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 DECEMBER 31, 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 33-61534
                       --------
                          LEVITZ FURNITURE CORPORATION
             (Exact name of registrant as specified in its charter)

   FLORIDA                                                         23-1657490 
-------------------                                           ------------------
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

6111 BROKEN SOUND PARKWAY, N.W., BOCA RATON, FL                     33487-2799
-----------------------------------------------                     -----------
(Address of Principal Executive Offices)                            (Zip Code)

                                 (561) 994-6006
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

On January 31, 1999, there were 1,000 shares of Common Stock, par value $0.40
outstanding.


<PAGE>


THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD LOOKING STATEMENTS WITHIN
THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT
TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS". THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE GIVEN THAT ANY OF
SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) BANKRUPTCY COURT ACTIONS OR
PROCEEDINGS RELATED TO THE BANKRUPTCY OF LEVITZ AND ITS SUBSIDIARIES; (2)
COMPETITIVE PRESSURE IN LEVITZ's INDUSTRY; (3) GENERAL ECONOMIC CONDITIONS; (4)
CHANGES IN THE FINANCIAL MARKETS AFFECTING LEVITZ's FINANCIAL STRUCTURE AND
LEVITZ's COST OF CAPITAL AND BORROWED MONEY; (5) INVENTORY RISKS DUE TO CHANGES
IN MARKET DEMAND OR LEVITZ'S BUSINESS STRATEGIES; (6) CHANGES IN EFFECTIVE TAX
RATES; (7) UNCERTAINTIES INHERENT IN LEVITZ'S OPERATIONS; AND (8) DIFFICULTIES
ENCOUNTERED BY LEVITZ OR OTHERS DEALING WITH THE YEAR 2000 ISSUE. LEVITZ HAS NO
DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE
FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q.

                  LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES

                                    FORM 10-Q

                                DECEMBER 31, 1998

TABLE OF CONTENTS                                                          PAGE
-----------------                                                          -----
PART I - FINANCIAL INFORMATION

       Item 1.      Financial Statements

              Consolidated Condensed Balance Sheets.........................  3
              Consolidated Condensed Statements of Operations...............  4
              Consolidated Condensed Statements of Cash Flows...............  5
              Notes to Consolidated Condensed Financial Statements..........  6
       Item 2.      Management's Discussion and Analysis of Financial
                    Condition and Results of Operations

              Comparison of Operations...................................... 13
              Liquidity and Capital Resources............................... 16

PART II - OTHER INFORMATION

       Item 6.      Exhibits and Reports on Form 8-K........................ 19
              Signatures.................................................... 20
              Exhibit Index................................................. 21



                                       2
<PAGE>
PART I.  FINANCIAL INFORMATION
ITEM 1.  Financial Statements
<TABLE>
<CAPTION>
                  LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                             (Dollars in thousands)

                                                                          DECEMBER 31,               MARCH 31,
                                                                              1998                     1998
                                                                          (UNAUDITED)
                                                                       ------------------         --------------
                                   ASSETS
<S>                                                                    <C>                       <C>
CURRENT ASSETS:
  Cash and cash equivalents                                            $            6,318        $          5,339
  Receivables                                                                      22,849                  24,118
  Inventories                                                                     109,573                 142,618
  Deposits and prepaid expenses                                                     3,776                   3,442
  Deferred income taxes                                                                 -                   3,418
                                                                       -------------------        ----------------
    Total current assets                                                          142,516                 178,935
                                                                       -------------------        ----------------
PROPERTY AND EQUIPMENT, net                                                        79,747                 143,249
                                                                       -------------------        ----------------
PROPERTY UNDER CAPITAL LEASES, net                                                 70,007                  92,721
                                                                       -------------------        ----------------
OTHER ASSETS:
  Receivable under account purchase agreement                                           -                 554,322
  Intangible leasehold interests                                                    8,965                  14,151
  Deferred financial fees                                                             403                   2,061
  Property held for disposal                                                       53,240                  17,766
  Other                                                                             8,079                   3,496
                                                                       -------------------        ----------------
                                                                                   70,687                 591,796
                                                                       -------------------        ----------------
                                                                       $          362,957         $     1,006,701
                                                                       ===================        ================
                    LIABILITIES AND STOCKHOLDER'S DEFICIT

LIABILITIES NOT SUBJECT TO COMPROMISE

CURRENT LIABILITIES:
  Outstanding checks and cash overdrafts                               $            7,444         $        16,395
  Current portion of long-term debt                                                 1,954                   1,333
  Current portion of obligations under capital leases                               1,214                       -
  Accounts payable, trade                                                          23,668                  30,511
  Accrued expenses and other liabilities                                           77,002                  55,847
  Payable to parent                                                                13,883                  13,633
  Deferred income taxes                                                             2,242                       -
  DIP Facility                                                                    168,656                 148,381
                                                                       -------------------        ----------------
    Total current liabilities                                                     296,063                 266,100
                                                                       -------------------        ----------------
LONG-TERM DEBT, net of current portion                                              5,078                   5,702
                                                                       -------------------        ----------------
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion                           38,284                       -
                                                                       -------------------        ----------------
OBLIGATIONS UNDER ACCOUNT PURCHASE AGREEMENT                                            -                 554,322
                                                                       -------------------        ----------------
OTHER NONCURRENT LIABILITIES                                                        4,260                     683
                                                                       -------------------        ----------------
DEFERRED INCOME TAXES                                                               3,795                   8,825
                                                                       -------------------        ----------------
LIABILITIES SUBJECT TO COMPROMISE                                                 292,831                 360,976
                                                                       -------------------        ----------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDER'S DEFICIT:
  Common stock, at par value                                                            1                       1
  Capital in excess of par                                                         58,453                  58,453
  Retained earnings (deficit)                                                    (335,808)               (248,361)
                                                                       -------------------        ----------------
    Total stockholder's deficit                                                  (277,354)               (189,907)
                                                                       -------------------        ----------------
                                                                       $          362,957         $     1,006,701
                                                                       ===================        ================
</TABLE>
         The accompanying notes are an integral part of these condensed
financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>

                  LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                    (Dollars in thousands except share data)
                                   (Unaudited)

                                                            THREE MONTHS ENDED                    NINE MONTHS ENDED
                                                               DECEMBER 31,                         DECEMBER 31,
                                                         1998               1997               1998               1997
                                                    ----------------   ----------------  -----------------  -----------------

