial  position.  This statement is effective for
         fiscal years  beginning  after December 15, 1997.  The Company  adopted
         SFAS No. 130 in 1998 and has elected to include the  required  items of
         other comprehensive income in its Condensed Consolidated  Statements of
         Comprehensive Income (Loss).

4.       LITIGATION
         The Company and its  subsidiaries  are  involved in legal  proceedings,
         claims and litigation  arising in the ordinary  course of business.  In
         the  opinion  of   management,   the  outcome  of  such  current  legal
         proceedings,  claims and litigation  will not have a material impact of
         the Company's consolidated financial position or results of operations.


<PAGE> 10


PHAR-MOR, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts) 
--------------------------------------------------------------------------------
                                                                               
5.       INVESTMENT IN AVATEX
         During the  twenty-six  weeks  ended  December  26,  1998,  the Company
         invested $1,000 to purchase  approximately 3.4% of Avatex common stock,
         bringing  its total  investment  in Avatex  to  approximately  15.1% of
         Avatex's total outstanding  common stock. This investment is carried at
         market value as  available-for-sale  securities.  Unrealized  losses on
         these  securities  are  excluded  from net income but are included as a
         comprehensive  loss  in  the  Condensed   Consolidated   Statements  of
         Comprehensive  Income (Loss). As of January 14, 1999, the quoted market
         price of Avatex  common  stock was  $1.125  per  share as  compared  to
         $2.1875  per share at June 27,  1998.  To the extent  that the  Company
         determines  in the future that an other than  temporary  decline in the
         common stock value has occurred,  the write-down of the investment will
         be included in the statement of operations.

6.       PROPOSED BUSINESS COMBINATION
         On December 17, 1998 the Company and  Pharmhouse  Corp.  ("Pharmhouse")
         signed  a  definitive   Agreement  and  Plan  of  Merger  (the  "Merger
         Agreement").  The  definitive  terms of the merger are set forth in the
         Merger Agreement. Under the terms of the Merger Agreement, a subsidiary
         of the  Company  will be merged  with and into  Pharmhouse,  which will
         become a wholly owned  subsidiary of the Company,  and the common stock
         of  Pharmhouse  will be exchanged  into the right to receive  $3.25 per
         share in cash (the "Merger"),  subject to adjustment as provided in the
         Merger Agreement.

         In  connection  with  the  Merger  Agreement  the  Company  has  loaned
         Pharmhouse $2,000 pursuant to a Subordinated  Convertible Note Purchase
         Agreement (the "Loan Agreement").  The definitive terms of the loan are
         set forth in the Loan Agreement.  Such loan is convertible  into shares
         of Pharmhouse  common stock under certain  circumstances as provided in
         the Loan Agreement.

         Also in connection with the Merger Agreement,  certain  stockholders of
         Pharmhouse entered into Voting and Payment Agreements with the Company,
         pursuant to which such stockholders agreed, among other things, to vote
         their shares of  Pharmhouse  common stock with respect to the Merger in
         accordance  with  the   recommendation   of  the  Pharmhouse  Board  of
         Directors.

         Consummation  of the  Merger is  subject  to  satisfaction  of  certain
         conditions,  including (a) approval by shareholders of Pharmhouse,  (b)
         receipt of the necessary regulatory approvals, and (c) other conditions
         set forth in the Merger Agreement.

         Reference  should be made to the Merger  Agreement,  the Loan Agreement
         and the  Voting  and  Payment  Agreement,  copies of which are filed as
         exhibits  to the  Company's  Form 8-K  dated  December  17,  1998,  for
         additional disclosures.


<PAGE> 11


PHAR-MOR, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS



RESULTS OF OPERATIONS (all dollar amounts in thousands)

Thirteen Weeks Ended December 26, 1998 versus
    Thirteen Weeks Ended December 27, 1997

Sales for the second quarter of fiscal year 1999 ("Fiscal 1999")  increased 1.6%
compared to the second quarter of fiscal year 1998 ("Fiscal  1998").  Comparable
store sales  increased 1.0% from $290,567 for Fiscal 1998 to $293,325 for Fiscal
1999.  The  increase  in  comparable  store sales was  primarily  due to a  9.5%
increase in comparable pharmacy store sales.

