<PAGE>
 
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON D.C. 20549

                                   _________


                                   FORM 10-Q

     (Mark one)

               X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             -----                                                 
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 21, 1998

                                       OR
                                        
             ____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from ____ to ____

                        Commission File Number 001-10811


                               SMART & FINAL INC.
             (Exact name of registrant as specified in its charter)


           Delaware                                      No. 95-4079584
(State or other jurisdiction of          (IRS Employer Identification No.)
 incorporation or organization)


               4700 South Boyle Ave.
              Los Angeles, California                       90058
          (Address of principal executive offices)       (zip code)


Registrant's telephone number, including area code:      (213) 589-1054


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____.

The registrant had 22,487,879 shares of common stock outstanding as of July 31,
1998.

Number of Sequentially Numbered Pages:   15

Exhibit Index at Page:   15

================================================================================
<PAGE>
 
--------------------------------------------------------------------------------

                               SMART & FINAL INC.
                                     INDEX
                                        
                                     PART I
                             FINANCIAL INFORMATION

                                        
<TABLE>
<CAPTION>
                                                                            Page
<S>                                                                         <C>

Item 1.  Financial Statements

         Unaudited Consolidated Balance Sheets                                 2

         Unaudited Consolidated Statements of Income                           3

         Unaudited Consolidated Statements of Cash Flows                       4

         Notes to Unaudited Consolidated Financial Statements                  5



Item  2. Management's Discussion and Analysis of Financial Condition           7

         and Results of Operations



                                    PART II
                               OTHER INFORMATION



Item  1. Legal Proceedings                                                    12

Item  2. Changes in Securities                                                12

Item  3. Defaults upon Senior Securities                                      12

Item  4. Submission of Matters to a Vote of Security Holders                  12

Item  5. Other Information                                                    12

Item  6. Exhibits and Reports on Form 8-K                                     12
</TABLE>

                                       1
<PAGE>
 
                              SMART & FINAL INC.
                          CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                        JUNE 21,    JANUARY 4,
                                                          1998         1998
                                                        -------     ---------
                                                      (UNAUDITED)
<S>                                                   <C>           <C> 
ASSETS
------

Current assets:
 Cash & cash equivalents                              $ 20,583      $ 22,891
 Trade notes and accounts receivable, less
   allowance for doubtful accounts of
   $3,807 in 1998 and $5,518 in 1997                    76,183        75,995
 Inventories                                           144,449       129,761
 Prepaid expenses                                       11,861        15,906
 Deferred tax asset                                      9,600         9,600
                                                      --------      --------
        Total current assets                           262,676       254,153

Property, plant and equipment:                         
   Land                                                 35,491        35,631
   Buildings and improvements                           29,564        29,530
   Leasehold improvements                               73,616        67,821
   Fixtures and equipment                              148,923       139,316
                                                      --------      --------   
                                                       287,594       272,298
   Less - Accumulated depreciation and amortization     96,327        85,808
                                                      --------      --------
           Net property, plant and equipment           191,267       186,490
 
Assets under capital leases, net                         4,295         4,535
Goodwill                                                53,471        18,940
Deferred tax asset                                       3,148         3,148
Other assets                                            19,231        20,879
                                                      --------      --------
   Total Assets                                       $534,088      $488,145
                                                      ========      ========
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------

Current liabilities:
  Current maturities of long-term debt                $  6,088      $  3,576
  Current maturities of notes payable to affiliates      7,600         7,600
  Bank line of credit                                   66,000        37,000
  Accounts payable                                      79,240        77,116
  Payable to Parent and affiliates                      22,171        18,589
  Accrued salaries and wages                            12,041         9,528
  Other accrued liabilities                             27,306        32,262
                                                      --------      --------
          Total current liabilities                    220,446       185,671
 
Long-term liabilities:
   Notes payable, net of current maturities             17,475         4,061
   Notes payable to affiliates                          22,800        22,800
   Bank debt                                            45,000        45,000
   Obligations under capital leases                      7,854         8,163
   Other long-term liabilities                           2,982         2,937
   Workers' compensation reserve, postretirement
     and postemployment benefits                        18,795        18,068
                                                      --------      --------
         Total long-term liabilities                   114,906       101,029
 
