SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C.  20549
                                  FORM 10-K
                                      
              X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
             ---     OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
                      THE YEAR ENDED DECEMBER 31, 1996.
                                      
           ---  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
                                   0-20240
                                   -------
                         AMERICAN WHITE CROSS, INC.
                         --------------------------
            (Exact name of registrant as specified in its charter)
           Delaware                           06-1342417
-------------------------------  -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
                                349 Lake Road
                        Dayville, Connecticut  06241
        ------------------------------------------------------------
        (Address, including zip code, of principal executive offices)
Registrant's telephone number, including area code:  (860) 774-8541
                                                     -------------
Securities registered pursuant to Section 12(b) of the Act:  None
                                                            -----
Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
$.01 par value                                              -------------
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes  X   No
                                                   -----   -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [x]

As of December 31, 1996, 6,675,891 shares of Common Stock were outstanding.
The aggregate market value of Common Stock held by nonaffiliates as of
March 17, 1997 was approximately $1,170,289, based on the bid price as
reported on such date on the Nasdaq National Market.

<PAGE> 
                     Document Incorporated by Reference
                     ----------------------------------
Portions of the Registrant's definitive proxy statement to be filed
pursuant to Regulation 14A within 120 days after the end of Registrant's
year end are incorporated by reference in Part III.

                                   Part I
                                    ------
Item 1.  Business
-----------------
     (a)  Organization -
          ------------
          American White Cross, Inc. (the "Company") manufactures and
          markets a wide variety of health and personal care products.  The
          Company's business was founded in 1925, became a division of
          National Patent Development Corporation ("NPDC") in 1972 and was
          reorganized in April 1991 as National Patent Medical Partnership,
          L.P. (the "Partnership").  Pursuant to the reorganization, Vamic,
          Inc. ("Vamic", formerly Clifcor Medical Corp.) acquired a 51%
          interest in the Partnership and became the general partner, and
          National Patent Medical Inc. ("NPMI", a wholly owned subsidiary
          of NPDC), acquired the remaining 49% interest in the Partnership
          and became the limited partner.

          In November 1992, NPM Healthcare Products, Inc. which was formed
          for such purpose, succeeded to the assets, liabilities and
          business of the Partnership (the "Corporate Reorganization").

          In May 1993, the Company acquired all of the outstanding capital
          stock of The American White Cross Laboratories, Inc. ("AWCL") and
          its wholly owned subsidiary, Weaver Manufacturing Corporation
          ("Weaver").  In March 1994, AWCL was merged into the Company and
          the Company changed its name from NPM Healthcare Products, Inc.
          to American White Cross, Inc.

          Unless the context otherwise requires, all references to the
          Company include Acme/Chaston Puerto Rico, Inc. ("Acme/Chaston")
          and Weaver, the Company's wholly owned subsidiaries, and the
          Company's predecessor entities.

          See Note 2 to the Company's consolidated financial statements for
          a discussion of the Company's filing for protection under Chapter
          11 of the U.S. Code (the "Bankruptcy Code") in the U.S.
          Bankruptcy Court for the District of Delaware (the "Bankruptcy
          Court") on July 17, 1996 (the "Chapter 11 Filing").

                                     -2-

<PAGE> 
     (b)  General Development of Business -
          -------------------------------
          The Company manufactures and markets a wide variety of health and
          personal care products including disposable first aid products
          such as adhesive bandages, sterile pads, first aid kits and
          waterproof tape. The Company also produces and sells products
          manufactured primarily from cotton (the "Cotton Business"),
          including cotton swabs, pharmaceutical coil used in the packaging
          of drugs and vitamins in bottles, cosmetic puffs, rounds and
          squares, cotton rolls and sterile cotton balls.  The Company
          sells its products either under its customer's private label or
          under the Company's label.  The Company also sells adhesive
          bandages under its own national brands, including Looney Tunes
          (trademark), Space Jam (trademark), and Batman (trademark), each
          marketed under license from the Warner Bros. Division of Time
          Warner Entertainment Company, L.P., and Peanuts (trademark),
          marketed under license from United Feature Syndicate, Inc., and
          STAT-STRIP (registered), patented easy opening bandages.