Net sales                                           $       187,570    $       232,592   $        538,541   $        651,217
                                                    ----------------   ----------------  -----------------  -----------------
<S>                                                 <C>                <C>
Costs and expenses:
  Cost of sales                                             108,076            129,591            301,240            362,130
  Selling, general and administrative
    expenses                                                 83,143             98,903            243,806            283,617
  Unusual operating expenses                                      -                  -                  -              7,217
  Depreciation and amortization                               4,686              5,883             14,603             18,840
  Interest expense, net                                       7,580              6,125             22,369             32,223
                                                    ----------------   ----------------  -----------------  -----------------
                                                            203,485            240,502            582,018            704,027
                                                    ----------------   ----------------  -----------------  -----------------

Loss before reorganization items and
  income taxes                                              (15,915)            (7,910)           (43,477)           (52,810)

  Reorganization items:
    Loss on store closings                                   17,921              7,735             39,056             33,649
    Acceleration of goodwill amortization                         -             14,975                  -             14,975
    Professional fees                                         1,607              3,516              4,914              4,230
                                                    ----------------   ----------------  -----------------  -----------------
      Total                                                  19,528             26,226             43,970             52,854

Loss before income taxes                                    (35,443)           (34,136)           (87,447)          (105,664)

Income tax benefit                                                -              7,738                  -             32,945
                                                    ----------------   ----------------  -----------------  -----------------

Loss before extraordinary items                             (35,443)           (26,398)           (87,447)           (72,719)

Extraordinary item, net of tax benefit
  of $2,973 in 1997                                               -               (343)                 -             (5,805)
                                                    ----------------   ----------------  -----------------  -----------------

Net loss                                            $       (35,443)   $       (26,741)  $        (87,447)  $        (78,524)
                                                    ================   ================  =================  =================

Loss per common share:
  Loss before extraordinary item                    $       (35,443)   $       (26,398)  $        (87,447)  $        (72,719)
  Extraordinary item                                              -               (343)                 -             (5,805)
                                                    ----------------   ----------------  -----------------  -----------------

Net loss per common share                           $       (35,443)   $       (26,741)  $        (87,447)  $        (78,524)
                                                    ================   ================  =================  =================

Weighted average number of common
  shares outstanding                                          1,000              1,000              1,000              1,000
                                                    ================   ================  =================  =================

</TABLE>

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


                                       4
<PAGE>

<TABLE>
<CAPTION>

                  LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
                                                                                    NINE MONTHS ENDED DECEMBER 31,
                                                                              --------------------------------------------
                                                                                   1998                         1997
                                                                              ----------------             ---------------
<S>                                                                           <C>                          <C>  
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                    $       (87,447)             $      (78,524)
                                                                              ----------------             ---------------

Adjustments to reconcile net loss to net cash provided by 
  (used in) operating activities:
  Depreciation                                                                          8,743                      11,273
  Amortization                                                                          5,860                       7,567
  Provision for deferred taxes                                                              -                     (35,575)
  Loss (gain) on disposal of property and equipment                                        60                         (50)
  Amortization of deferred financing fees                                               1,658                       1,766
  Pension expense                                                                         298                         930
  Other                                                                                   319                         216
  Reorganization items, non-cash                                                       29,700                      47,501
  Extraordinary loss related to early redemption of
    debt, before tax benefit                                                                -                       8,435

  CHANGES IN OPERATING ASSETS AND LIABILITIES:
    Decrease (increase) in:
      Receivables                                                                       1,810                       8,480
      Inventories                                                                      25,560                      33,648
      Deposits and prepaid expenses                                                      (334)                     (2,251)
      Other, net                                                                       (2,710)                        325
    Increase (decrease) in:
      Accounts payable, trade                                                          (8,261)                     10,190
      Accrued expenses and other liabilities                                           10,175                       9,505
      Payable to parent                                                                   195                       3,106
      Other noncurrent liabilities                                                         89                        (347)
                                                                              ----------------             ---------------

        Total adjustments                                                              73,162                     104,719
                                                                              ----------------             ---------------

  NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                 (14,285)                     26,195
                                                                              ----------------             ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                                 (5,514)                     (9,749)
  Proceeds from sale of property and equipment and
    other assets                                                                       11,832                      22,138
                                                                              ----------------             ---------------

   NET CASH PROVIDED BY INVESTING ACTIVITIES                                            6,318                      12,389
                                                                              ----------------             ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings under credit facilities                                                  669,591                     729,305
  Repayments under credit facilities                                                 (649,634)                   (750,766)
  Principal payments on long-term debt                                                    (75)                     (6,347)
  Principal payments under capital lease obligations                                   (1,985)                     (2,528)
  Decrease in cash overdrafts                                                          (8,951)                     (7,119)
  Payment of deferred financing fees                                                        -                      (3,165)
                                                                              ----------------             ---------------

  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                   8,946                     (40,620)
                                                                              ----------------             ---------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                      979                      (2,036)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                          5,339                       9,267
                                                                              ----------------             ---------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                      $         6,318              $        7,231
                                                                              ================             ===============
</TABLE>

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


                                       5
<PAGE>


                  LEVITZ FURNITURE CORPORATION AND SUBSIDIARIES
              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                December 31, 1998
                                   (Unaudited)

1.       CHAPTER 11 PROCEEDINGS AND BASIS OF PRESENTATION:

         Levitz Furniture Corporation (Levitz), a Florida corporation, is a
         wholly-owned subsidiary of Levitz Furniture Incorporated (LFI).

         On September 5, 1997 (the "Petition Date"), Levitz Furniture
         Incorporated, a Delaware corporation ("LFI"), and 11 of its
         subsidiaries (collectively, the "Debtors"), including, Levitz Furniture
         Corporation, a Florida corporation and wholly-owned subsidiary of LFI
         ("Levitz" or the "Company"), filed voluntary petitions for relief under
         Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
         with the United States Bankruptcy Court for the District of Delaware,
         Wilmington, Delaware ("the Court"). The bankruptcy cases of LFI and
         Levitz and their affiliates are being jointly administered, for
         procedural purposes only, under Case No. 97-1842(MFW). Pursuant to
         Sections 1107 and 1108 of the Bankruptcy Code, Levitz, as debtor and
         debtor-in-possession, has continued to manage and operate its assets
         and businesses pending the confirmation of a reorganization plan or
         plans and subject to the supervision and orders of the Court.