Minority interest                                            -         1,116
Stockholders' equity:
   Preferred stock, $1 par value (authorized-       
   10,000,000 shares; no shares issued)                      -             -
   Common stock, $0.01 par value (authorized-
   100,000,000 shares; 22,468,646 shares issued
   and outstanding in 1998 and 22,386,181 in 1997)         225           224
   Additional paid-in capital                          144,222       142,865
   Cumulative translation loss                            (835)         (835)
   Retained earnings                                    55,124        58,075
                                                      --------      --------
          Total stockholders' equity                   198,736       200,329
                                                      --------      --------
          Total liabilities and stockholders' equity  $534,088      $488,145
                                                      ========      ========
</TABLE>

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

                                       2
<PAGE>
 
                              SMART & FINAL INC. 
                       CONSOLIDATED STATEMENTS OF INCOME
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
 
                                                                               TWELVE WEEKS ENDED        TWENTY-FOUR WEEKS ENDED
                                                                            -------------------------    --------------------------
                                                                             June 21,       June 15,       June 21,       June 15,
                                                                               1998           1997           1998           1997
                                                                            -----------   -----------    -----------    -----------
                                                                                   (Unaudited)                   (Unaudited)
<S>                                                                         <C>           <C>            <C>            <C>
 
 Sales............................................................          $   380,577   $   334,948    $   714,855    $   641,932
 Cost of sales, buying and occupancy..............................              332,697       285,250        627,235        547,647
                                                                            -----------   -----------    -----------    -----------
 Gross margin.....................................................               47,880        49,698         87,620         94,285
 Operating and administrative expenses............................               43,458        37,177         82,876         72,004
                                                                            -----------   -----------    -----------    -----------
     Income from operations.......................................                4,422        12,521          4,744         22,281
 
 Interest expense, net............................................                2,438         1,727          4,566          3,264
                                                                            -----------   -----------    -----------    -----------
 Income before income taxes, minority share
     of net income, and cumulative effect of accounting change....                1,984        10,794            178         19,017
 Income taxes.....................................................                  753         4,043            (27)         7,278
 Minority share of net income.....................................                    -            10              -            116
                                                                            -----------   -----------    -----------    -----------
     Income from consolidated subsidiaries........................                1,231         6,741            205         11,623
 
 Equity earnings in unconsolidated subsidiary.....................                   57           100            187            200
                                                                            -----------   -----------    -----------    -----------
     Income before cumulative effect of accounting change.........                1,288         6,841            392         11,823
 
 Cumulative effect of accounting change (start-up costs, net of
     tax effect of $758)..........................................                    -             -          1,090              -
                                                                            -----------   -----------    -----------    -----------
     Net income (loss)............................................          $     1,288   $     6,841    $      (698)   $    11,823
                                                                            ===========   ===========    ===========    ===========
 Earnings (loss) per common share:
  Earnings per common share before cumulative effect of
   accounting change..............................................          $      0.06   $      0.31    $      0.02    $      0.54
  Cumulative effect of accounting change per common share.........                    -             -          (0.05)             -
                                                                            -----------   -----------    -----------    -----------
  Earnings (loss) per common share................................          $      0.06   $      0.31    $     (0.03)   $      0.54
                                                                            ===========   ===========    ===========    ===========
Weighted average common shares ...................................           22,446,511    22,054,168     22,421,082     22,024,727
                                                                            ===========   ===========    ===========    ===========
 Earnings (loss) per common share, assuming dilution:
  Earnings per common share, assuming dilution, before
   cumulative effect of accounting change.........................          $      0.06   $      0.30    $      0.02    $      0.52
  Cumulative effect of accounting change per common share.........                    -             -          (0.05)             -
                                                                            -----------   -----------    -----------    -----------
  Earnings (loss) per common share, assuming dilution.............          $      0.06   $      0.30    $     (0.03)   $      0.52
                                                                            ===========   ===========    ===========    ===========
Weighted average common shares
 and common share equivalents.....................................           22,865,913    22,763,837     22,848,365     22,793,111
                                                                            ===========   ===========    ===========    ===========
Dividend per common share.........................................          $      0.05   $      0.05    $      0.10    $      0.10
                                                                            ===========   ===========    ===========    ===========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>
 