          The Company sells its products principally to the consumer and
          healthcare markets.  In the consumer market, the Company sells
          its products to approximately 300 retailers including mass
          merchandisers such as Wal-Mart, the Company's largest customer,
          and Target; drug stores such as CVS, Revco and Rite Aid; and
          supermarkets such as A&P and Kroger.  The Company develops
          private label programs for retailers, including store brands and
          value brands, and also sells products to them under its own
          national brands.  Store brand products are sold under a
          retailer's own label and compete with nationally advertised brand
          products while value brand products are typically sold by
          retailers under promotional programs and by smaller retailers who
          do not have store brand programs.

          In the healthcare market, the Company sells its private label
          products to major hospital distributors including ABCO, Baxter
          and Moore Medical, primarily for resale under the distributor's
          own label.  The Company sells cotton coil to pharmaceutical
          companies which include McNeil, Bristol Myers/Squibb,
          Burroughs-Wellcome, and American Home Products, and other
          products to industrial safety suppliers such as Conney Safety.
          The Company also manufactures and sells first aid kits for
          automotive accounts such as Mercedes-Benz, Lexus and BMW.

                                     -3-

<PAGE> 
          To a lesser extent, the Company also sells adhesive bandages,
          adhesive tape and various other products supplied under contracts
          awarded to the Company by various United States governmental
          agencies.  Outside the United States, the Company sells adhesive
          bandages and various other products primarily to distributors in
          Canada, Australia, New Zealand, Russia, and the Far East.

          On March 20, 1997, the Company entered into a definitive
          agreement to sell the Cotton Business (see Note 18 to the
          Company's consolidated financial statements).

    (c)   Financial Information About Industry Segments -
          ---------------------------------------------
          The Company is engaged in one industry segment, disposable health
          and personal care products.

    (d)   Narrative Description of Business -
          ---------------------------------
          (i)  Products
               --------
               The Company manufactures and markets disposable health and 
               personal care products. The Company's most significant 
               products in terms of sales are adhesive bandages, cotton 
               swabs, pharmaceutical coil, and cosmetic puffs, rounds and 
               squares, which accounted for approximately 32%, 15%, 13% and 
               12%, respectively, of the Company's 1996 sales.  The Company's
               principal products are described below.
 
               Adhesive Bandages.  The Company manufactures and markets
               private label adhesive bandage products.  These products are
               made of a variety of materials such as sheer, clear and
               flexible fabric, in varying counts and of various sizes,
               which the Company markets to retailers, hospital
               distributors and certain industrial accounts such as first
               aid kit packers.  The Company also manufactures and markets
               a patented easy opening adhesive bandage under the Company's
               STAT-STRIP (registered) brand.  In addition, the Company
               manufactures and markets licensed branded adhesive bandages
               as well as internally developed specialty adhesive bandages
               targeted at the children's market. The Company's primary
               licenses include Looney Tunes (trademark), Space Jam
               (trademark),  and Batman (trademark), each marketed under
               license from the Warner Bros. Division of Time Warner
               Entertainment Company, L.P. and Peanuts (trademark),
               
                                     -4-

<PAGE> 
               marketed under license from United Feature Syndicate, Inc.
               The Company also develops and markets internally-developed
               products including Glitter Strips, a holographic adhesive
               bandage.
               
               Sterile Pads.  The Company manufactures non-adhesive sterile
               pads in various sizes and markets these products to
               retailers and hospital distributors.  These products are
               generally used for wound dressings.
               
               First Aid Kits.  The Company markets first aid kits and
               other first aid products to various industrial safety
               suppliers, automotive manufacturers such as Mercedes-Benz,
               Lexus and BMW, and other distributors.
               
               Waterproof Tape.  The Company manufactures both private
               label adhesive waterproof tape and heavyweight waterproof
               tape and offers these products to all markets served by the
               Company.
               