Cost of sales as a percentage of sales was 80.2% in Fiscal 1999,  the same as in
Fiscal 1998.  Reductions  in warehouse  costs were offset by higher  promotional
expenses.

Selling, general and administrative expenses as a percentage of sales were 14.7%
in Fiscal 1999  compared to 15.7% in Fiscal  1998,  a decrease of 1.0% of sales.
This  decrease  was due to lower  advertising  expenses  and  pre-opening  costs
partially offset by higher store wages.

In Fiscal 1998 the Company  incurred  $234 in  executive  severance  and related
costs  associated with the  resignation of the Company's  former Chairman of the
Board and Chief Executive Officer.

Depreciation  and  amortization  expense was $5,603 in Fiscal  1999  compared to
$5,717 in Fiscal 1998,  a decrease of $114.  The decrease is the result of lower
video tape  amortization  expense  partially  offset by depreciation  expense on
capital expenditures made since the first quarter of Fiscal 1998.

Interest  income was $283 in Fiscal 1999 compared to interest  income of $666 in
Fiscal  1998,  a $383  decrease.  The  decrease in interest  income was due to a
decrease in the amount of excess funds available for investment in Fiscal 1999.

Twenty-six Weeks Ended December 26, 1998 versus
    Twenty-six Weeks Ended December 27, 1997

Sales for the  twenty-six  weeks ended December 26, 1998 increased 3.3% compared
to the  twenty-six  weeks  ended  December  27,  1997.  Comparable  store  sales
increased 2.5% from $541,561 for the twenty-six weeks ended December 27, 1997 to
$555,092 for the  twenty-six  weeks ended  December  26,  1998.  The increase in
comparable  store sales was  primarily  due to an 8.7%  increase  in  comparable
pharmacy  store sales and the continued  success of the "Super  Phar-Mor"  store
remodel  program.  Sales for the ten stores which were remodeled into the "Super
Phar-Mor"  format  between the end of the second quarter of fiscal year 1998 and
the  beginning  of the first  quarter of fiscal year 1999  increased  10% in the
twenty-six weeks ended December 26, 1998 over the comparable period in the prior
year.

Cost of sales as a percentage of sales was 80.7% in the  twenty-six  weeks ended
December 26, 1998, the same as in the twenty-six  weeks ended December 27, 1997.
Improvements in inventory shrinkage were offset by higher promotional expenses.

Selling, general and administrative expenses as a percentage of sales were 15.2%
in the  twenty-six  weeks  ended  December  26,  1998  compared  to 16.0% in the
twenty-six  weeks  ended  December  27,  1997.  This  decrease  was due to lower
advertising  expenses and  pre-opening  costs  partially  offset by higher store
wages and corporate travel expenses.

<PAGE> 12

In the twenty-six  weeks ended December 27, 1997 the Company  incurred $5,667 in
executive  severance and related costs  associated  with the  resignation of the
Company's former Chairman of the Board and Chief Executive Officer.

Depreciation and amortization  expense was $11,278 in the twenty-six weeks ended
December 26, 1998 compared to $11,055 in the twenty-six weeks ended December 27,
1997, an increase of $223. The increase is the result of depreciation on capital
expenditures  made since the first  quarter of Fiscal 1998  partially  offset by
lower video tape amortization.

Interest  income  was $771 in the  twenty-six  weeks  ended  December  26,  1998
compared to interest income of $1,773 in the twenty-six weeks ended December 27,
1997, a $1,002  decrease.  The decrease in interest income was due to a decrease
in the amount of excess funds  available for investment in the twenty-six  weeks
ended December 26, 1998.