                               SMART & FINAL INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (DOLLARS IN THOUSANDS)
                                        
<TABLE> 
<CAPTION> 
                                                                                Twenty-four Weeks Ended
                                                                               -------------------------
                                                                                June 21,       June 15,
                                                                                  1998           1997
                                                                               ----------     ----------
<S>                                                                             <C>           <C>
Cash Flows From Operating Activities:                                                 (Unaudited)
   Net income..............................................................     $   (698)      $ 11,823
   Adjustments to reconcile net income to net
    cash provided by operating activities:
     Depreciation and amortization.........................................       13,008         11,400
     Cumulative effect of accounting change, net of taxes..................        1,090              -
     Minority share of net income..........................................            -            116
     Equity earnings in unconsolidated subsidiary..........................         (187)          (200)
     Decrease (increase) in:
       Trade notes and accounts receivable.................................        2,806          1,357
       Inventories.........................................................        7,583          1,877
       Prepaid expenses and other..........................................        4,699           (727)
     Increase (decrease) in:
       Accounts payable....................................................       (2,351)        (9,768)
       Accrued liabilities.................................................        2,513         (1,286)
       Other liabilities...................................................       (4,183)           951
                                                                                --------       --------

     Net cash provided by operating activities.............................       24,280         15,543
                                                                                --------       --------

Cash Flows From Investing Activities:
   Acquisition of property, plant and equipment............................      (12,579)       (14,592)
   Proceeds from disposal of property, plant and equipment.................          843            184
   Acquisition of business.................................................      (44,401)        (5,000)
   Other...................................................................         (245)        (1,216)
                                                                                --------       --------

     Net cash used in investing activities.................................      (56,382)       (20,624)
                                                                                --------       --------

Cash Flows From Financing Activities:
   Proceeds from issuance of common stock..................................        1,175          1,686
   Borrowings on bank line of credit.......................................       65,000          6,000
   Payments on bank line of credit.........................................      (36,000)             -
   Payments on notes payable...............................................       (1,883)        (1,092)
   Increase in payable to Parent and affiliates............................        3,743          2,633
   Quarterly dividend paid.................................................       (2,241)        (2,208)
                                                                                --------       --------

     Net cash provided by financing activities.............................       29,794          7,019
                                                                                --------       --------

(Decrease) increase in cash and cash equivalents...........................       (2,308)         1,938

Cash and cash equivalents at beginning of period...........................       22,891         16,795
                                                                                --------       --------

Cash and cash equivalents at end of period.................................     $ 20,583       $ 18,733
                                                                                ========       ========

Noncash Investing and Financing Activities:
   Note issued in connection with acquisition of business..................     $ 17,500       $    500
                                                                                ========       ========
</TABLE>

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

                                       4
<PAGE>
 
                               SMART & FINAL INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                        

(1)  BASIS OF PRESENTATION

     Smart & Final Inc. (the "Company") is a Delaware corporation and is a 55.3
percent owned subsidiary of Casino USA, Inc. (the "Parent"), and Casino Realty,
Inc., a wholly owned subsidiary of Casino USA.

     The consolidated balance sheet as of June 21, 1998, the consolidated
statements of income for the twelve and twenty-four weeks ended June 21, 1998
and June 15, 1997, and cash flows for the twenty-four weeks ended June 21, 1998
and June 15, 1997 are unaudited. In the opinion of management, all adjustments
necessary for a fair presentation of these financial statements have been
included. Such adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.

     These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K statement for the year ended January 4, 1998.

(2)  EARNINGS PER COMMON SHARE

     Earnings per common share is based on the weighted average number of shares
of common stock outstanding. Earnings per common share, assuming dilution,
includes the weighted average number of common stock equivalents outstanding
related to employee stock options and a stock purchase agreement.
 
(3)  FISCAL YEARS

     The Company's fiscal year ends on the Sunday closest to December 31. Each
fiscal year consists of twelve-week periods in the first, second and fourth
quarters and a sixteen-week period in the third quarter.

(4)  DIVIDEND

     On June 22, 1998, the Company declared a dividend of $0.05 per share to
stockholders of record at July 3, 1998. The dividend was paid on July 31, 1998.