               Cotton Swabs.  The Company manufactures cotton swabs and
               markets such products to retailers, including Wal-Mart under
               Wal-Mart's Equate (registered) label.  The Company offers
               its customers a choice of paper stick swabs as well as
               plastic and colored stick swabs.
               
               Pharmaceutical Coil.   The Company manufactures coil used by
               pharmaceutical companies in the packaging of drugs and
               vitamins in bottles.  The coil, which is generally made of
               cotton, is manufactured by the Company and is marketed by
               the Company under its Snopure brand.
               
               Cosmetic Puffs, Rounds and Squares.  The Company
               manufactures cosmetic puffs, rounds and squares and markets
               these products to retailers.  These products are generally
               used for the application and removal of cosmetics and as an
               aid in cleansing the skin.
               
               Cotton Rolls and Sterile Cotton Balls.  The Company
               manufactures cotton rolls and sterile cotton balls and
               markets these products to retailers and hospital
               distributors.
               
               Other Products.  The Company's other products consist
               principally of a broad line of wound dressings, surgical
               sponges, eye pads, stockinette and esmark products, surgical
               cauteries and podiatry products.
               
                                     -5-

<PAGE>                                       
               On  March 20, 1997, the Company entered into a definitive
               agreement to sell the Cotton Business (see Note 18 to the
               Company's consolidated financial statements).

          (ii) Sales and Marketing
               -------------------
               The Company's products are sold either directly by Company
               employees or by outside sales representative organizations
               under the supervision of the Company's internal sales
               directors.  The Company's consumer sales organization
               consists of a vice president of consumer sales reporting to
               the President, who oversees a combination of direct
               salespersons and independent sales representative
               organizations.  The Company's healthcare sales are primarily
               managed by an outside sales agency which reports to the
               President.  The sales representatives generally have agreed
               with the Company that if they sell the Company's products,
               they will not sell products that compete with those
               products.
               
               In the consumer market, the Company focuses on developing
               customized marketing programs for the retailer's private
               label products.  The Company develops in-store merchandising
               displays and other promotional programs to stimulate a
               consumer purchase.  These include floor displays, trial size
               programs, bonus sizes, coupons and promotional packs.
               
               As part of its reorganization efforts under Chapter 11 of
               the U. S. Bankruptcy Code, the Company is modifying its
               focus to be a preferred supplier of quality disposable first
               aid products, dedicated to customer satisfaction and product
               innovation through the use of its core strengths in
               manufacturing technology and distribution (see Note 2 to the
               Company's consolidated financial statements).
               
               The Company also designs customized labels and packaging for
               all of its products.  In-house design capabilities,
               including electronic multicolor pre-press facilities, enable
               the Company to work closely with customers in developing and
               customizing package designs.
               
        (iii)  Customers
               ---------
               In the consumer market, the Company's customers include
               approximately 300 retailers, including mass merchandisers
               such as Wal-Mart, the Company's largest customer, and
               

                                     -6-

<PAGE> 
               Target; drug stores such as CVS, Revco and Rite-Aid; and
               supermarkets such as A&P and Kroger.  The Company's
               healthcare customers include medical and surgical supply
               distributors such as ABCO, Baxter and Moore Medical, which
               supply products to primary and secondary healthcare
               facilities, including hospitals, physicians' offices,
               surgery centers and other off-site clinics.  The Company's
               customers also include ethical and over-the-counter
               pharmaceutical manufacturers such as McNeil, Bristol
               Myers/Squibb, Burroughs-Wellcome, and American Home
               Products, and vitamin repackagers.  The Company also
               manufactures and sells first aid kits for automotive
               accounts such as Mercedes-Benz, Lexus and BMW.
               
               To a lesser extent, the Company also sells adhesive
               bandages, adhesive tape and various other products under
               contracts awarded to the Company by various United States
               governmental agencies.  Outside the United States, the
               Company sells adhesive bandages and various other products
               primarily to distributors in Canada, Australia, New Zealand,
               Russia and the Far East.
               