FINANCIAL CONDITION AND LIQUIDITY (all dollar amounts in thousands)

The Company's  cash position as of December 26, 1998 was $29,975.  The Company's
cash  position may fluctuate as a result of seasonal  merchandise  purchases and
timing of payments.

On September 11, 1995, the Company  entered into the Revolving  Credit  Facility
(the "Facility") with BankAmerica Business Credit, Inc. ("BABC"),  as agent, and
other financial institutions  (collectively,  the "Lenders"), that established a
credit facility in the maximum amount of $100,000.

Borrowings  under the Facility  were  available  for working  capital  needs and
general  corporate  purposes.  Up to  $50,000  of the  Facility  at any time was
available for standby and documentary  letters of credit.  The Facility included
restrictions  on, among other things,  additional  debt,  capital  expenditures,
investments,   restricted   payments  and  other   distributions,   mergers  and
acquisitions,  and contained covenants requiring the Company to meet a specified
quarterly  minimum EBITDA Coverage Ratio (the sum of earnings  before  interest,
taxes, depreciation and amortization,  as defined, divided by interest expense),
calculated  on a rolling four  quarter  basis,  and a monthly  minimum net worth
test.

Credit  availability  under  the  Facility  at any  time was the  lesser  of the
Aggregate  Availability  (as defined in the Facility) or $100,000.  The Facility
established a first priority lien and security interest in the current assets of
the  Company,  including,  among other  items,  cash,  accounts  receivable  and
inventory.

Advances made under the Facility would have borne interest at the BABC reference
rate plus 1/2% or London  Interbank  Offered Rate  ("LIBOR") plus the applicable
margin.  The applicable margin ranged between 1.50% and 2.00% and was determined
by a formula based on a ratio of (a) the  Company's  earnings  before  interest,
taxes,  depreciation  and  amortization to (b) interest.  Under the terms of the
Facility, the Company was required to pay a commitment fee of 0.28125% per annum
on the unused  portion of the Facility,  letter of credit fees and certain other
fees.

There have been no borrowings under the Facility.

The Company entered into an Amended and Restated  Revolving Credit Facility (the
"Amended Facility")  effective September 10, 1998 with BABC, as agent, and other
financial  institutions that establishes a credit facility in the maximum amount
of $100,000.

Borrowings  under the Amended Facility may be used for working capital needs and
general  corporate  purposes.  Up to $50,000 of the Amended Facility at any time
may be used for standby and documentary  letters of credit. The Amended Facility
includes  restrictions  on, among other things,  additional  debt,  investments,
dividends  and other  distributions,  mergers and  acquisitions  and contains no
financial covenants.

<PAGE> 13

Credit  availability under the Amended Facility at any time is the lesser of the
aggregate  availability  (as defined in the Amended  Facility) or $100,000.  The
Amended Facility  establishes a first priority lien and security interest in the
current  assets of the Company,  including,  among other items,  cash,  accounts
receivable and inventory.

Advances made under the Amended  Facility  bear  interest at the BABC  reference
rate plus 1/2% or LIBOR plus 2.00%. Under the terms of the Amended Facility, the
Company is required to pay a commitment fee of between 0.25% and 0.35% per annum
on the unused  portion of the facility,  letter of credit fees and certain other
fees.

There have been no borrowings under the Amended  Facility.  Unused  availability
under the Amended  Facility,  after  subtracting  amounts  used for  outstanding
letters of credit, was $84,154 at December 26, 1998.

The Amended Facility expires on September 10, 2001.

Twenty-six weeks ended December 26, 1998

During the twenty-six weeks ended December 26, 1998, the Company's cash position
decreased by $14,680. Net cash provided by operating activities was $14,033. The
major  sources  of cash from  operating  activities  were net  income of $2,235,
depreciation  expense of $7,712,  amortization  of video rental tapes of $3,566,
decrease in marketable  securities of $5,417 and an increase in accounts payable
of $9,693 partially offset by an increase in merchandise  inventories of $10,723
and an increase in accounts receivable of $5,646.