(5)  INCOME TAXES

     Tax sharing payments for state income taxes made by the Company to the
Parent were $1,328,000 in the twenty-four weeks ended June 15, 1997. In the
twenty-four weeks ended June 21, 1998, the Company received a refund of
$1,846,000 from the Parent for state income taxes overpaid, due to the loss for
1997 and the first half of 1998. The Company paid $1,375,000 in federal income
taxes in the twenty-four week period ended June 15, 1997 and did not pay any in
the twenty-four week period ended June 21, 1998 due to losses in first half of
1998.

                                       5
<PAGE>
 
                               SMART & FINAL INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (continued)

(6)  LEGAL ACTIONS

     The Company has been named as defendant in various legal actions arising in
the normal conduct of its business. In the opinion of management, after
consultation with counsel, none of these actions are expected to result in
significant liability to the Company.

(7)  ACCOUNTING STANDARDS

     During the first quarter of 1998, the Company adopted the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities". This statement
requires that costs of start-up activities and organization costs be expensed as
incurred. Adoption of this statement resulted in a cumulative effect of
accounting change, net of tax, charge of $1.1 million, or $0.05 per diluted
share.

     The Company adopted the provisions of AICPA Statement of Position 98-1,
"Accounting for the costs of Computer Software Developed or Obtained for
Internal Use" during the first quarter of 1998. This statement provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. Adoption of this statement had no impact on the Company's
consolidated financial statements.

     During the first quarter of 1998, the Company adopted the provisions of
Statement of Financial Accounting Standard No. 130 "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income. There was no difference between comprehensive income and
net income for the periods presented.

(8)  ACQUISITION OF BUSINESS

     On May 15, 1998, the Company acquired the Cash & Carry operating business
of United Grocers, Inc. which included 39 stores operating in the Pacific
Northwest.  The purchase price consisted of $42.5 million in cash, plus a $17.5
million five-year unsecured note.  The cash payment was financed by a bridge
loan from the Company's major commercial bank.  The results of operations for
the twelve and twenty-four weeks ended June 21, 1998 include the results of
operations of the acquired Cash & Carry stores from May 15, 1998.  The
acquisition has been accounted for using the purchase method of accounting.  The
purchase price has been allocated to assets acquired based on preliminary
estimates subject to change when additional information and studies are
completed.  The excess of the aggregate purchase price over the fair market
values of the net assets acquired, of approximately $34 million, has been
reflected in the balance sheet as "goodwill".

(9)  BRIDGE LOAN

     Effective April 30, 1998, the Company entered into a Credit Agreement
("Bridge Loan") with Credit Lyonnais Los Angeles Branch for $65 million.  The
Bridge Loan has an interest rate structure similar to the Company's $50 million
long-term revolving unsecured line of credit. Proceeds from the Bridge loan were
used to fund the cash payment associated with the United Grocers Cash & Carry
store operations acquisition and to reduce other outstanding debt.  The Bridge
loan matures on April 29, 1999.

                                       6
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     Management's discussion and analysis should be read in conjunction with the
accompanying consolidated financial statements and notes thereto and the
Company's annual report on Form 10-K for the year ended January 4, 1998.

SUMMARY

     Smart & Final Inc. (the "Company") reported net income of $1.3 million, or
$0.06 per diluted share, for the twelve weeks ended June 21, 1998, compared to
net income of $6.8 million, or $0.30 per diluted share, in the twelve weeks
ended June 15, 1997.

     For the twenty-four weeks ended June 21, 1998, the Company reported a net
loss of $0.7 million, or $0.03 per diluted share, compared to net income of
$11.8 million, or $0.52 per diluted share, for the twenty-four weeks ended June
15, 1997.  The 1998 period includes a cumulative effect of accounting change,
net of tax, charge of $1.1 million, or $0.05 per diluted share, related to
adoption of the American Institute of Certified Public Accountants ("AICPA")
Statement of Position 98-5.

     The decline in operating earnings for the second quarter and for the first
half of the year was attributed primarily to a decline in year to year earnings
from Florida foodservice operations and significant reductions in vendor rebate
and allowance income.  Florida operations began encountering distribution
problems early in the third quarter of 1997.  Distribution efficiencies have
improved in 1998, but comparative first half earnings are substantially lower
due to these problems.  Vendor income is recognized as earned and, although down
sharply in the comparative results for the first half of the year, is expected
to rise considerably in the second half comparative results.  Quarterly and
year-to-date results in 1998 were also affected by slow sales growth as a result
of record rainfall.

