SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C.

                                    FORM 10-Q
     Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities and
                              Exchange Act of 1934
For the quarterly period ended March 27, 1999.  Commission file number 333-41239

                         ------------------------------

                                DUANE READE INC.
             (Exact name of registrant as specified in its charter)

             DELAWARE                                   04-3164702
   (State or other jurisdiction             (IRS Employer Identification Number)
of incorporation or organization)

            DRI I Inc.*               Delaware                04-3166107
           Duane Reade*               New York                11-2731721

* Guarantors with respect to the Company's 9 1/4% Senior Subordinated Notes due
2008

           440 Ninth Avenue
          New York, New York                                    10001
(Address of principal executive offices                       (Zip Code)

                                 (212) 273-5700
              (Registrant's telephone number, including area code)

                          -----------------------------

           Securities registered pursuant to Section 12(b) of the Act:

                                                         Name of each exchange
      Title of each class                                on which registered
      -------------------                                -------------------
Common Stock, $.01 par value per share             New York Stock Exchange. Inc.
9 1/4% Senior Subordinated Notes due 2008          None

                          ----------------------------

          Securities registered pursuant to Section 12 (g) of the Act:
                                      None.

      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 number of shares of the Common Stock outstanding as of May 4, 1999:
                                   17,111,908

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

                                      INDEX

                                                                            PAGE

PART I

      ITEM  1. - FINANCIAL STATEMENTS (Unaudited)

            Consolidated Statements of Operations (Unaudited) -
                  For the 13 Weeks Ended March 27, 1999 and
                  March 28, 1998                                               3

            Consolidated Balance Sheets
                  As of March 27, 1999 (Unaudited) and December 26, 1998       4

            Consolidated Statements of Cash Flows (Unaudited) -
                  For the 13 Weeks Ended March 27, 1999 and
                  March 28, 1998                                               5

            Notes to Consolidated Financial Statements                         6

      ITEM  2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                9

PART II - OTHER INFORMATION                                                   12
<PAGE>

                                Duane Reade Inc.
                Consolidated Statements of Operations (Unaudited)
                    (In thousands, except per share amounts)

                                                        For the 13 Weeks Ended
                                                       ------------------------
                                                       March 27,      March 28,
                                                         1999           1998
                                                       ---------      ---------
Net sales                                              $ 190,364      $ 119,383
Cost of sales                                            144,408         90,577
                                                       ---------      ---------
Gross profit                                              45,956         28,806
                                                       ---------      ---------
Selling, general & administrative expenses                31,721         19,116
Amortization                                               2,286          1,416
Depreciation                                               2,377          1,086
Store pre-opening expenses                                   279            905
                                                       ---------      ---------
                                                          36,663         22,523
                                                       ---------      ---------
Operating income                                           9,293          6,283
Interest expense, net                                      6,780          7,238
                                                       ---------      ---------
Income (loss) before income taxes                          2,513           (955)
Income taxes                                                 477             --
                                                       ---------      ---------
Income (loss) before extraordinary charge                  2,036           (955)
Extraordinary charge, net of income taxes of $-0-             --        (23,600)
                                                       ---------      ---------
Net income (loss)                                      $   2,036      $ (24,555)
                                                       =========      =========
                                                                    
Per Common Share - Basic                                            
    Income (loss) before extraordinary charge          $    0.12      $   (0.07)
    Extraordinary charge                                      --          (1.70)
                                                       ---------      ---------
    Net income (loss)                                  $    0.12      $   (1.77)
                                                       =========      =========
                                                                    
    Weighted average common shares outstanding            17,088         13,839
                                                       =========      =========
                                                                    
Per Common Share - Diluted                                          
    Income (loss) before extraordinary charge          $    0.11      $   (0.07)
    Extraordinary charge                                      --          (1.70)
                                                       ---------      ---------
    Net income (loss)                                  $    0.11      $   (1.77)
                                                       =========      =========
                                                                    
    Weighted average common shares outstanding            18,402         13,839
                                                       =========      =========

          See accompanying notes to consolidated financial statements.


                                        3
<PAGE>

                                Duane Reade Inc.
                           Consolidated Balance Sheets
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                      March 27,     December 28,
                                                                        1999            1998
                                                                      ---------     ------------
                                                                     (Unaudited)
<S>                                                                   <C>             <C>      
                                     ASSETS
Current Assets
  Cash                                                                $     912       $     869
  Receivables                                                            28,665          25,547
  Inventories                                                           131,781         134,313
  Property held for sale                                                  5,010          11,527
  Prepaid expenses and other current assets                               5,354           4,774
                                                                      ---------       ---------
    TOTAL CURRENT ASSETS                                                171,722         177,030
Property and equipment, net                                              81,431          71,974
Goodwill, net of accumulated amortization of $23,473 and $21,954        143,427         144,946
Other assets                                                             36,162          34,190
                                                                      ---------       ---------
    TOTAL ASSETS                                                      $ 432,742       $ 428,140
                                                                      =========       =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable                                                    $  55,602       $  50,028
  Accrued interest                                                        4,449           3,636
  Other accrued expenses                                                 14,732          25,677
  Current portion of long-term debt                                       6,850           5,600
  Current portion of capital leases                                       1,859           2,089
                                                                      ---------       ---------
    TOTAL CURRENT LIABILITIES                                            83,492          87,030
Senior debt, less current portion                                       305,200         299,350
Capital lease obligations, less current portion                           3,737           3,930
Other noncurrent liabilities                                             14,736          15,041
                                                                      ---------       ---------
    TOTAL LIABILITIES                                                   407,165         405,351
                                                                      ---------       ---------