         The Debtors expect to reorganize their affairs under the protection of
         Chapter 11 and to propose a Chapter 11 plan of reorganization for
         themselves. Although management expects to file a plan of
         reorganization during 1999 which would contemplate emergence in 1999,
         there can be no assurance at this time that a plan of reorganization
         proposed by the Debtors will be approved or confirmed by the Court, or
         that such plan will be consummated. The Court approved a motion on
         November 12, 1998 granting the Debtors' request to extend its exclusive
         right to file a plan of reorganization through March 1, 1999. On
         February 16, 1999 the Debtors filed a motion with the Court to extend
         its exclusive right to file a plan of reorganization through June 7,
         1999. There can be no assurance that the Court will grant such an
         extension. After the expiration of the exclusivity period, creditors
         would have the right to propose alternative plans of reorganization.

         The consolidated condensed financial statements have been presented in
         accordance with the American Institute of Certified Public Accountants
         Statement of Position 90-7, "Financial Reporting by Entities in
         Reorganization under the Bankruptcy Code" (SOP 90-7) and have been
         prepared in accordance with generally accepted accounting principles
         applicable to a going concern, which principles, except as otherwise
         disclosed, assume that assets will be realized and liabilities will be
         discharged in the ordinary course of business. As a result of the
         Chapter 11 cases and circumstances relating to this event, including
         Levitz's debt structure, its recurring losses, and current economic
         conditions, such realization of assets and liquidation of liabilities
         are subject to significant uncertainty. Additionally, the amounts
         reported on the consolidated condensed balance sheet could materially
         change because of changes in business strategies and the effects of any
         proposed plan of reorganization.

         The Debtors' ability to continue as a going concern is dependent upon,
         among other things, confirmation of a plan of reorganization, future
         profitable operations, the ability to extend or replace the DIP
         Facility (as defined below) and the ability to generate sufficient cash
         from operations. No assurances can be given that the Debtors will be
         able to meet these objectives.


                                       6
<PAGE>

         In the Chapter 11 cases, substantially all unsecured liabilities as of
         the Petition Date are subject to compromise or other treatment under a
         plan of reorganization which must be confirmed by the Bankruptcy Court
         after submission to any required vote by affected parties. For
         financial reporting purposes, those liabilities and obligations have
         been segregated and classified as "liabilities subject to compromise"
         in the consolidated condensed balance sheets. Generally, all actions to
         enforce or otherwise effect repayment of pre-Chapter 11 liabilities as
         well as all pending litigation against the Debtors are stayed while the
         Debtors continue their business operations as debtors-in-possession.
         Unaudited schedules have been filed by the Debtors with the Court
         setting forth the assets and liabilities of the Debtors as of the
         Petition Date as reflected in the Debtor's accounting records. Levitz
         has notified all known claimants subject to the August 10, 1998 bar
         date of their need to file a proof of claim with the Court. Differences
         between amounts shown by the Debtors and claims filed by creditors are
         being investigated and will be either amicably resolved or adjudicated
         before a court. The ultimate amount of and settlement terms for such
         liabilities are subject to an approved plan of reorganization and
         accordingly are not presently determinable.

         Under the Bankruptcy Code, the Debtors may elect to assume or reject
         real estate leases, employment contracts, personal property leases,
         service contracts and other pre-petition executory contracts, subject
         to Court approval. Claims for damages resulting from the rejection of
         real estate leases and other executory contracts will be subject to
         separate bar dates. The Debtors have not reviewed all real estate
         leases for assumption or rejection. As of December 31, 1998, the
         Debtors had rejected leases for seventeen store locations, reached
         agreement with the landlords on two store locations to terminate
         without liability and assumed and assigned to a third party leases on
         two store locations. The Court has extended the time for which the
         Debtors may assume or reject unexpired leases of nonresidential real
         property to March 31, 1999. The Debtors filed a motion with the Court
         on February 16, 1999 to extend the time which the Debtors may assume or
         reject leases of non-residential real property to July 7, 1999. There
         can be no assurance that the Court will grant such an extension.
         Liabilities subject to compromise include reserves for an estimated
         amount that may be claimed by lessors for the stores that have been
         closed through January 15, 1999. The Debtors will continue to analyze
         their real estate leases and executory contracts and may assume or
         reject additional leases and contracts. Such rejections could result in
         additional liabilities subject to compromise.

         In the opinion of Management, the accompanying unaudited consolidated
         condensed financial statements contain all adjustments consisting of
         normal recurring accruals necessary to present fairly the financial
         position as of December 31, 1998, the results of operations and cash
         flows for the periods then ended. The results of operations for the
         period ended December 31, 1998, are not necessarily indicative of the
         results to be expected for the full year.

         Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been omitted. These consolidated condensed
         financial statements should be read in conjunction with the financial
         statements and notes thereto included in Levitz's audited financial
         statements for the year ended March 31, 1998, which is included in its
         Form 10K filed for that period.

         Certain amounts in the prior year's consolidated condensed financial
         statements have been reclassified to conform to the current year's
         presentation.

2.       DEBT:

         Levitz, LFI and substantially all of its subsidiaries, as
         debtors-in-possession, are parties to a Postpetition Credit Agreement
         dated as of September 5, 1997 (the "DIP Facility") as amended with BT
         Commercial Corporation ("BTCC") as agent. The DIP Facility has been
         approved by the Court and includes a total commitment of $252.0 million
         that is comprised of revolving notes of $193.6 million and a term note
         of $58.4 million. Letter of Credit obligations under the revolver
         portion of the DIP 




                                       7
<PAGE>


         Facility are limited to $25.0 million. The DIP Facility is intended to
         provide Levitz with the cash and liquidity to conduct its operations
         and pay for merchandise shipments at normal levels during the course of
         the Chapter 11 proceedings.

         The DIP Facility was amended on September 4 and September 18, 1998. The
         minimum EBITDA covenants for the quarter ending September 30 and
         December 31, 1998 were reduced and a new term loan was extended in the
         principal amount of $22.0 million under a second term note. The
         proceeds from the second term note of $22.0 million were used to pay
         down the revolving notes. This increased excess availability under the
         revolving notes by $22.0 million at the time of the transaction. On
         September 15, 1998 the total commitment under the revolver portion of
         the DIP Facility was reduced from $223.6 million to $193.6 million.
         This reduced the total commitment of the DIP Facility to $252.0
         million. Effective December 31, 1998, the DIP Facility lenders granted
         Levitz a waiver in meeting the minimum EBITDA requirements for the
         period ended December 31, 1998.

         Loans made under the DIP Facility revolving notes bear interest, at
         Levitz's option, at a rate equal to either Bankers Trust Company's
         prime lending rate plus 1.5% or BTCC's LIBOR rate plus 3.75%. The term
         notes bear interest at 16%. Levitz is required to pay an unused line
         fee of 0.5%, and a letter of credit fee of 2.0%.