RESULTS OF OPERATIONS

     The following table shows, for the periods indicated, certain condensed
consolidated income statement data, expressed as a percentage of total sales.

<TABLE>
<CAPTION>
                                                        Twelve Weeks Ended     Twenty-Four Weeks Ended
                                                       --------------------   -------------------------
                                                       June 21    June 15,     June 21,      June 15,
                                                         1998       1997         1998          1997
                                                       --------   ---------   -----------   -----------
<S>                                                    <C>        <C>         <C>           <C>
Sales:
 Store sales........................................      71.7%       74.5%         69.4%         73.7%
 Foodservice distribution sales.....................      28.3        25.5          30.6          26.3
                                                         -----       -----         -----         -----
Total Sales.........................................     100.0       100.0         100.0         100.0
Cost of sales, buying and occupancy.................      87.4        85.2          87.7          85.3
                                                         -----       -----         -----         -----
 Gross margin.......................................      12.6        14.8          12.3          14.7
Operating and administrative expenses...............      11.4        11.1          11.6          11.2
                                                         -----       -----         -----         -----
  Income from operations............................       1.2         3.7           0.7           3.5
Interest expense, net...............................       0.6         0.5           0.6           0.5
                                                         -----       -----         -----         -----
Income before income taxes, minority
  share of net income, and cumulative
  effect of accounting change.......................       0.5         3.2            --           3.0
Income taxes........................................       0.2         1.2            --           1.1
Minority share of net income........................        --          --            --            --
                                                         -----       -----         -----         -----
Income before cumulative effect of
  accounting change.................................       0.3         2.0           0.1           1.8
Cumulative effect of accounting
  change (start-up costs)...........................        --          --           0.2            --
                                                         -----       -----         -----         -----

Net income (loss)...................................       0.3%        2.0%        (0.1)%          1.8%
                                                         =====       =====         =====         =====
*  Totals do not aggregate due to rounding.
</TABLE>

                                       7
<PAGE>
 
BACKGROUND


     The Company continued its expansion program in 1998 and 1997 as shown in
the following table:


<TABLE>
<CAPTION>
                                                                  Two
                                     Quarter Ended          Quarters Ended       Year Ended
                                 ---------------------   ---------------------   -----------
                                 June 21,    June 15,    June 21,    June 15,    January 4,
                                   1998        1997        1998        1997         1998
                                 ---------   ---------   ---------   ---------   -----------
<S>                              <C>         <C>         <C>         <C>         <C>
USA
  Store count beginning               169         167         167         168           168
  Stores opened:
     In new markets                    --          --           1          --             1
     In mature markets                 --           1           1           2             3
     Stores acquired                   39          --          39          --            --
                                     ----        ----        ----        ----          ----
  Total                                39           1          41           2             4
 
  Relocations                           1           3           3           3             7
  Stores relocated/(closed)            (1)         (3)         (3)         (5)          (12)
                                     ----        ----        ----        ----          ----
  Store count ending                  208         168         208         168           167
 
MEXICO
  Store count beginning                 6           5           5           5             5
  New stores opened                    --          --           1          --            --
                                     ----        ----        ----        ----          ----
  Store count ending                    6           5           6           5             5
 
Grand Total                           214         173         214         173           172
                                     ====        ====        ====        ====          ====
</TABLE>

          Mexico operations are not consolidated and are reported on the equity
basis.

          Although new stores are important to the Company's continued growth
and profitability, each new store opening initially penalizes earnings because
stores are not immediately profitable.  In recent years new stores opened in
existing market areas generally have achieved break even (after full allocation
of all corporate expenses) within the first six to eighteen months and new
stores opened in new market areas, which mature more slowly, generally have
achieved break even in approximately three years.

          Each of the Company's fiscal years consists of twelve-week periods in
the first, second and fourth quarters of the fiscal year and a sixteen-week
period in the third quarter.