Stockholders' equity
  Preferred stock, $0.01 par; authorized 5,000,000 shares;
    issued and outstanding: none                                             --              --
  Common stock, $0.01 par; authorized 30,000,000 shares;
    issued and outstanding 17,111,908 and 16,985,557 shares                 171             170
  Paid-in capital                                                       126,958         126,207
  Accumulated deficit                                                  (101,552)       (103,588)
                                                                      ---------       ---------
    TOTAL STOCKHOLDERS' EQUITY                                           25,577          22,789
                                                                      ---------       ---------
    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        $ 432,742       $ 428,140
                                                                      =========       =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

                                Duane Reade Inc.
                Consolidated Statements of Cash Flows (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    For the 13 Weeks Ended
                                                                   ------------------------
                                                                   March 27,      March 28,
                                                                     1999           1998
                                                                   ---------      ---------
<S>                                                                <C>            <C>       
Cash flows from operating activities:
  Net income (loss)                                                $   2,036      $ (24,555)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
      Extraordinary charge                                                --         23,600
      Depreciation and amortization of property and equipment          2,377          1,086
      Amortization of goodwill and other intangibles                   3,049          1,713
      Accretion of principal of zero coupon debt                          --          1,659
      Other                                                            1,074            367
  Changes in operating assets and liabilities:
    Receivables                                                       (3,118)           (41)
    Inventories                                                        2,532        (12,927)
    Accounts payable                                                   5,574          8,017
    Prepaid and accrued expenses                                     (10,712)        (3,262)
    Increase in other (assets) liabilities, net                       (3,801)          (938)
                                                                   ---------      ---------
      NET CASH USED IN OPERATING ACTIVITIES                             (989)        (5,281)
                                                                   ---------      ---------
Cash flows from investing activities:
  Capital expenditures                                               (11,834)        (8,915)
  Proceeds from sale of assets                                         6,517             --
                                                                   ---------      ---------
      NET CASH USED IN INVESTING ACTIVITIES                           (5,317)        (8,915)
                                                                   ---------      ---------
Cash flows from financing activities:
  Proceeds from initial public offering, net                              --        101,606
  Proceeds from existing term loan                                    25,000        130,000
  Proceeds from new senior subordinated notes                             --         80,000
  Repayment of old term loan                                              --        (65,310)
  Net borrowings (repayments) - old revolving credit facility             --        (24,500)
  Repayment of old senior subordinated notes                              --        (89,893)
  Repayment of zero coupon debt                                           --        (99,346)
  Premiums paid on early extinguishment of debt                           --        (11,496)
  Fees and expenses related to early extinguishment of debt               --           (478)
  Repayments of existing term loan                                    (1,400)            --
  Net repayments - existing revolving credit facility                (16,500)            --
  Debt issuance costs                                                 (1,080)        (5,042)
  Exercise of stock options                                              752             --
  Repayments of capital lease obligations                               (423)          (611)
                                                                   ---------      ---------
      NET CASH PROVIDED BY  FINANCING ACTIVITIES                       6,349         14,930
                                                                   ---------      ---------
Net increase in cash                                                      43            734
Cash at beginning of period                                              869            261
                                                                   ---------      ---------
Cash at end of period                                              $     912      $     995
                                                                   =========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

                                DUANE READE INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The consolidated financial statements included herein reflect all adjustments
which, in the opinion of management, are necessary to present fairly the results
of operations and financial position of Duane Reade Inc. (the "Company"), and
have been prepared in accordance with the same accounting principles followed in
the presentation of the Company's annual financial statements for the year ended
December 26, 1998. The financial statements should be read in conjunction with
the Company's financial statements included in its Annual Report on Form 10K for
the year ended December 26, 1998. The results for the 13 weeks ended March 27,
1999 are not necessarily indicative of the results expected for the full year.

The Company has no assets or operations other than its investment in its
subsidiary guarantors. Accordingly, the consolidated financial statements
present the combined assets and operations of the subsidiary guarantors.

2. Net Income (Loss ) per Common Share

Net income (loss) per common share is based on the weighted average shares
outstanding during each period in accordance with the provisions of FASB
Statement No. 128 "Earnings Per Share." Basic earnings per share is computed
based on the weighted average number of common shares outstanding during the
period. Diluted earnings per share gives effect to all dilutive potential common
shares outstanding during the period. Potential common shares include shares
issuable upon exercise of the Company's stock options. Potential common shares
relating to options to purchase common stock were not included in the weighted
average number of shares for the 13 weeks ended March 28, 1998 because their
effect would have been anti-dilutive.

3. Income Taxes

Income taxes are recorded based on the estimated effective tax rate expected to
be applicable for the full fiscal year. The effective tax rate is lower than the
statutory rate, reflecting the benefit of net operating loss carryforwards.
While such carryforwards are adequate to offset all federal taxes that are
expected to be payable for the year (and therefore no tax payments are
expected), for accounting purposes, the benefit of certain carryforwards serves
to reduce goodwill, and not income tax expense, resulting in an effective rate
greater than zero.