Capital  expenditures of $14,831,  additions to video rental tapes of $3,889, an
investment in equity  securities of $2,041,  an additional  $1,000 investment in
Avatex and a $2,000 loan to  Pharmhouse  Corp.  were paid for with the Company's
excess cash position.

Net cash used for financing activities of $5,065 consisted of principal payments
on lease obligations of $3,518 and principal payments on term debt of $1,828 net
of  proceeds  of $250  from  the  issuance  of  long-term  debt and $31 from the
exercise of stock options.

The  Company  is  exposed to certain  market  risks from  transactions  that are
entered into during the normal course of business. The Company's policies do not
permit active trading of, or speculation in, derivative  financial  instruments.
The Company's  primary  market risk exposure  relates to interest rate risk. The
Company manages its interest rate risk in order to balance its exposure  between
fixed and variable rates while attempting to minimize its interest costs.

Trends,  Demands,  Commitments,  Events or Uncertainties  (all dollar amounts in
thousands)

On  December  17,  1998 the Company and  Pharmhouse  Corp.  signed a  definitive
Agreement  and Plan of  Merger.  Under  the  terms of the  Merger  Agreement,  a
subsidiary  of the Company will be merged with and into  Pharmhouse,  which will
become a  wholly  owned  subsidiary  of the  Company,  and the  common  stock of
Pharmhouse  will be exchanged into the right to receive $3.25 per share in cash,
subject  to  adjustment  as  provided  in the  Merger  Agreement.  See "NOTE 6 -
Proposed  Business  Combination  of Notes to  Condensed  Consolidated  Financial
Statements."

The Company will use its excess cash position and excess  availability under the
Amended  Facility to pay off $26,000 in debt that will be assumed as part of the
merger with Pharmhouse.

Certain  Company  information  systems have  potential  operational  problems in
connection  with  applications  that  contain  a date  and/or  use a  date  in a
comparative  manner as the date  transitions into the Year 2000. The Company has
implemented a comprehensive program to identify and remediate potential problems
related to the Year 2000 in its information systems,  infrastructure,  logistics
and  retail   facilities.   In  addition,   the  Company  has  initiated  formal
communication with all of its significant  vendors and other external interfaces
to determine the extent to which the Company is  vulnerable  to a  third-party's
failure to remediate their own potential  problems related to the Year 2000. The
inability of the Company or significant  vendors and/or  external  interfaces of
the Company to adequately address Year 2000 issues could cause disruption of the
Company's systems.

<PAGE> 14

Management  believes,  based on its  assessment of all of its systems,  that its
purchasing  and  pharmacy  systems  pose the  greatest  risk of  disrupting  its
business if Year 2000 system  modifications  are not completed in time.  Without
modification, the Company may not be able to issue purchase orders with delivery
dates  after  December  31,  1999 or dispense  prescriptions  with refill  dates
extending  beyond  December  31,  1999.  The Company has  developed or is in the
process of developing contingency plans that include manually performing work in
place of affected systems and the renting of back-up systems.

Many of the Company's  systems are Year 2000  compliant,  or have been scheduled
for  replacement in the Company's  on-going  systems  plans.  As of December 26,
1998, the Company has incurred  approximately $650 related to the assessment of,
and  preliminary   efforts  in  connection  with,  its  Year  2000  program  and
remediation  plan.  Future  spending  for  software  modifications  and  testing
required for Year 2000  compliance are currently  estimated to be  approximately
$400 with the majority  expected to be incurred by the end of Fiscal  1999.  The
Company has  accelerated  by one year the  purchase of  approximately  $5,000 in
replacement  hardware  in order to  ensure  the  associated  system is Year 2000
compliant.  The Company's target date for completing its Year 2000 modifications
is April 30, 1999,  including additional testing and refinements to identify the
systems planned for 1999. These expenditures are not expected to have a material
impact on the Company's operating results, liquidity and capital resources.