         The maximum borrowings, excluding the term commitments, under the DIP
         Facility are limited to 85% of eligible accounts receivable, 75% of
         eligible inventory (as defined in the DIP Facility) and a fixed asset
         sublimit which is permanently reduced on each date on which an asset
         disposition, as defined, occurs. Qualification of accounts receivable
         and inventory items as "eligible" is subject to unilateral change at
         the discretion of the lenders. Excess availability under the DIP
         Facility at December 31, 1998 was $17.7 million.

         The DIP Facility is secured by substantially all of the assets of
         Levitz and its subsidiaries and a perfected pledge of stock of all
         Levitz's subsidiaries. The DIP Facility contains restrictive covenants
         including, among other things, the maintenance of minimum earnings
         before interest, taxes, depreciation and amortization as defined
         (EBITDA), limitations on the incurrence of additional indebtedness,
         liens, contingent obligations, sales of assets, capital expenditures
         and a prohibition on paying dividends. LFI and Levitz are currently in
         compliance with the DIP Facility covenants as amended.

         The lenders under the DIP Facility have a super-priority administrative
         expense claim against the estate of the Debtors.

         Management and the lenders under the DIP Facility are negotiating an
         extension of the DIP Facility to June 7, 1999 and an amendment thereof
         to, among other things, increase the excess availability under the DIP
         Facility. The DIP Facility is scheduled to expire on March 5, 1999. No
         assurance can be given that these objectives will be met.


                                       8
<PAGE>


3.       LIABILITIES SUBJECT TO COMPROMISE:

         The principal categories of obligations classified as liabilities
         subject to compromise under reorganization proceedings are identified
         below. The amounts below in total vary significantly from the stated
         amount of proofs of claim that were filed with the Court and may be
         subject to future adjustment depending on Court action, further
         developments with respect to potential disputed claims, and
         determination as to the value of any collateral securing claims, or
         other events. All real estate related post-petition obligations and
         other liabilities such as capital lease obligations, deferred rent and
         deferred gains on sale-leaseback that specifically relate to operating
         stores have been removed from liabilities subject to compromise and are
         included in their traditional classification in the consolidated
         condensed balance sheets. Additional claims may arise from the
         rejection of additional real estate leases and executory contracts by
         the Debtors.
<TABLE>
<CAPTION>

                                                                          DECEMBER 31,
                                                                              1998
                                                                           (DOLLARS IN
                    LIABILITIES SUBJECT TO COMPROMISE                       THOUSANDS)
                    ---------------------------------                     ------------
         <S>                                                                 <C>
         Accounts payable, trade                                             $ 38,536
         Accrued expenses                                                      15,440
         13.375% Senior Notes due 10/15/98                                     96,031 (1)
         9.625% Senior Subordinated Notes due 7/15/03                         101,337 (1)
         Reserve for lease rejection claims                                    20,054
         Supplemental executive retirement programs and contracts              16,110
         Real estate taxes and other lease obligation accruals                  2,676
         Personal property and other taxes                                        558
         Other                                                                  2,089
                                                                          ------------
                                                                            $ 292,831
                                                                          ============
         </TABLE>


         (1)     Includes accrued interest at September 4, 1997.

         As a result of the Chapter 11 filing, no principal or interest payments
         will be made on most pre-petition debt without Court approval or until
         a plan of reorganization providing for the repayment terms has been
         confirmed by the Court and becomes effective. Interest on pre-petition
         unsecured obligations has not been accrued after the Petition Date
         except that interest expense and principal payments will continue to be
         recorded on capital lease obligations for continuing stores. If a
         capital lease is rejected the obligation will be limited to the lease
         rejection claim. Contractual interest expense of $16.4 million, to
         include interest beyond scheduled maturity dates, was not recorded on
         certain pre-petition debt for the period ended December 31, 1998.

4.       PRIVATE-LABEL CREDIT CARD PROGRAM:

         On September 4, 1998 Levitz and its operating subsidiaries entered into
         an agreement ("Merchant Agreement") with Household Bank (SB), N.A.
         ("Household") whereby Household would provide financing to individual
         consumers purchasing merchandise from Levitz ("Private-Label Credit
         Card Program"). The Court approved the Merchant Agreement and granted a
         first priority and security interest and lien to Household on certain
         reserves retained or accumulated by Household, to include transferred
         reserves to Household totaling $5.8 million at December 31, 1998, and
         gave administrative expense status to substantially all obligations of
         Levitz arising under the Merchant Agreement.

         Also on September 4, 1998, General Electric Capital Corporation
         ("GECC") and Levitz terminated the Second Amended and Restated Account
         Purchase and Credit Card Agreement (the "GECC Agreement") which was
         replaced by the Merchant Agreement. Levitz and GECC jointly released
         each other from substantially all obligations under 




                                       9
<PAGE>

         the GECC Agreement. At the same time GECC sold the majority of the
         portfolio under the GECC Agreement, approximately $561.0 million, to
         Household.

         As a result of the transfer of the GECC portfolio to Household, the
         Company determined that the transaction qualified for sale treatment
         under Financial Accounting Standards Board, Statement of Accounting
         Standards No. 125, "Accounting for Transfer and Servicing of Financial
         Assets and Extinguishments of Liabilities". As a result, the Receivable
         under Account Purchase Agreement and the offsetting Obligation Under
         Account Purchase Agreement were removed from the consolidated condensed
         balance sheets.

         Levitz is exposed to market risk under the terms of the Household
         Agreement. Levitz may pay a fee or may receive income, based upon the
         relationship among the interest earned on the portfolio, the amount of
         the servicing fee, the cost of capital, promotional discount fees and
         credit losses. Levitz is generally obligated for all credit losses
         under the portfolio, including the GECC portfolio transferred to
         Household, up to a maximum of 15% and for 50% of all credit losses
         above 15%. Levitz is also required under the Merchant Agreement to fund
         a portfolio risk reserve of 2.5% for the first year and 3.5% thereafter
         of all amounts financed up to a stipulated dollar amount.

5.       REORGANIZATION ITEMS:

         Store Closings

         In December 1998 Management finalized a plan to close twenty-seven
         stores in non-strategic markets. The plan also included the elimination
         of certain support functions in the corporate offices. The twenty-seven
         stores were closed on January 15, 1999. The support functions will be
         eliminated over the next twelve month period. The pre-tax charge for
         store closings and support functions of $21.1 million includes non-cash
         charges of $7.8 million for the writedown of assets to their net
         realizable values net of capital lease obligations of $14.7 million
         and $5.8 million estimated loss on the sale of inventory to a
         liquidator. Cash charges include severance pay of $2.2 million and
         continuing expenses of $5.3 million. In December 1998, Levitz also
         recognized a gain on the sale of previously closed stores of $3.2
         million.