4. Acquisition

On September 11, 1998, the Company purchased substantially all of the operating
assets (including inventory and leases) of Rock Bottom Stores, Inc., a health
and beauty aid retailer operating 38 stores primarily in the outer boroughs of
New York City (the "Rock Bottom Acquisition"). The purchase price paid was $64.9
million, subject to certain post-closing adjustments. The acquisition, accounted
for under the purchase method, was financed with additional term loans under the
Existing Credit Agreement. The purchase price was allocated to inventory ($18.2
million), property held for sale ($8.2 million), property ($14.7 million),
identifiable intangibles ($5.2 million) and goodwill ($27.8 million) net of
reserves for expenses and store closings ($9.2 million).

Ten stores acquired as part of the acquisition were designated for sale or
closure. These stores were operated for a period of time after the Rock Bottom
Acquisition. Six of these stores were sold in March 1999 at no resultant gain or
loss. One of the remaining stores has been turned back to the landlord and the
Company has been released from the lease obligations. The results of operations
from these ten stores have not been included in the Company's statement of
operations for any period. Their results have been included in goodwill. Any
gain or loss resulting from the stores' sale will be included in goodwill in the
period sold.


                                       6
<PAGE>

                                DUANE READE INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

The operating results of the Rock Bottom stores to be retained have been
included in the consolidated statement of operations from the date of
acquisition. The unaudited pro forma results for the 13 weeks ended March 28,
1998 presented below assume the acquisition occurred as of December 28, 1997 (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                           For the 13 weeks ended
                                                       ------------------------------
                                                         March 27,         March 28,
                                                           1999              1998
                                                       ------------      ------------
                                                       (Historical)       (Pro Forma)
<S>                                                       <C>            <C>         
Net sales                                                 $190,364          $161,163
                                                          ========          ========
                                                                            
Operating income                                          $  9,293          $  8,023
                                                          ========          ========
                                                                            
Income (loss) before extraordinary charge                 $  2,036          $   (824)
Extraordinary charge, net of income taxes of $-0-               --           (23,600)
                                                          --------          --------
Net income (loss)                                         $  2,036          $(24,424)
                                                          ========          ========
                                                                            
Per Common Share-Basic:                                                     
Income (loss) before extraordinary charge                 $   0.12          $  (0.06)
Extraordinary charge                                            --             (1.70)
                                                          --------          --------
Net income (loss)                                         $   0.12          $  (1.76)
                                                          ========          ========
                                                                            
Per Common Share-Diluted:                                                   
Income (loss) before extraordinary charge                 $   0.11          $  (0.06)
Extraordinary charge                                            --          $  (1.70)
                                                          --------          --------
Net income (loss)                                         $   0.11          $  (1.76)
                                                          ========          ========
</TABLE>

In management's opinion, the unaudited pro forma combined results are not
necessarily indicative of the actual results that would have occurred had the
acquisition been consummated at the beginning of fiscal 1998 or of future
results of the combined operations under the ownership and management of the
Company.

5. Refinancing Plan and Initial Public Offering

In February 1998, the Company successfully completed an initial public offering
of its stock which was part of a plan to refinance all of the Company's existing
indebtedness (the "Refinancing Plan") in order to enhance the Company's
financial flexibility to pursue growth opportunities and implement capital
improvements. The Refinancing Plan resulted in a reduction in the Company's
overall indebtedness, a simplification of the Company's capital structure and
access to additional borrowings. The principal components of the Refinancing
Plan were; (i) the sale by the Company of 6.7 million shares of common stock for
net proceeds of approximately $102 million; (ii) the execution of a new secured
credit agreement (the "Existing Credit Agreement") which provides for borrowings
up to approximately $160 million ($130 million of term loans and up to $30
million of revolving loans); (iii) the issuance of $80 million aggregate
principal amount of the Company's 9 1/4% Senior Subordinated Notes due 2008 (the
"Senior Notes") for net proceeds of approximately $77 million; (iv) the
repayment of all outstanding borrowings under the Company's former credit
agreement (the "Old Credit Agreement"); (v) the redemption of the Company's
outstanding Zero Coupon Notes; and (vi) the redemption of the Company's
outstanding 12% Senior Notes due 2002. The interest rates under the Existing
Credit Agreement will be approximately the same as interest rates under the Old
Credit Agreement.


                                       7
<PAGE>

                                DUANE READE INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

6. Extraordinary Charge

During the 13 weeks ended March 28, 1998, as a result of the completion of the
Refinancing Plan, the Company incurred a $23.6 million extraordinary charge due
to the early extinguishment of debt. The extraordinary charge included
redemption premiums on the Senior Notes and Zero Coupon Notes of approximately
$11.5 million, accelerated amortization of deferred financing costs and other
transaction expenses of approximately $8.1 million, and accelerated accretion of
Zero Coupon Notes to the indenture stated value of approximately $4.0 million.