               For the years ended 1996, 1995 and 1994, Wal-Mart, the
               Company's largest customer, accounted for approximately
               $12.1 million (13.8%), $11.1 million (12.7%) and $10.3
               million (11.5%), respectively, of the Company's sales.  The
               loss of, or a significant reduction in purchases by, this
               customer could have a material adverse effect on the
               Company.
               
          (iv) Manufacturing and Distribution
               ------------------------------
               The Company manufactures the majority of the products it
               markets.  Its manufacturing facilities are located in
               Dayville and Pomfret, Connecticut; Houston, Texas; Elmwood
               Park, New Jersey; and Canovanas, Puerto Rico.  Certain of
               the Company's products are packaged in Mexico on a contract
               basis.
               
               The Company's distribution facilities are located in
               Dayville, Connecticut and Houston, Texas.  The Company
               distributes products to its customers in Puerto Rico from
               its Canovanas, Puerto Rico facility.  Several of the
               Company's customers take delivery of their products at the
               Company's distribution facilities.  In most cases, the
               Company uses either freight contract carriers or common
               carriers to deliver its products.
               
                                     -7-

<PAGE>                
          (v)  Raw Materials
               -------------
               Most of the Company's raw materials, including cotton and
               paper products which comprise a significant percentage of
               the Company's purchases, are available from a variety of
               suppliers. Cotton and paper prices have historically been
               subject to wide fluctuations and are affected by numerous
               factors beyond the control of the Company, including
               economic and political conditions, weather, availability and
               cost of other substitute materials and levels of supply and
               demand.  A persistent significant increase in the price of
               these materials or decrease in their availability could have
               a material adverse effect on the Company.
               
          (vi) Competition
               -----------
               Consumer Products.  The consumer health and personal care
               products markets are highly competitive.  Competition is
               based principally on price, quality of products and customer
               service.  The Company believes it competes favorably with
               respect to these factors.
               
               Several of the consumer retail markets in which the Company
               competes are dominated by nationally advertised brand
               products marketed by established consumer packaged goods
               companies. The Company seeks to provide private label
               products with quality equivalent to nationally advertised
               brand products at substantial cost savings to consumers and
               increased profit potential to retailers. With the
               divestiture of the Cotton Business (see Note 18 to the
               Company's consolidated financial statements), the Company is
               refocusing its efforts to be a preferred supplier of quality
               disposable first aid products, dedicated to customer
               satisfaction and product innovation through the use of its
               core strengths in manufacturing technology and distribution.
               
               The Company's primary competition in consumer retail
               products is generally product specific. Although some
               crossover exists, the Company faces a different set of
               primary competitors in adhesive bandages, cotton swabs and
               cosmetic puffs, rounds and squares.
               
               Healthcare Products.  Competitors in the hospital market
               range from small single-line manufacturers to large
               multi-line conglomerates.  The Company believes that its
               
                                     -8-

<PAGE> 
               strength lies in its low-cost cotton balls, adhesive
               bandages and surgical sponges, which are sold through an
               extensive medical and surgical distribution network.  Major
               competitors in the pharmaceutical coil market consist of
               small to medium-sized companies with resources similar to
               those of the Company.  The Company believes it has a
               significant share of the market for pharmaceutical coil,
               which has been obtained through favorable pricing, quality
               and service provided to customers.

       (vii)   Governmental Regulation and Health Issues
               -----------------------------------------
               Approval from the Food and Drug Administration (the "FDA")
               is not required for marketing or distribution of the
               Company's products.  The FDA does, however, have regulatory
               authority over the Company's manufacturing practices.  The
               Company is registered with the FDA as a manufacturer of
               various Class I and Class II medical devices and various
               wound-management devices.  The primary forms of governmental
               regulation in connection with the Company's products are the
               current "good manufacturing practices" and "good laboratory
               practices" guidelines administered by the FDA. These
               guidelines describe the procedures required to manufacture,
               store, package and distribute medical products for use by
               humans.  The Company is subject to periodic FDA site
               inspections.  Promotional claims made with respect to health
               and personal care products are also subject to regulation by
               the FDA as well as by the Federal Trade Commission under its
               general authority to prevent unfair and deceptive trade
               practices. Possible enforcement actions for violation of FDA
               regulations range from written citations for minor
               infractions to plant shutdowns in serious cases. The Company
               believes that it operates in substantial compliance with the
               regulations, guidelines and practices summarized above.