         In June 1998 Management finalized a plan to close fifteen stores in
         under-performing markets. Thirteen stores were closed at the end of
         June 1998, one store was closed in July 1998 and one store was closed
         in September 1998. The plan also included the elimination of certain
         support functions and the closing of warehouses in certain locations.
         The majority of the support functions were eliminated in July 1998. The
         specific warehouses are expected to be closed by the end of the fiscal
         year. The pre-tax charge for the store closings and other charges of
         $21.1 million includes non-cash charges of $10.0 million for the
         write-down of assets to their net realizable values, $1.8 million loss
         on the sale of inventory to a liquidator and anticipated lease
         rejection claims of $4.3 million. Cash charges include severance pay of
         $1.1 million and continuing expenses of $3.9 million.

         Professional fees

         Professional fees include accounting, legal and consulting services
         provided to Levitz and the Creditors' Committee which, subject to Court
         approval, are required to be paid by Levitz while it is in Chapter 11
         and miscellaneous charges.

6.       INVENTORY:

         In December 1998, Levitz incurred a pre-tax charge of $4.8 million for
         the write-down of excess inventory as part of the warehouse
         consolidations as well as discontinued and damaged merchandise in the
         continuing stores. The write-down is included in cost of sales in the
         consolidated condensed statements of operations.




                                       10
<PAGE>

7.       UNUSUAL OPERATING EXPENSES:

         In July 1997, the former President-Merchandising/Marketing resigned.
         Levitz accrued a charge for future payroll and employee benefit costs
         of $1.3 million in connection with the Officer's employment agreement.
         Also, Levitz recorded a $5.9 million reduction for the write-off of
         future service revenue receivable under the GECC Agreement. The
         write-off occurred since Levitz was required to account for the
         transfer of assets under the GECC Agreement as a secured borrowing with
         a pledge of collateral rather than as a sale for financial reporting
         purposes.

8.       INCOME TAXES:

         Income taxes are provided based on the asset and liability method of
         accounting pursuant to Statement of Financial Accounting Standards
         ("SFAS") No. 109, "Accounting for Income Taxes". Levitz had generated
         net operating loss ("NOL") carryforwards of $62.4 million at March 31,
         1998 as a result of net losses incurred in fiscal years 1998 and 1997.
         The cumulative NOL benefit at March 31, 1998 was supported by deferred
         tax credits that are projected to turn during the carryforward periods.
         Levitz has not recorded any tax benefits for the loss incurred during
         the period ended December 31, 1998 and expects not to record any tax
         benefits for the remainder of fiscal 1999.

9.       LOSS PER SHARE:

         Loss per common share is based on the weighted average number of common
         shares outstanding during each period of 1,000 shares.

10.      CONSOLIDATED STATEMENTS OF CASH FLOWS:

         Supplemental disclosures of cash flow information (dollars in
         thousands):
         <TABLE>
         <CAPTION>
                                                                  NINE MONTHS ENDED
                                                                     DECEMBER 31,
                                                        ---------------------------------
                                                             1998             1997
                                                        ---------------  ----------------
         <S>                                            <C>              <C>
         Interest paid                                     $    20,164       $   32,105
                                                        ===============  ================

         Income tax paid (refunded), net                   $        63       $   (2,427)
                                                        ===============  ================
         </TABLE>


         In June 1997 Levitz exercised its option to issue additional term
         notes, under the previous credit agreement, of approximately $1.4
         million in lieu of paying interest in cash.

11.      NEW ACCOUNTING PRONOUNCEMENT:

         The Financial Accounting Standards Board issued SFAS No. 130,
         "Reporting Comprehensive Income," in June 1997. SFAS No. 130
         establishes standards for reporting and disclosure of comprehensive
         income. Levitz adopted this statement effective April 1, 1998. For the
         periods ended December 31, 1998 and 1997, there were no differences
         between comprehensive loss and net loss.


                                       11
<PAGE>


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

GENERAL

On September 5, 1997 (the "Petition Date"), Levitz Furniture Incorporated, a
Delaware corporation ("LFI"), and 11 of its subsidiaries (collectively, the
"Debtors"), including, Levitz Furniture Corporation, a Florida corporation and
wholly-owned subsidiary of LFI ("Levitz"), filed voluntary petitions for relief
under Chapter 11, Title 11 of the United States Code (the "Bankruptcy Code")
with the United States Bankruptcy Court for the District of Delaware,
Wilmington, Delaware ("the Court"). The bankruptcy cases of LFI and Levitz and
their affiliates are being jointly administered, for procedural purposes only,
under Case No. 97-1842(MFW). Pursuant to Sections 1107 and 1108 of the
Bankruptcy Code, Levitz, as debtor and debtor-in-possession, has continued to
manage and operate its assets and businesses pending the confirmation of a
reorganization plan or plans and subject to the supervision and orders of the
Court.


                                       12
<PAGE>


COMPARISON OF OPERATIONS

The following table sets forth Levitz's results of operations expressed as a
percentage of net sales for the periods indicated:

<TABLE>
<CAPTION>

                                                                    PERCENTAGE OF NET SALES
                                                  ----------------------------------------------------------
                                                       THREE MONTHS ENDED             NINE MONTHS ENDED
                                                           DECEMBER 31,                  DECEMBER 31,
                                                  ----------------------------   --------------------------
                                                     1998             1997          1998            1997
                                                  -----------      -----------   -----------     -----------
<S>                                               <C>              <C>           <C>             <C>  
Net sales                                              100.0 %          100.0 %       100.0 %         100.0 %

Cost of sales                                           57.6             55.7          55.9            55.6
                                                  -----------      -----------   -----------     -----------

Gross profit                                            42.4             44.3          44.1            44.4

Selling, general and administrative
  expenses                                              44.4             42.5          45.3            43.6

Unusual operating expenses                                 -                -             -             1.1

Depreciation and amortization                            2.5              2.6           2.7             2.9

Interest expense                                         4.0              2.6           4.2             5.0
                                                  -----------      -----------   -----------     -----------

Loss before reorganization items
  and income taxes                                      (8.5)            (3.4)         (8.1)           (8.2)

Reorganization items                                   (10.4)           (11.3)         (8.2)           (8.1)
                                                  -----------      -----------   -----------     -----------