7. Income (Loss) Per Common Share

The following table sets forth the computation of income (loss) per common share
for the periods presented (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                              For the 13 Weeks Ended
                                                            --------------------------
                                                            March 27,        March 28,
                                                              1999             1998
                                                             -------         --------
<S>                                                          <C>             <C>      
Income (loss) before extraordinary charge                    $ 2,036         $   (955)
Extraordinary charge                                              --          (23,600)
                                                             -------         --------
Net income (loss)                                            $ 2,036         $(24,555)
                                                             =======         ========
                                                                           
Weighted average number of common shares outstanding                       
   during the period - basic                                  17,088           13,839
Diluted potential securities                                   1,314               --
                                                             -------         --------
Weighted average number of shares outstanding - diluted       18,402           13,839
                                                             =======         ========
                                                                           
Per common share - basic                                                   
Income (loss) before extraordinary charge                    $  0.12         $  (0.07)
Extraordinary charge                                              --            (1.70)
                                                             -------         --------
Net income (loss)                                            $  0.12         $  (1.77)
                                                             -------         --------
                                                                           
                                                             -------         --------
Per common share - diluted                                                 
Income (loss) before extraordinary charge                    $  0.11         $  (0.07)
Extraordinary charge                                              --            (1.70)
                                                             -------         --------
Net income (loss)                                            $  0.11         $  (1.77)
                                                             =======         ========
</TABLE>


                                       8
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATION

The information contained herein includes certain forward-looking statements
that involve a number of risks and uncertainties. A number of facts could cause
actual results, performance, achievements of the Company, or industry results to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These factors include,
but are not limited to, the competitive environment in the drugstore industry in
general and in the Company's specific market area; inflation, changes in costs
of goods and services; economic conditions in general and in the Company's
specific market areas; demographic changes; changes in prevailing interest rates
and the availability of and terms of financing to fund the anticipated growth of
the Company's business; liability and other claims asserted against the Company;
changes in operation strategy or development plans; the ability to attract and
retain qualified personnel; the significant indebtedness of the Company; labor
disturbance; changes in the Company's acquisition and capital expenditure plans;
and other factors referenced herein. In addition, such forward looking
statements are necessarily dependent upon assumptions, estimates and dates that
may be incorrect or imprecise and involve known and unknown risks, uncertainties
and other factors. Accordingly, any forward-looking statements included herein
do not purport to be predictions of future events or circumstances and may not
be realized. Forward-looking statements can be identified by, among other
things, the use of forward-looking terminology such as "believes," "expects, "
"may, " "will," "should," "seeks," "pro forma," "anticipates," "intends" or the
negative of any thereof or other variations thereon or comparable terminology,
or by discussion of strategy or intentions. Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligations to update any
such factors or to publicly announce the results of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.

Results of Operations

The following sets forth the results of operations as a percentage of sales for
the periods indicated.

<TABLE>
<CAPTION>
                                                            For the 13 Weeks Ended
                                                      ----------------------------------
                                                      March 27, 1999      March 28, 1998
                                                      --------------      --------------
<S>                                                       <C>                 <C>   
Net sales                                                 100.0%              100.0%
Cost of sales                                              75.9                75.9
                                                          -----               -----
Gross profit                                               24.1                24.1
Selling, general and administrative expenses               16.7                16.0
                                                                             
Amortization                                                1.2                 1.2
                                                                             
Depreciation                                                1.2                 0.9
                                                                             
Store pre-opening expenses                                  0.1                 0.7
                                                          -----               -----
                                                                             
Operating income                                            4.9                 5.3
                                                                             
Interest expense, net                                       3.6                 6.1
                                                          -----               -----
                                                                             
Income (loss) before income taxes                           1.3                (0.8)
                                                                             
Income taxes                                                0.2                  --
                                                          -----               -----
Income (loss)  before extraordinary charge                  1.1                (0.8)
                                                                             
Extraordinary charge                                         --               (19.8)
                                                          -----               -----
                                                                             
Net income (loss)                                           1.1%              (20.6)%
                                                          =====               =====
</TABLE>

Net sales in the first quarter 1999 were $190.4 million, an increase of 59.5%
over last year's first quarter net sales of $119.4 million. The increase was
attributable to sales from the 28 former Rock Bottom stores that the Company
purchased in September 1998, increased comparable store sales of 7.1%, the
inclusion of nine stores opened during the first quarter of 1998 for the entire
period and the sales from new stores. The Company completed the conversion of
seven Rock Bottom stores and opened three stores during the first quarter of
1999 compared to nine store openings during the first quarter of 1998.


                                       9
<PAGE>

Cost of sales as a percentage of net sales was 75.9% in both quarters resulting
in a gross profit margin of 24.1%.

Selling, general and administrative expenses were $31.7 million or 16.7% of net
sales and $19.1 million or 16.0% of net sales in the first quarter of 1999 and
1998, respectively. The percentage increase in 1999 compared to 1998 resulted
principally from higher administrative costs as well as transition costs of
approximately $600,000 incurred during the first quarter relating to the
integration of the former Rock Bottom stores.

Amortization of goodwill and other intangibles in the first quarter of 1999 and
1998 was $2.3 million and $1.4 million, respectively. The increase in
amortization resulted principally from the amortization of goodwill and
identifiable intangible assets related to the Rock Bottom stores as well as
increases in the amortization of lease acquisition and customer list costs for
pharmacy acquisitions during 1998.