       (viii)  Trademarks and Licenses
               -----------------------
               While the Company has certain trademarks which it believes
               have value in marketing its products, the Company does not
               believe that such trademarks are of material importance to
               its business as a whole. Federally registered trademarks
               have a perpetual life as long as they are renewed on a
               timely basis and used properly as trademarks, subject to the
               right of third parties to seek cancellation of the marks.
               
                                     -9-

<PAGE>                
               The Company has acquired the United States patent rights and
               related technology required to manufacture its easy-opening
               adhesive strip (STAT-STRIP, registered). The term of the
               agreement extends until the relevant United States patents
               expire in 1997 and 2000.
               
               The Company markets various products under non-exclusive
               licenses from the Warner Bros. Division of Time Warner
               Entertainment Co., L.P., including adhesive bandages and
               adhesive bandages with imprints of certain characters such
               as Bugs Bunny, Daffy Duck and Tazmanian Devil.  Additional
               licenses have been obtained from Warner Bros. for use of
               Space Jam (trademark) characters (including Michael Jordan)
               and Batman (trademark).  The Company also licenses the
               Peanuts (trademark) characters from United Feature
               Syndicate, including Charley Brown, Snoopy and Lucy. These
               licenses have terms ranging in length from one year to 28
               months and provide for royalty payments to the licenser
               based on varying percentages of net sales.

          (ix) Employees
               ---------
               As of March 8, 1997, the Company had approximately 592
               full-time employees, of whom 23 were engaged in sales or
               marketing functions, 22 in general and administrative
               positions and the remainder in manufacturing, distribution
               and quality assurance.  Approximately 198 hourly employees
               are represented by Amalgamated Clothing and Textile Workers
               Union, AFL-CIO, CLC Local 1196T, under a contract which
               expires April 8, 1998. The Company believes that current
               relations with its employees are satisfactory.

Item 2.  Properties
-------------------
The Company leases the following facilities, other than the Elmwood Park,
New Jersey facility which it owns:










                                    -10-

<PAGE> 
                                               Approximate
                                                  Square
Location                    Type of Facility     Footage    Expiration Date
--------                    ----------------     -------    ---------------
Houston, Texas              Manufacturing,       253,000    April 30, 2013
                              Distribution and
                              Administrative
Dayville, Connecticut       Manufacturing,       210,000    March 31, 2006
                              Distribution
                              and Administrative
E. Killingly, Connecticut   Distribution         120,000    April 4, 1997
Canovanas, Puerto Rico      Manufacturing and     22,550    December 15, 1998
                              Distribution
Pomfret, Connecticut        Manufacturing         12,600    Month to Month
Elmwood Park, New Jersey    Manufacturing         12,500    Owned
Dana Point, California      Administrative         1,430    November 30, 1998

On March 20, 1997, the Company entered into a definitive agreement to sell
the Cotton Business.  In connection with the sale, the Company will assign
the Canovanas, Puerto Rico facility lease to the purchaser and, following
the expiration of a supply agreement with the purchaser, will close the
Dayville, Connecticut and the E. Killingly, Connecticut facilities  (see
Note 18  to the Company's consolidated financial statements).

The Company believes that its present facilities will be adequate for all
of its reasonably foreseeable manufacturing, distribution and
administrative requirements, or that alternative or additional facilities
can be obtained at a reasonable cost.

Item 3.  Legal Proceedings
--------------------------
As part of the Company's Chapter 11 Filing, creditors of the Company are
required to file proofs of claim with the Bankruptcy Court.  These claims
will have to be reconciled with schedules of liabilities filed by the
Company with the Bankruptcy Court and the differences will have to be
resolved or litigated (see Note 2 to the Company's consolidated financial
statements).