Loss before income taxes                               (18.9)           (14.7)        (16.3)          (16.3)

Income tax benefit                                         -              3.3             -             5.1
                                                  -----------      -----------   -----------     -----------

Loss before extraordinary items                        (18.9)           (11.4)        (16.3)          (11.2)

Extraordinary items, net of tax                            -             (0.1)            -            (0.9)
                                                  -----------      -----------   -----------     -----------

Net loss                                               (18.9)%          (11.5)%       (16.3)%         (12.1)%
                                                  ===========      ===========   ===========     ===========

Comparable store sales decrease                         (5.4)%           (6.7)%        (0.2)%          (8.0)%
                                                  ===========      ===========   ===========     ===========

</TABLE>


THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THREE MONTHS ENDED 
DECEMBER 31, 1997

Net sales of $187.6 million for the period ended December 31, 1998 decreased
$45.0 million or 19.3% from net sales of $232.6 million in the same period for
the prior year. The decrease in net sales was due to the closing of thirty-nine
stores from October 1997 through September 1998. Sales on a comparable store
basis decreased 5.4% from the same period of the prior year. Comparable store
sales for the period ended December 31, 1997 were favorably impacted by the
resumption of normal shipments from trade vendors who had slowed shipments
during the period the Company filed for reorganization under Chapter 11 of the
Bankruptcy Code.


                                       13
<PAGE>

Gross profit as a percentage of net sales decreased to 42.4% from 44.3% for the
three month periods ended December 31, 1998 and 1997, respectively. Gross profit
includes a write-down in December 1998 of excess, discontinued and damaged
inventory in continuing stores of $4.8 million. Excluding the inventory
write-down, gross profit as a percentage of net sales was $45.0% for the three
month period ended December 31, 1998.

Selling, general and administrative (SG&A) expenses of $83.1 million for the
three month period ended December 31, 1998 decreased $15.8 million or 16% from
SG&A expenses of $98.9 million in the same period for the prior year. As a
percentage of net sales, SG&A expenses increased to 44.4% from 42.5% for the
periods ended December 31, 1998 and 1997, respectively. The dollar decrease in
SG&A expenses is primarily due to the store closings as noted above which
contributed to a reduction in advertising expense of $4.5 million, a reduction
in salaries, employee benefits and payroll taxes of $6.5 million, a reduction in
property related expenses of $3.1 million and other expenses of $1.7 million.
SG&A expenses as a percentage of net sales increased primarily due to an
increase in advertising expense of 0.9% and a reduction of service fee income
under the Company's private-label credit card program of 0.3%.

Interest expense for the three month period ended December 31, 1998 increased to
$7.6 million from $6.1 million for the same period of the prior year. The
increase in interest expense of $1.5 million for the three months ended December
31, 1998 is due to an increase in the average outstanding borrowings and the
increase of $22.0 million in term loans which bear a higher interest rate than
the revolving notes. As a result of the Chapter 11 filing, no principal or
interest payments are being made on most pre-petition debt without Court
approval or until a plan of reorganization providing for the repayment terms has
been confirmed by the Court and becomes effective. Interest on pre-petition
unsecured obligations has not been accrued after the Petition Date except that
interest expense and principal payments are continuing to be recorded on capital
lease obligations for continuing stores. Contractual interest expense of $5.5
million was not recorded on certain pre-petition debt for the three month
periods ended December 31, 1998 and 1997.

Reorganization items for the three month period ended December 31, 1998 included
an estimated reserve of $21.1 million for the closing of twenty-seven stores and
the elimination of certain support functions. The reserve included the
write-down of property, capital lease assets and equipment to their net
realizable values, net of capital lease obligations, a loss on the sale of
inventory to a liquidator and included provisions for severance pay and
continuing expenses. Also included in reorganization items is a gain on sales of
previously closed stores of $3.2 million and professional fees and other
miscellaneous items of $1.6 million for accounting, legal and consulting
services provided to Levitz and the Creditors' Committee while Levitz is in
Chapter 11. Reorganization items for the three month period ended December 31,
1997 included a loss of approximately $18.0 million from the sale of
substantially all the assets of John M. Smyth Company, a wholly-owned
subsidiary, professional fees of $3.5 million and other charges of $4.7 million.

Levitz has not recorded any tax benefits for the loss incurred during the three
month period ended December 31, 1998 and expects not to record any tax benefits
for the remainder of fiscal 1999.

As a result of the aforementioned factors, net loss for the three month period
ended December 31, 1998 amounted to $35.4 million or 18.9% of net sales as
compared to net loss of $26.7 million or 11.5% of net sales for the same period
of the prior year.

NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1997

Net sales of $538.5 million for the nine month period ended December 31, 1998
decreased $112.7 million or 17.3% over net sales of $651.2 million in the same
period for the prior year. Sales on a comparable store basis decreased 0.2%. The
decrease in net sales was due to the closing of thirty-nine stores from October
1997 through December 1998.


                                       14
<PAGE>


Gross profit as a percentage of net sales decreased to 44.1% for the nine month
period ended December 31, 1998 from 44.4% in the same period for the prior year.
Gross profit includes a write-down in December 1998 of excess, discontinued and
damaged inventory in continuing stores of $4.8 million. Excluding the inventory
write-down, gross profit as a percentage of net sales was 45.0% for the nine
month period ended December 31, 1998.

Selling, general and administrative ("SG&A") expenses decreased $39.8 million
for the nine month period ended December 31, 1998 as compared to the same period
for the prior year. As a percentage of net sales, SG&A expenses increased to
45.3% from 43.6%. The dollar decrease in SG&A expenses is primarily due to the
store closings as noted above which contributed to a reduction in advertising
expense of $11.4 million, a reduction in salaries, employee benefits and payroll
taxes of $16.8 million, a reduction in property related expenses of $10.4
million and other expenses of $6.6 million. In addition, SG&A was affected by a
reduction in the service fee income under the private-label credit card program
of $5.4 million.

During the nine month period ended December 31, 1997, Levitz recorded a $5.9
million charge as an unusual operating expense for the write-off of the future
service revenue receivable under the GECC Agreement since Levitz was required to
account for the transfers of assets under the GECC Agreement as a secured
borrowing with a pledge of collateral rather than as a sale for financing
reporting purposes. Also, Levitz recorded a $1.3 million charge for the
settlement of an employment agreement upon resignation of an officer.