The Company incurred pre-opening costs of $0.3 million during the first quarter
of 1999 related to the opening of three stores. Pre-opening costs in the first
quarter of 1998 of $0.9 million were attributable to the opening of nine stores.

Net interest expense decreased 6.3% to $6.8 million in the first quarter of 1999
from $7.2 million in the first quarter of 1998. The decrease was principally due
to the impact of debt refinancing completed during February 1998 (in connection
with the Refinancing Plan) which resulted in a reduction of certain interest
rates.

The Company anticipates that in 1999 it will begin to utilize the net tax loss
carryforward benefits it has accumulated in past years, and, therefore, began in
the first quarter of 1999 to provide for income tax expense at its anticipated
effective tax rate of 19% (See Note 3 to consolidated financial statements).

The Company's income before extraordinary charge was $2.0 million, compared to a
loss before extraordinary charge of $1.0 million in the first quarter of 1998
primarily as a result of increased sales and gross profit margin, and decreased
interest expense, partially offset by an increase in selling, general and
administrative expenses. First quarter 1998 results also included a $23.6
million extraordinary charge for costs associated with the early extinguishment
of debt as part of the Company's initial public offering and related financing.
Net income for the first quarter of 1999 was $2.0 million compared to a net loss
for the first quarter 1998 of $24.6 million.

Liquidity and Capital Resources

Working capital was $88.2 million and $90.0 million as of March 27, 1999 and
December 26 1998, respectively. The decrease is principally due to reductions in
net owned inventory and property held for sale partially offset by a decrease in
accrued expenses. The decrease in inventory reflects the liquidation of
non-compatible merchandise as a result of the conversion of the former Rock
Bottoms to the hybrid Duane Reade format. Property held for sale was reduced as
a result of the disposition, at no gain or loss, of six stores acquired from
Rock Bottom Stores, Inc. which the Company elected not to continue to operate as
well as those stores' related inventories.

The Company's EBITDA (earnings before interest, taxes, depreciation,
amortization, extraordinary charge and other non-cash charges) for the first
quarter of 1999 increased by 64% to $15.0 million from $9.2 million in first
quarter of 1998. EBITDA as a percentage of sales was 7.9% in 1999 compared to
7.7% in 1998.

For the first quarter of 1999, net cash used in operating activities was $1.0
million, compared to $5.3 million during the first quarter of 1998. The primary
reason for this use of cash was the decrease in accrued expenses of $10.7
million and expenditures relating to lease and customer list acquisitions, which
more than offset the decrease in the Company's investment in inventory.

During the first quarter of 1999, net cash used in investing activities was $5.3
million compared to $8.9 million during the first quarter of 1998. This reflects
capital expenditures in 1999 related to the conversion of former Rock Bottom
stores to the hybrid Duane Reade format, new store openings and remodeling, net
of proceeds related to the disposition of six former Rock Bottom store
locations. The Company sold the leases for the six stores for proceeds of
approximately $3.5 million and liquidated the stores' inventories for proceeds
of approximately $3.0 million.


                                       10
<PAGE>

For the quarter ended March 27, 1999, net cash provided by financing activities
was $ 6.3 million compared to $14.9 million for the quarter ended March 28,
1998. The decrease from last year resulted from the implementation of the
Company's Refinancing Plan during the first quarter of 1998. During the quarter
ended March 27, 1999, the Company secured an additional term loan of $25
million. In addition, the Company increased its revolving credit facility from
$30 million to $40 million. This will provide the Company with additional
flexibility under the Existing Credit Agreement for the Company's working
capital requirements. At March 27, 1999, the Company had no borrowing
outstanding under the revolving credit facility.

The Company's capital requirements primarily result from opening and stocking
new stores. The Company believes that there are significant opportunities to
open additional stores, and currently plans to open approximately 30 to 40
stores during 1999 and 2000. The Company expects to spend approximately $20
million in 1999 on capital expenditures primarily for new and replacement
stores. Working capital is also required to support inventory for the Company's
existing stores. Historically, the Company has been able to lease its store
locations.

The Company records significant accounts receivable related to pharmacy sales in
connection with third party plans and these receivables are current. Prior to
September 8, 1998, the Company had a non-recourse factoring arrangement with an
independent third party, Pharmacy Fund, Inc. (the "Pharmacy Fund") under which
the Company sold it accounts receivable associated with the third party plans.
On September 8, 1998, Pharmacy Fund declared bankruptcy and no longer purchases
the Company's third party plan receivables. The Company believes that it will
not suffer any loss from the bankruptcy. The Company plans to collect its own
receivables for the foreseeable future.

The Company believes that, based on current levels of operations and anticipated
growth, cash flow from operations, together with other available sources of
funds, including borrowings under the Existing Credit Agreement, will be
adequate for at least the next two years to make required payments of principal
and interest on the Company's indebtedness, to fund anticipated capital
expenditures and working capital requirements and to comply with terms of its
debt agreements. The ability of the Company to meet its debt service obligations
and reduce its total debt will be dependent upon the future performance of the
Company and its subsidiaries which, in turn, will be subject to general
economic, financial, business, competitive, legislative, regulatory and other
conditions, many of which are beyond the Company's control. In addition, there
can be no assurance that the Company's operating results, cash flow and capital
resources will be sufficient for repayment of its indebtedness in the future.
Substantially all of the Company's borrowings under the Existing Credit
Agreement bear interest at floating rates; therefore, the Company's financial
condition will be affected by the changes in prevailing interest rates. The
Company has entered into interest rate protection agreements to minimize the
impact from a rise in interest rates.