COMPARISON OF TWELVE WEEKS ENDED JUNE 21, 1998 WITH TWELVE WEEKS ENDED JUNE 15,
1997.

          Sales.  Second quarter 1998 sales were $380.6 million, up 13.6% from
the comparable 1997 period.  Sales reflect the May 15, 1998 acquisition of the
United Grocers Cash & Carry ("Cash & Carry") store operations.  Excluding Cash &
Carry, Smart & Final Stores Corporation

                                       8
<PAGE>
 
("Smart & Final") store sales decreased 1.3%.  Comparable store sales for the
second quarter of 1998 declined 2.6% from the prior year period, due primarily
to the decision to eliminate high discount tobacco sales in the third quarter of
1997.  The change in tobacco sales reduced year to year comparable sales by
approximately 3.0% in the second quarter of 1998.  Average comparable
transaction size, also impacted by high discount tobacco transactions, declined
slightly, by 1.0% to $31.72 in the second quarter of 1998.

          Foodservice distribution sales increased significantly from $85.4
million in the second quarter of 1997 to $107.6 million in the current year
second quarter.  Growth was strong at both Smart & Final Foodservice, formerly
Port Stockton Food Distributors, Inc., where sales increased 36.5% over the
prior year quarter and in Florida foodservice operations, where sales increased
by 17.6% over the prior year quarter.

          Gross Margin.  Gross margin declined 3.7% from $49.7 million in the
second quarter of 1997 to $47.9 million in the current year quarter.  As a
percentage of sales, gross margin declined from 14.8% to 12.6%.  The decline was
primarily due to three factors: reduced vendor rebate and allowance income, a
higher mix of foodservice sales which generate lower gross margins and require
lower operating expenses than store sales, and lower foodservice gross margins
compared to 1997 caused by increased meat processing and chain account sales.

          Operating and Administrative Expenses.  Operating and administrative
expenses for the second quarter of 1998 were $43.5 million, up $6.3 million, or
16.9%, over the second quarter of 1997.  These expenses, as a percentage of
sales, increased from 11.1% in the second quarter of 1997 to 11.4% in the second
quarter of 1998.  The increased expense levels were the result of management
reorganization costs and increased direct expenses as a percentage of sales due
to a decline in sales.  Additional current year marketing expenditures, in an
effort to promote sales growth, was also a factor in increased overall expenses.

          Interest Expense, net.  Interest expense, net increased from $1.7
million in the second quarter of 1997 to $2.4 million in the second quarter of
1998 primarily as the result of higher weighted average borrowings.  Revolving
debt borrowings and notes payable increased primarily due to the Cash & Carry
acquisition.


COMPARISON OF TWENTY-FOUR WEEKS ENDED JUNE 21, 1998 WITH TWENTY-FOUR WEEKS ENDED
JUNE 15, 1997.

          Sales.  First half 1998 sales were $714.9 million, up 11.4% from the
comparable 1997 period.  Smart & Final store sales decreased 0.7%.  Comparable
store sales decreased 2.1% in the first half of 1998 primarily as a result of
the decision to eliminate high discount tobacco sales in the third quarter of
1997.  This decision reduced comparative sales for the first half of 1998 by
approximately 3.0%.  Record rainfall in the first half of 1998 also reduced
sales growth.  Average comparable transaction size, also impacted by elimination
of high discount tobacco transactions, decreased 1.3% to $31.31 in the first
half of 1998.

                                       9
<PAGE>
 
          Foodservice distribution sales increased 29.5% to $218.4 million for
the first half of 1998. Significant sales growth was achieved at Smart & Final
Foodservice where sales increased 43.8% over the 1997 twenty-four week period.
The Florida foodservice operations experienced strong sales growth of 19.5% over
the first half of 1997.

          Gross Margin.  Gross margin declined 7.1% from $94.3 million in the
first half of 1997 to $87.6 million in the 1998 twenty-four week period.  As a
percentage of sales, gross margin declined from 14.7% of sales for the first
half of 1997 to 12.3% in the comparable 1998 period.  The major factors in the
lower gross margin percentage were the reduced vendor rebate and allowance
income, a higher mix of foodservice sales which generate lower gross margins,
and lower foodservice gross margins compared to 1997 caused by increased meat
processing and chain account sales.