Interest expense for the nine month period ended December 31, 1998 decreased to
$22.4 million from $32.2 million for the same period of the prior year. As a
result of the Chapter 11 filing, no principal or interest payments are being
made on most pre-petition debt without Court approval or until a plan of
reorganization providing for the repayment terms has been confirmed by the Court
and becomes effective. Interest on pre-petition unsecured obligations has not
been accrued after the Petition Date except that interest expense and principal
payments are continuing to be recorded on capital lease obligations for
continuing stores. Contractual interest expense of $16.4 million and $7.1
million was not recorded on certain pre-petition debt for the nine month periods
ended December 31, 1998 and 1997.

Reorganization items for the nine month period ended December 31, 1998 included
estimated reserves of $39.1 million for the closing of forty-two stores in
under-performing and non-strategic markets and the elimination of certain
support functions and the closing of warehouses in certain locations. Also
included in reorganization items is a gain on sales of previously closed stores
of $3.2 million and professional fees and miscellaneous expenses of $4.9
million. Professional fees include accounting, legal and consulting services
provided to Levitz and the Creditors' Committee which, subject to Court
approval, are required to be paid by Levitz while it is in Chapter 11.
Reorganization items for the nine month period ended December 31, 1997 included
estimated reserves for store closings of $23.4 million for the closing of
eighteen stores, an estimated loss of $7.7 million on the sale of substantially
all the assets of John M. Smyth Company, a wholly-owned subsidiary, the
acceleration of goodwill amortization of $15.0 million, professional fees and
other costs of $6.7 million.

Levitz has not recorded any tax benefits for the loss incurred during the nine
month period ended December 31, 1998 and expects not to record any tax benefits
for the remainder of fiscal 1999.

The extraordinary loss net of tax benefit was $5.8 million or 0.9% of net sales
for the nine month period ended December 31, 1997. The extraordinary loss was
due to the write-off of deferred financing fees related to the previous bank
credit agreement.

Net loss for the nine month period ended December 31, 1998 was $87.4 million or
16.3% of net sales as compared to a net loss of $78.5 million or 12.1% of net
sales for the same period of the prior year.


                                       15
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Levitz's primary sources of liquidity are cash flow from operations (including
the proceeds from the financing of the private-label credit card programs by
Household), trade credit and borrowings under the DIP Facility. During the nine
month period ended December 31, 1998, Levitz used approximately $40.8 million of
net cash flow in operations before changes in operating assets and liabilities.
Changes in operating assets and liabilities increased net cash flow from
operations by $26.5 million. Management is attempting to increase cash flow from
operations by pursuing initiatives intended to increase sales in comparable
stores, closing stores in under-performing or non-strategic markets, eliminating
certain support function positions and by reducing the cost of warehouse
operations in markets where it is determined that fewer warehouses can service
the market.

Cash provided by investing activities for the nine month period ended December
31, 1998 includes $11.8 million of proceeds from asset sales of closed
facilities. All of these proceeds were applied as repayments to the DIP Facility
as required by the agreement. Management is continuing to market all property
held for disposal and leasehold interests where rents are below market values to
reduce current borrowings and increase availability under the DIP Facility.

Levitz's total capital expenditures were approximately $5.5 million during the
period ended December 31, 1998. Capital expenditures were for existing store
improvements and equipment. Management estimates that approximately $5.0 million
to $7.0 million is required annually to adequately maintain and/or improve its
existing stores. Levitz closed fifteen stores during the nine month period ended
December 1998 and twenty-seven stores in January 1999.

Net cash provided by financing activities amounted to $8.9 million in the nine
month period ended December 31, 1998 and includes increased borrowings under the
DIP Facility of $20.0 million less principal payments under long-term
obligations of $2.1 million and decrease in outstanding checks and cash
overdrafts of $9.0 million which fluctuates based on the timing of payments.

Debt

Levitz, LFI and substantially all of its subsidiaries, as debtors-in-possession,
are parties to a Postpetition Credit Agreement dated as of September 5, 1997
(the "DIP Facility") as amended with BT Commercial Corporation ("BTCC") as
agent. The DIP Facility has been approved by the Court and includes a total
commitment of $252.0 million that is comprised of revolving notes of $193.6
million and a term note of $58.4 million. Letter of Credit obligations under the
revolver portion of the DIP Facility are limited to $25.0 million. The DIP
Facility is intended to provide Levitz with the cash and liquidity to conduct
its operations and pay for merchandise shipments at normal levels during the
course of the Chapter 11 proceedings.

The DIP Facility was amended on September 4 and September 18, 1998. The minimum
EBITDA covenants for the quarter ending September 30 and December 31, 1998 were
reduced and a new term loan was extended in the principal amount of $22.0
million under a second term note. The proceeds from the second term note of
$22.0 million were used to pay down the revolving notes. This increased excess
availability under the revolving notes by $22.0 million at the time of the
transaction. On September 15, 1998 the total commitment under the revolver
portion of the DIP Facility was reduced from $223.6 million to $193.6 million.
This reduced the total commitment of the DIP Facility to $252.0 million.
Effective December 31, 1998, the DIP Facility lenders granted Levitz a waiver in
meeting the minimum EBITDA requirements for the period ended December 31, 1998.

Loans made under the DIP Facility revolving notes bear interest, at Levitz's
option, at a rate equal to either Bankers Trust Company's prime lending rate
plus 1.5% or BTCC's LIBOR rate plus 3.75%. The term notes bear interest at 16%.
Levitz is required to pay an unused line fee of 0.5%, and a letter of credit fee
of 2.0%.



                                       16
<PAGE>


The maximum borrowings, excluding the term commitments, under the DIP Facility
are limited to 85% of eligible accounts receivable, 75% of eligible inventory
(as defined in the DIP Facility) and a fixed asset sublimit which is permanently
reduced on each date on which an asset disposition, as defined, occurs.
Qualification of accounts receivable and inventory items as "eligible" is
subject to unilateral change at the discretion of the lenders. Excess
availability under the DIP Facility at December 31, 1998 was $17.7 million.

The DIP Facility is secured by substantially all of the assets of Levitz and its
subsidiaries and a perfected pledge of stock of all Levitz's subsidiaries. The
DIP Facility contains restrictive covenants including, among other things, the
maintenance of minimum earnings before interest, taxes, depreciation and
amortization as defined (EBITDA), limitations on the incurrence of additional
indebtedness, liens, contingent obligations, sales of assets, capital
expenditures and a prohibition on paying dividends. LFI and Levitz are currently
in compliance with the DIP Facility covenants as amended.

The lenders under the DIP Facility have a super-priority administrative expense
claim against the estate of the Debtors.