Tax Benefits from Net Operating Losses

At December 26, 1998, the Company had net operating loss carryforwards ("NOLs")
of approximately $107 million, which are due to expire in the years 2007 through
2018. These NOLs may be used to offset future taxable income through 2018 and
thereby reduce or eliminate the Company's federal income taxes otherwise
payable. The Internal Revenue Code of 1986, as amended (the "Code"), imposes
significant limitations on the utilization of NOLs in the event of an "ownership
change," as defined in Section 382 of the Code (the "Section 382 Limitation").
The Section 382 Limitation is an annual limitation on the amount of
pre-ownership change NOLs that a corporation may use to offset its
post-ownership change income. The Section 382 Limitation is calculated by
multiplying the value of a corporation's stock immediately before an ownership
change by the long-term tax-exempt rate (as published by the Internal Revenue
Service). Generally, an ownership change occurs with respect to a corporation if
the aggregate increase in the percentage of stock ownership (by value) of that
corporation by one or more 5% shareholders (including certain groups of
shareholders who in the aggregate own at least 5% of that corporation's stock)
exceeds 50 percentage points over a three-year testing period. The
Recapitalization caused the Company to experience an ownership change. As a
result, the Company currently is subject to an annual Section 382 Limitation of
approximately $5.1 million on the amount of NOLs generated prior to the
Recapitalization that the Company may utilize to offset future taxable income.
NOLs generated by the Company since the Recapitalization (approximately


                                       11
<PAGE>

$37 million) are not subject to the Section 382 Limitation and may be used to
offset future taxable income. There can be no assurance that any NOLs will be
able to be used by the Company to offset future taxable income or that such NOLs
will not become subject to limitation due to future ownership changes.

Year 2000 Update

The Company is implementing a program to ensure that the Company computer
systems and applications (IT Systems) and non-IT Systems will function properly
beyond 1999. This program includes inventorying year 2000 items; assigning
priorities to the identified items; assessing year 2000 compliance of items
determined to be material to the Company; remediating or preplacing material
items that are not year 2000 compliant; and determining contingency plans that
may be required.

The Company has completed inventorying and prioritizing year 2000 compliance of
its IT Systems and is commencing these phases for its non-IT Systems, which will
include surveying significant third party vendors. The Company is upgrading its
software and expects this phase to be completed by June 30, 1999.

The Company is using both internal and external resources to address year 2000
issues and believes that the cost of such modifications will approximate
$600,000. Approximately $250,000 of this includes system upgrades that had been
previously identified for operational enhancements.

Although management expects to complete the upgrading of all of its software by
mid-1999, the Company will develop a year 2000 contingency plan before mid-1999
if it appears that the Company will not achieve full year 2000 compliance.
Management regularly monitors the status of the year 2000 compliance process.

The failure to correct a material year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, financial condition and liquidity. No assurances,
however, can be given that the Company will be able to identify and address all
year 2000 issues due to their complexity as well as the Company's dependence on
the technical skills of employees and independent contractors and on the
representations and preparedness of third parties with which the Company does
business. Although the Company believes that its efforts are designed to
appropriately identify and address year 2000 issues that are subject to the
Company's reasonable control, there can be no assurance that year 2000 issues
will not have a material adverse effect on the Company's business, financial
condition or results of operations.

Seasonality

In general, sales of drugstore items such as prescription drugs, OTC drugs and
health and beauty care products exhibit limited seasonality in the aggregate,
but do vary by product category. Quarterly results are primarily affected by the
timing of new store openings and the sale of seasonable products. In view of the
Company's recent expansion of seasonal merchandising, the Company expects
slightly greater revenue sensitivity relating to seasonality in the future.

Recently Issued Accounting Pronouncements

FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" requires that derivative instruments such as options, forward
contracts and swaps be recorded as assets and liabilities at fair value and
provides guidance for recognition of changes in fair value depending on the
reason for holding the derivative. The Company does not presently have
significant transactions involving derivative instruments, but may do so in the
future. The Company is required to adopt Statement No. 133 for the first quarter
of 2000 and may adopt it earlier.


                                       12
<PAGE>

Market Risk

      The financial results of the Company are subject to risk from interest
rate fluctuations on debt which carries variable interest rates. Variable rate
debt outstanding (under the Existing Credit Agreement) was approximately $232
million at March 27, 1999, which is somewhat lower than the Company expects its
outstanding variable debt rate to be during the next twelve months. The
anticipated outstanding balances however, are not expected to be materially
greater than at March 27, 1999. Base on March 27, 1999 outstanding balances, a
0.50% change in interest rates would affect annual results of operations by
approximately $1.2 million. The Company also has $80 million of Senior Notes
outstanding at March 27, 1999. These notes, which bear interest at a fixed 9
1/4%, are not subject to risk from interest rate fluctuations.