The Company is not a party to any pending legal proceedings other than
routine litigation incidental to its business.  In connection with the
acquisition of AWCL, the Company entered into employment agreements with
certain owners and employees of AWCL.  One of these contracts was
subsequently terminated by the Company for cause.  The former employee
advised the Company in 1993 that he believed the termination was without
support and has filed a claim for approximately $1,050,000 with the
Bankruptcy Court.  Former shareholders of AWCL filed claims with the

                                    -11-

<PAGE> 

Bankruptcy Court aggregating approximately $3,300,000 related to the
deferred portion of the AWCL acquisition purchase price.  A former customer
of the Company filed a claim with the Bankruptcy Court for approximately
$5,000,000 alleging, among other things, breach of contract and unfair
trade practices (see Note 16 to the Company's consolidated financial
statements for a discussion of these claims).

These matters have been stayed by the Chapter 11 Filing and the Company
does not believe that the outcome of these matters will have a material
adverse effect on the Company's consolidated financial condition or results
of operations.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
None.
Part II
-------
Item 5.   Market for Registrant's Common Stock and Related Stockholder
----------------------------------------------------------------------
          Matters
          -------
The following table sets forth, for the periods indicated, the high and low
sale price per share of the Common Stock as reported by the Nasdaq National
Market.

                                              High      Low
                                              ----      ---
  Year ended December 31, 1995
     First quarter                         $ 3 1/2   $ 2 1/2
     Second quarter                          2 7/8     2 1/8
     Third quarter                           3 3/4     2 1/2
     Fourth quarter                          3 1/8     2 1/4

  Year ended December 31, 1996
     First quarter                           2 3/4     2 1/8
     Second quarter                         2 7/16    1 3/16
     Third quarter                           1 3/8       1/4
     Fourth quarter                            1/2       1/8

As of December 31, 1996, an aggregate of 6,675,891 shares of Common Stock
were issued and outstanding.  There were 71 record holders as of such date.

The Company has not made any cash distributions or paid any cash dividends
with respect to its Common Stock.  Provisions of the Company's debt
agreements and the Bankruptcy Code restrict the payment of dividends.

                                    -12-

<PAGE> 
Item 6.  Selected Financial Data
--------------------------------
The selected consolidated financial information as of December 31, 1996 and
1995 and for each of the three years in the period ended December 31, 1996
presented below has been derived from the consolidated financial statements
of the Company appearing elsewhere in this Form 10-K, which have been
audited by Arthur Andersen LLP, independent public accountants.  The
selected consolidated financial information as of December 31, 1994, 1993
and 1992 and for the years ended December 31, 1993 and 1992 has been
derived from the consolidated financial statements of the Company audited
by Arthur Andersen LLP, independent public accountants, which are not
included herein.

The comparability of the Company's results of operations and financial
condition from period to period has been affected by acquisitions that have
been made by the Company and the Chapter 11 Filing.  The following selected
consolidated financial information (in thousands, except per share amounts)
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-
K.  No dividends were declared or paid for any period presented.


