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of  Financial  Accounting  Standards  ("SFAS")  No. 131,  "Disclosures  about an
Enterprise and Related  Information," in February 1998, the FASB issued SFAS No.
132, "Employer's  Disclosures about Pensions and Other Postretirement  Benefits"
and in June 1998,  the FASB  issued  SFAS No. 133,  "Accounting  for  Derivative
Instruments and Hedging Activities." Management does not believe the adoption of
any of these standards will have a material effect on its financial  position or
results of operations.


<PAGE> 15


PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

                  None.

ITEM 2.  CHANGES IN SECURITIES

                  None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

                  None.

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

                  The  Company's  Annual  Meeting  of  Shareholders  was held on
                  October 30, 1998. The Company received proxies from holders of
                  11,009,346   shares  of  the  Company's   common  stock  which
                  constituted  more than a  majority  of all  shares  issued and
                  outstanding  (12,248,065  shares) at the close of  business on
                  September 25, 1998. The holders of at least 10,909,936  shares
                  of common stock voted for the election of Arthur G.  Rosenberg
                  and John D. Shulman as directors  of the  Corporation  to hold
                  office for three years until the 2001 Annual Meeting and until
                  their successors are duly elected and qualified or until their
                  resignation or removal.

                  The second  proposal  was for the  appointment  of the firm of
                  Deloitte  &  Touche  LLP  to  be  the  Company's   independent
                  accountants  for the fiscal  year  ending  July 3,  1999.  The
                  proposal passed as follows:  10,909,283  shares in favor;  and
                  95,963 shares against.

ITEM 5.  OTHER INFORMATION

                  None.



<PAGE> 16


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits

                  See Exhibit Index on page 15.

         (b)      Reports on Form 8-K

                  The  following  reports  on  Form  8-K  were  filed  with  the
                  Securities  and Exchange  Commission  during the quarter ended
                  December 26, 1998


          Date of Report      Date of Filing                Description
          --------------      --------------                -----------
         December 17, 1998   December 22, 1998      Agreement and Plan of Merger
                                                    between the Company and
                                                    Pharmhouse Corp.






<PAGE> 17



                                   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:  February 5, 1999         By:/s/ Sankar Krishnan                        
                                   ---------------------------------------------
                                       Sankar Krishnan
                                       Senior Vice President and Chief Financial
                                         Officer



Date:  February 5, 1999         By:/s/ John R. Ficarro                       
                                   ---------------------------------------------
                                       John R. Ficarro
                                       Senior Vice President and Chief
                                         Administrative Officer


<PAGE> 18






                                 PHAR-MOR, INC.

                                INDEX TO EXHIBITS


Exhibit No.

*3.1          Amended and Restated Articles of Incorporation

**3.2         Amended and Restated By-laws

*4.1          Indenture dated September 11, 1995 between Phar-Mor,  Inc. and IBJ
              Schroder Bank & Trust Company

*4.2          Warrant Agreement dated September 11, 1995 between Phar-Mor,  Inc.
              and Society National Bank

***10.1       Loan and Security  Agreement,  dated as of September  10, 1998, by
              and among the financial institutions listed on the signature pages
              therein,   BankAmerica   Business  Credit,  Inc.,  as  agent,  and
              Phar-Mor,  Inc., Phar-Mor,  Inc., LLC, Phar-Mor of Delaware, Inc.,
              Phar-Mor of Florida,  Inc.,  Phar-Mor of Ohio,  Inc.,  Phar-Mor of
              Virginia, Inc., and Phar-Mor of Wisconsin, Inc.

27            Financial Data Schedule
-----------------------------------------------------------------
*             Previously  filed in connection with the filing of Phar-Mor's Form
              10, on October 23, 1995

**            Previously  filed in  connection  with the  filing  of  Phar-Mor's
              quarterly report on Form 10-Q, on May 1, 1998

***           Previously  filed in  connection  with the  filing  of  Phar-Mor's
              quarterly report on Form 10-Q, on November 2, 1998