      The principal objective of the Company's investment management activities
is to maintain acceptable levels of interest rate and liquidity risk to
facilitate the funding needs of the Company. As part of its investment
management, the Company may use derivative financial products such as interest
rate hedges and interest rate swaps. During the quarter ended March 28, 1998,
there were no derivative positions. During the quarter ended March 27, 1999, in
connection with the Existing Credit Agreement requirements, the Company has an
interest rate protection agreement in place.


                                       13
<PAGE>

PART II

                                OTHER INFORMATION

            ITEM 1. Legal Proceedings

            The Company is a party to certain legal actions arising in the
ordinary course of business. Based on information presently available to the
Company, the Company believes that it has adequate legal defenses or insurance
coverage for these actions and that the ultimate outcome of these actions will
not have a material adverse effect on the Company.

            In addition, the Company is currently party to legal actions arising
out of disputes over the purchase price with respect to the Rock Bottom
Acquisition. The disputed amounts are not material to the Company, and the
Company believes that the ultimate outcome of these actions will not have a
material adverse effect on the Company.

            ITEM 2. Changes in Securities and Use of Proceeds.

            Not applicable.

            ITEM 3. Defaults Upon Senior Securities

            None.

            ITEM 4. Submission of Matters to a Vote of Security Holders.

            Not applicable.

            ITEM 5. Other Information

            Not applicable.

            ITEM 6. Exhibits, Financial Statement Schedules, and Reports on Form
                    8-K

            (a)   The following documents are filed as a part of this report:

                  (i)   Financial Statements

                  (ii)  Exhibits:

3.1(i)      Amended and Restated Certificate of Incorporation of the Company
            (incorporated by reference to Exhibit 3.1(i) to the Company's
            Registration Statement No. 333-41239 (the "Common Stock S-1")).

3.1(ii)     Form of Amended and Restated Bylaws of the Company (incorporated by
            reference to Exhibit 3.1(i) to the Common Stock S-1).

3.2(i)      Certificate of Incorporation of DRI I Inc. (incorporated by
            reference to Exhibit 3.2(i) to the S-1 Registration Statement No.
            333-43313 with respect to the Company's 9 1/4% Senior Subordinated
            Notes due 2008 (the "Notes S-1")).

3.2(ii)     By-laws of DRI I Inc. (incorporated by reference to Exhibit 3.2(ii)
            of the Notes S-1)

3.3         Second Amended and Restated Partnership Agreement of Duane Reade
            (incorporated by reference to Exhibit 3.3 of the Notes S-1)

4.1         Form of Indenture (incorporated by reference to Exhibit 4.1 of the
            Notes S-1)


                                       14
<PAGE>

10.1        Duane Reade Inc. 1997 Equity Participation Plan (incorporated by
            reference to Exhibit 10.1 to the Company's Form S-1 registration
            Statement (File No. 333-41239), the "Common Stock S-1").

10.2        Duane Reade Inc. Holding Corp. 1992 Stock Incentive Plan
            (incorporated by reference to Exhibit 10.2 to the Common Stock S-1).

10.3        Employment Agreement, dated as of October 27, 1997, between the
            Company and Anthony J. Cuti (incorporated by reference to Exhibit
            10.3 to the Common Stock S-1).

10.4        Employment Agreement, dated as of February 22, 1993, as amended,
            between the Company and Gary Charboneau (incorporated by reference
            to Exhibit 10.4 to the Common Stock S-1).

10.5        Employment Agreement, dated as of April 10, 1995, as amended,
            between Duane Reade and Jerry M. Ray (incorporated by reference to
            Exhibit 10.5 to the Common Stock S-1).

10.6        Employment Letter Agreement, dated as of October 9, 1996, between
            Duane Reade and Joseph Lacko (incorporated by reference to Exhibit
            10.6 to the Common Stock S-1).

10.7        Employment Letter Agreement, dated as of February 12, 1997, between
            the Company and William Tennant (incorporated by reference to
            Exhibit 10.7 to the Common Stock S-1).

10.8        Agreement, dated as of November 22, 1996 between Duane Reade and
            Drug, Chemical, Cosmetic, Plastics and Affiliated Industries
            Warehouse Employees Local 815 (incorporated by reference to Exhibit
            10.8 to the Common Stock S-1).

10.9        Agreement, dated July 16, 1992, as amended, between Duane Reade and
            Allied Trades Council (incorporated by reference to Exhibit 10.9 to
            the Common Stock S-1).

10.10       Agreement, dated February 4, 1997, as amended between Duane Reade
            and The Pharmacy Fund, Inc. (incorporated by reference to Exhibit
            10.10 to the Common Stock S-1).

10.11       Stockholders and Registration Rights Agreement, dated as of June 18,
            1997, among the Company, DLJMB Funding II, Inc., DLJ Merchant
            Banking Partners II, L.P., DLJ Diversified Partners, L.P., DLJ First
            ESC L.L.C., DLJ Offshore Partners, II, C.V., DLJ EAB Partners, L.P.,
            UK Investment Plan 1997 Partners, Bankers Trust New York
            Corporation, Conac & Co., Muico & Co., Roton & Co. , Putnam High
            Yield Trust, PaineWebber Managed Investment Trust on behalf of
            PaineWebber High Income Fund, USL Capital Corporation, Pearlman
            Family Partners, The Marion Trust, Bruce L. Weitz, BCIP Associates,
            BCIP Trust Associates, L.P., Tyler Capital Fund L.P., Tyler
            International, L.P.-II, and Tyler Massachusetts, L.P. (incorporated
            by reference to Exhibit 10.13 to the Common Stock S-1).