          Operating and Administrative Expenses.  Operating and administrative
expenses for the first half of 1998 were $82.9 million, or 11.6% of sales,
compared with $72.0 million, or 11.2% of sales, in the first half of 1997.  The
increased expenses were the result of management reorganization costs and
increased direct expenses as a percentage of sales as a result of the store
sales decline.

          Interest Expense, net.  Interest expense, net increased from $3.3
million, or 0.5% of sales, in the first half of 1997 to $4.6 million, or 0.6% of
sales, in the comparable 1998 period.  This increase was a result of higher
weighted average borrowings in the first half of 1998 compared to the first half
of 1997.


FINANCIAL CONDITION

          Cash and cash equivalents were $22.9 million at January 4, 1998, and
$20.6 million at June 21, 1998.  Cash provided by operating activities for the
twenty-four weeks ended June 21, 1998 was $24.3 million and other changes in
financing activities provided $4.9 million of cash for the twenty-four week
period.  The net increase in debt was $27.1 million for the first half of 1998.
The acquisition of the United Grocers Cash & Carry store operations and
investments in fixed assets and other additions during the first half of 1998
required cash of $56.4 million.  During the first half of 1998, $2.2 million of
dividends were paid.

          Excluding the impact of the acquisition of the United Grocers Cash &
Carry store operations, inventories declined by $7.6 million as a result of a
comprehensive turnover analysis at all operating levels to achieve lower
carrying costs.  Other changes in operating assets and liabilities generally
reflect the timing of receipts and disbursements.  Trade notes and accounts
receivable decreased $2.8 million, prepaid expenses decreased $4.7 million,
accrued liabilities increased $2.5 million, accounts payable decreased $2.4
million, and other liabilities decreased $4.2 million in the first half of 1998.

          Stockholders' equity decreased by $1.6 million to $198.7 million at
June 21, 1998 as a result of the $0.7 million loss for the first half of 1998
and the quarterly cash dividend of $2.2 million less $1.3 million proceeds from
issuance of stock.

                                       10
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

          The Company's primary source of liquidity is cash flow from
operations.  Cash provided by operating activities was $24.3 million in the
first half of 1998, up from $15.5 million in the comparable 1997 period.  At
June 21, 1998, the Company had cash of $20.6 million, compared to $22.9 million
at January 4, 1998.  The Company had $98.3 million of long-term debt and
stockholders' equity of $198.7 million at June 21, 1998.

          As a result of the Cash & Carry acquisition and a temporary decline in
earnings, the Company has not complied with financial covenants in certain of
its loan agreements. Lending institutions have granted the Company a waiver
until September 30, 1998, during which time the Company expects to complete
restructuring of existing debt.

          The Company expects to be able to fund future acquisitions and other
cash requirements by a combination of available cash, cash from operations,
lease financings and other borrowings and proceeds from the issuance of equity
securities. The Company is constructing a new distribution facility that will be
used to serve its Southern California operations. The facility and related
fixtures and equipment will cost approximately $37 million, most of which will
be financed by a committed lease facility. During the quarter, the Company
signed a lease for new office facilities for its corporate headquarters, which
it expects to move into in the third quarter of 1998. The amount budgeted for
other capital expenditures is approximately $40.0 million for fiscal 1998.

          From time to time Smart & Final may publish forward-looking statements
about anticipated results. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements.  In order to comply with
the terms of the safe harbor, the Company notes that such forward-looking
statements are based upon internal estimates which are subject to change because
they reflect preliminary information and management assumptions, and that a
variety of factors could cause the Company's actual results and experience to
differ materially from the anticipated results or other expectations expressed
in the Company's forward-looking statements.  The factors which could cause
actual results or outcomes to differ from such expectation include the extent of
the company's success in (i) changing market conditions (ii) unforeseen costs
and expenses (iii) ability to attract new customers and retain existing
customers (iv) gain or losses from sales along with the uncertainties and other
factors, including unusually adverse weather conditions, described from time to
time in the company's SEC filing and reports.  This report includes " forward-
looking statements" including, without limitation, statements as to the
Company's liquidity and availability of capital resources.

                                       11
<PAGE>
 
                           PART II - OTHER INFORMATION
                                        


ITEM 1  LEGAL PROCEEDINGS

        Not applicable.