Management and the lenders under the DIP Facility are negotiating an extension
of the DIP Facility to June 7, 1999 and an amendment thereof to, among other
things, increase in the excess availability under the DIP Facility. The DIP
Facility is scheduled to expire on March 5, 1999. No assurance can be given that
these objectives will be met.

On September 4, 1998 Levitz and its operating subsidiaries entered into an
agreement ("Merchant Agreement") with Household Bank (SB), N.A. ("Household")
whereby Household would provide financing to individual consumers purchasing
merchandise from Levitz ("Private-Label Credit Card Program"). The Court
approved the Merchant Agreement and granted a first priority and security
interest and lien to Household on certain reserves retained or accumulated by
Household, to include transferred reserves to Household totaling $5.8 million at
December 31, 1998, and gave administrative expense status to substantially all
obligations of Levitz arising under the Merchant Agreement.

Also on September 4, 1998, General Electric Capital Corporation ("GECC") and
Levitz terminated the Second Amended and Restated Account Purchase and Credit
Card Agreement (the "GECC Agreement") which was replaced by the Merchants
Agreement. Levitz and GECC jointly released each other from substantially all
obligations under the GECC Agreement. At the same time GECC sold the majority of
the portfolio under the GECC Agreement, approximately $561.0 million, to
Household.

As a result of the transfer of the GECC portfolio to Household, the Company
determined that the transaction qualified for sale treatment under Financial
Accounting Standards Board, Statement of Accounting Standards No. 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities". As a result, the Receivable under Account Purchase Agreement
and the offsetting Obligation Under Account Purchase Agreement were removed from
the consolidated condensed balance sheets.

Levitz is exposed to market risk under the terms of the Household Agreement.
Levitz may pay a fee or may receive income, based upon the relationship among
the interest earned on the portfolio, the amount of the servicing fee, the cost
of capital, promotional discount fees and credit losses. Levitz is generally
obligated for all credit losses under the portfolio, including the GECC
portfolio transferred to Household, up to a maximum of 15% and for 50% of all
credit losses above 15%. Levitz is also required under the Merchant Agreement to
fund a portfolio risk reserve of 2.5% for the first year and 3.5% thereafter of
all amounts financed up to a stipulated amount.


                                       17
<PAGE>

Going Concern

The Company believes that cash on hand, amounts available under the DIP
Facility, as amended, and funds from operations (including proceeds from the
financing of customer credit card obligations by Household) will enable the
Company to meet its immediate liquidity and capital expenditure requirements.
Continued availability under the DIP Facility is dependent upon LFI and Levitz
extending or replacing the DIP Facility which is scheduled to expire on March 5,
1999. No assurance can be given that the Company will be successful in extending
or replacing the DIP facility prior to March 5, 1999. Until a plan or
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.

Inherent in a successful plan of reorganization is a capital structure that
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
Company. Under the Bankruptcy Code, the rights and treatment of pre-petition
creditors and stockholders may be substantially altered. At this time it is not
possible to predict the outcome of the Chapter 11 case, in general, or the
effects of such case on the business of the Company or on the interests of
creditors.

Year 2000

There have been no significant changes to the Company's Year 2000 project as
reported in its Form 10-K for the fiscal year ended March 31, 1998. Levitz is in
the process of changing and testing financial and operational systems for year
2000 compliance. The Company is also communicating with vendors, financial
institutions and others with which it does business to coordinate year 2000
conversion. The cost of achieving Year 2000 compliance, excluding in-house
salaries, wages and benefits, has been estimated at approximately $0.3 million
for software maintenance and development and $0.3 million for other operational
systems. The Company expects to spend $2.4 million in capital expenditures for
the enhancement of operational and financial software and hardware systems as
needed for current changes in business strategy which will eliminate the need
for achieving Year 2000 compliance on some existing software. Most of the
software has been purchased and is currently being installed. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ materially from those plans.

Any failure in a critical internal system relating to year 2000 problems,
whether in a system maintained by the Company or by a third-party vendor, could
have an adverse effect on the Company's business operations. Moreover, year 2000
issues present a number of risks that are beyond the Company's reasonable
control, such as a failure of utility companies to deliver electricity, the
failure of telecommunications companies to provide voice and data services, the
failure of financial institutions to process transactions and transfer funds,
the failure of vendors to deliver merchandise or perform services required by
the Company and the collateral effects on the Company of the effects of year
2000 issues on the economy in general or on the Company's business partners and
customers in particular.

During 1999, the Company intends to develop contingency plans to address
potential disruptions due to internal systems and business disruption of third
parties. However, it is unlikely that any contingency plan can fully mitigate
the impact of significant business disruptions.


                                       18
<PAGE>

PART II OTHER INFORMATION:

Item 6.  Exhibits and Reports on Form 8-K

                  (a)      Exhibit 10.59: Waiver dated as of December 31, 1998
                           to the Postpetition Credit Agreement among Levitz
                           Furniture Incorporated, et al. and BT Commercial
                           Corporation, as agent.

                           Exhibit 27:  Financial Data Schedule

                  (b)      Report on Form 8-K:

                           On November 17, 1998, the registrant filed a report
                           on Form 8-K reporting under Item 5. "Other Events"
                           the appointment of Edward L. Grund as Chairman of the
                           Board and Chief Executive Officer of Levitz Furniture
                           Incorporated and Levitz Furniture Corporation. Mr.
                           Grund replaced Michael Bozic who continues as a
                           member of the Board of Directors of Levitz Furniture
                           Incorporated.

                           On December 21, 1998, the registrant filed a report
                           on Form 8-K reporting under Item 5. "Other Events"
                           the closing of twenty-seven stores in non-strategic
                           markets and the departure of Robert Homler, formerly
                           President of Marketing and Merchandising.


                                       19
<PAGE>

                                   SIGNATURES

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

                                               LEVITZ FURNITURE CORPORATION
                                                        (Registrant)

Date:  February 16, 1998                       /s/ MICHAEL MCCREERY
                                               ---------------------------------
                                                   Michael McCreery
                                                   Senior Vice President and
                                                   Chief Financial Officer


                                       20
<PAGE>

                                  EXHIBIT INDEX

                              Exhibits to Form 10-Q

           Number
        EXHIBIT TABLE     EXHIBIT
        -------------     -------

            10.59         Waiver dated as of December  31, 1998 to the  
                          Postpetition  Credit  Agreement among Levitz Furniture
                          Incorporated,  et al. and BT Commercial  Corporation,
                          as agent.

             27           Financial Data Schedule.

                                       21