10.12*      Second Amended and Restated Credit Agreement, dated as of March 17,
            1999, among Duane Reade, as the Borrower, Duane Reade Inc. and DRI I
            Inc., as the Parent Guarantors, Various Financial Institutions set
            forth therein, as the Lenders, DLJ Capital Funding, Inc., as the
            Syndication Agent for the Lenders, Fleet National Bank, as the
            Administrative Agent for the Lenders and Credit Lyonnais New York
            Branch, as the Documentation Agent for the Lenders.

10.13       Amended and Restated Partnership Security Agreement, dated as of
            September 11, 1998, among Duane Reade Inc. and DRI I Inc. and Fleet
            National Bank, as Administrative Agent (Incorporated by reference to
            Exhibit 10.15 of the Company's Current Report on Form 8-K dated
            September 24, 1998).

10.14       Amended and Restated Borrower Security Agreement, dated as of
            September 11, 1998, between Duane Reade and Fleet National Bank as
            Administrative Agent (Incorporated by reference to Exhibit 10.16 of
            the Company's Current Report on Form 8-K dated September 24, 1998).

10.15       Amended and Restated Holdings Pledge Agreement, dated as of
            September 11, 1998, among Duane Reade Inc. and Fleet National Bank,
            as Administrative Agent (Incorporated by reference to Exhibit 10.17
            of the Company's Current Report on Form 8-K dated September 24,
            1998).


                                       15
<PAGE>

10.16*      Amendment Agreement to Credit Agreement, dated as of March 17, 1999,
            among Duane Reade, Duane Reade Inc., DRI I Inc., various financial
            institutions as Lenders, DLJ Capital Funding, Inc., as Syndication
            Agent, Fleet National Bank, as Administrative Agent, and Credit
            Lyonnais New York Branch, as Documentation Agent .

10.17       Promissory Note, dated as of November 9, 1998, between the Company
            and Anthony J. Cuti and (incorporated by reference to Exhibit 10.17
            to the Company's 1998 Annual Report on Form 10-K).

27.1*       Financial Data Schedule.

* Filed herewith.

            (b)   Reports on Form 8-K. None.

            (c)   Financial Statement Schedules: None.

Schedules for which provision is made in the applicable accounting regulations
of the Commission are either not required under the related instructions, are
inapplicable or not material, or the information called for thereby is otherwise
included in the financial statements and therefore has been omitted.


                                       16
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: May 10, 1999

                                        DUANE READE INC.
                                        (Registrant)


                                        By: /s/ William J.Tennant
                                            ------------------------------------
                                            Name:  William J. Tennant
                                            Title: Senior Vice President and
                                                   Chief Financial Officer

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on May 10, 1999:

    SIGNATURES                TITLES
    ----------                ------


/s/ Anthony  J. Cuti          President and Chief Executive Officer and Director
-----------------------       (Principal Executive Officer)
Anthony J. Cuti        


/s/ William J. Tennant        Senior Vice President, Chief Financial Officer
-----------------------       (Principal Accounting and Financial Officer)
William J. Tennant     


                                       17
<PAGE>

                                   SIGNATURES

            Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: May 10, 1999

                                        DRI I Inc.


                                        By: /s/ William J.Tennant
                                        ------------------------------------
                                            Name:  William J. Tennant
                                            Title: Senior Vice President and
                                                   Chief Financial Officer

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on May 10, 1999 by:

    SIGNATURES                TITLES
    ----------                ------


/s/ Anthony  J. Cuti          President and Chief Executive Officer and Director
-----------------------       (Principal Executive Officer)
Anthony J. Cuti        


/s/ William J. Tennant        Senior Vice President, Chief Financial Officer
-----------------------       (Principal Accounting and Financial Officer)
William J. Tennant     


                                       18
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

Dated: May 10, 1999

                                         DUANE READE INC.,

By: DRI I Inc. a general partner         By: Duane Reade Inc., a general partner


By: /s/ William J. Tennant               By: /s/ William J. Tennant
    -------------------------------          -----------------------------------
Name:  William J. Tennant                Name:  William J. Tennant
Title: Senior Vice President and         Title: Senior Vice President and
Chief  Financial Officer                 Chief  Financial Officer

            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on May 10, 1999 by the following persons in
the capacities indicated with respect to Duane Reade Inc. and DRI I Inc., the
general partners of Duane Reade, on behalf of Duane Reade (except as otherwise
indicated):

    SIGNATURES                TITLES
    ----------                ------


/s/ Anthony  J. Cuti          President and Chief Executive Officer and Director
-----------------------       (Principal Executive Officer)
Anthony J. Cuti        


/s/ William J. Tennant        Senior Vice President, Chief Financial Officer
-----------------------       (Principal Accounting and Financial Officer)
William J. Tennant     


                                       19