ITEM 2  CHANGES IN SECURITIES

        Not applicable.

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

        Not applicable

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable

ITEM 5  OTHER INFORMATION

        Not applicable.

ITEM 6  EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibits:

Exhibit
Number      Description of Exhibit
------      ----------------------

10.6        Second Amendment to Stock Purchase Agreement, dated March 7, 1989,
            by and among Mr. Emmons, Casino USA, Casino France and the Company

10.82       Second Amendment to Agreement to Sell and Purchase Real Property and
            Escrow Instructions dated as of May 15, 1998, by and among Smart
            & Final Stores Corporation and Certified Grocers of California, Ltd.

10.92       Credit Agreement (Bridge Loan) dated as of April 30, 1998 by and 
            among the Company and Credit Lyonnais Los Angeles Branch

10.93       Asset Purchase Agreement dated May 15, 1998 by and among the 
            Company and United Grocers, Inc.

10.94       Office Lease dated as of April, 1998 by and among the Commerce 
            Citadel Development Authority and Smart & Final Stores Corporation

                                       12
<PAGE>
 
Exhibit
Number      Description of Exhibit
-------     ----------------------


10.95       Participation Agreement dated as of May 20, 1998 by and among the
            Company, Smart & Final Realty Trust 1998, Credit Lyonnais Los
            Angeles Branch, as Agent, and the Lenders named therein (Certified
            Property)

10.96       Trust Agreement dated as of May 13, 1998, by and among Credit
            Lyonnais Leasing Corp. and Wilmington Trust Company

10.97       Lease and Agreement dated as of May 20, 1998 by and among Smart &
            Final Realty Trust 1998 and Smart & Final Inc.

10.98       Loan Agreement dated as of May 20, 1998 by and among Smart & Final
            Realty Trust 1998, Credit Lyonnais Los Angeles Branch, as Agent,
            and the Lenders named therein
                                                                        
27          Financial Data Schedule
 
    (b)  Reports on Form 8-K

         None

                                       13
<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.


                                  SMART & FINAL INC.


                                  By:



DATE:  JULY 31, 1998
                                             /s/ MARTIN A. LYNCH
                                  -----------------------------------------
 
                                                 Martin A. Lynch
                                            Executive Vice President,
                                        Principal Financial Officer, and
                                  Principal Accounting Officer of the Company

                                       14
<PAGE>
 
                               SMART & FINAL INC.
                                 EXHIBIT INDEX
                                        
                                                           Sequentially

                                                           Numbered

Exhibit Number     Description of Exhibit                  Page
--------------     ----------------------                  ----
 
 
10.6               Second Amendment to Stock Purchase Agreement, dated March 7,
                   1989, by and among Mr. Emmons, Casino USA, Casino France and
                   the Company

10.82              Second Amendment to Agreement to Sell and Purchase Real
                   Property and Escrow Instructions dated as of May 15, 1998, by
                   and among Smart & Final Stores Corporation and Certified
                   Grocers of California, Ltd.

10.92              Credit Agreement (Bridge Loan) dated as of April 30, 1998 by
                   and among the Company and Credit Lyonnais Los Angeles Branch

10.93              Asset Purchase Agreement dated May 15, 1998 by and among the
                   Company and United Grocers, Inc.

10.94              Office Lease dated as of April, 1998 by and among the
                   Commerce Citadel Development Authority and Smart & Final
                   Stores Corporation

10.95              Participation Agreement dated as of May 20, 1998 by and among
                   the Company, Smart & Final Realty Trust 1998, Credit Lyonnais
                   Los Angeles Branch, as Agent, and the Lenders named therein
                   (Certified Property)

10.96              Trust Agreement dated as of May 13, 1998, by and among Credit
                   Lyonnais Leasing Corp. and Wilmington Trust Company

10.97              Lease and Agreement dated as of May 20, 1998 by and among
                   Smart & Final Realty Trust 1998 and Smart & Final Inc.

10.98              Loan Agreement dated as of May 20, 1998 by and among Smart &
                   Final Realty Trust 1998, Credit Lyonnais Los Angeles Branch,
                   as Agent, and the Lenders named therein


27                 Financial Data Schedule
 
 



                                        

                                       15