                                    -13-

<PAGE> 
<TABLE>
<CAPTION>
                                        Years Ended December 31,
                               --------------------------------------------
                                 1996     1995     1994      1993(1)   1992
                                 ----     ----     ----      ----      ----
<S>                            <C>      <C>      <C>       <C>       <C>  
Statement of Operations Data:
Sales                          $87,798  $87,351  $90,005   $76,554   $49,277
Cost of sales                   81,380   73,088   72,591    57,217    37,199
                                ------   ------   ------    ------    ------
Gross profit                     6,418   14,263   17,414    19,337    12,078
Operating expenses:
  Selling                       12,786   12,387   13,611    10,986     7,703
  General and administrative     5,169    3,866    3,927     4,019     2,108
  Nonrecurring expenses (2)          -    1,028    5,328         -         -
Impairment of long-lived
  assets (6)                     7,343        -        -         -         -
Interest expense                 3,791    3,365    1,982     1,487     1,010
Other income                       (3)     (17)     (33)      (11)      (50)
Reorganization items             2,147        -        -         -         -
                                ------   ------   ------    ------    ------
(Loss) income before
  (provision for) benefit
  from income taxes           (24,815)  (6,366)  (7,401)     2,856     1,307
(Provision for) benefit from
  income taxes (3)             (5,093)    1,672    2,643   (725)        -
                                ------   ------   ------    ------    ------
Net (loss) income            $(29,908) $(4,694) $(4,758)    $2,131    $1,307
                                ------   ------   ------    ------    ------
Net(loss) income per share    $  (4.48) $  (.70) $  (.81)   $  .52
                                ======   ======   ======    ======
Weighted average shares
  outstanding                    6,676    6,676    5,843     4,121
                                ======   ======   ======    ======
Corporate Reorganization
  pro forma (4):
    Net income                                                        $1,017
                                                                      ======
    Net income
      per share                                                       $  .37
                                                                      ======
    Weighted average shares
      outstanding (5)                                                  2,741
                                                                      ======
</TABLE>





                                    -14-

<PAGE> 

<TABLE>
<CAPTION>
                                           As of December 31,
                               --------------------------------------------
                                1996     1995      1994      1993      1992
                                ----     ----      ----      ----      ----
<S>                            <C>      <C>      <C>       <C>       <C>
Balance Sheet Data:
  Working capital(7,8)         $10,972  $12,371  $13,657   $ 4,255   $10,390
  Total assets                  54,405   78,416   68,783    71,404    30,127
  Long-term debt and capital
    lease obligations,
    less current portion(7)          -   19,577   13,847    10,952     4,038
  Liabilities subject to
    compromise (7)              35,371        -        -         -         -
  Total equity (deficit)       (2,874)   27,034   29,642    20,430    18,147

(1)Includes the results of operations of AWCL subsequent to its acquisition
     by the Company on May 25, 1993.
(2)For 1995 and 1994,  reflect restructuring charges further described in
     Note 12 to the Company's consolidated financial statements.
(3)See Note 15 to the Company's consolidated financial statements for a
     discussion of the provision for (benefit from) income taxes.
(4)Reflects the income tax expense that the Company would have been
     required to provide had the Corporate Reorganization occurred on
     January 1, 1992.
(5)Assumes that for period prior to November 24, 1992, the closing date of
     the Company's initial public offering, Vamic exchanged its interest in
     the Partnership for 1,326,000 shares of Common Stock and that NPMI
     exchanged its interest in the Partnership for 1,274,000 shares of
     Common Stock, which represents the 574,000 shares received by NPMI and
     700,000 shares sold by the Company in such offering the proceeds of
     which were paid to NPMI.  For periods subsequent to November 23, 1992,
     the amount is based on the actual weighted average shares outstanding.
(6)See Note 4 to the Company's consolidated financial statements for
     discussion of the Impairment of long-lived assets.
(7)See Note 7 to the Company's consolidated financial statements for
     discussion of liabilities subject to compromise.
(8)In 1996, excludes amounts classified as liabilities subject to
     compromise.
</TABLE>







                                    -15-

<PAGE> 

Item 7. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
        Results of Operations
        ---------------------
Results of Operations
---------------------
Since the Chapter 11 Filing the Company has continued to manage its
business as a debtor-in-possession.  Key activities during the post-
petition period have included:  1) obtaining post-petition financing, 2)
increasing cash flows through a number of operational changes such as
personnel layoffs and negotiated union concessions, 3) evaluating the
Company's strategic direction and cost structure, resulting in a
determination to discontinue certain product lines and to pursue the
divestiture of its Cotton Business (see Note 18 to the Company's
consolidated financial statements), 4) offsetting the effect of certain
customer account losses through a renewed sales effort and focus on
profitable core product lines and, 5) making progress in developing a
formal plan of reorganization.

In connection with this strategic and cost evaluation and the decision to
divest its Cotton Business, the Company recorded non-cash charges totaling
$13,217,000 during the last six months of 1996.  These charges included
provisions for allowance for doubtful trade and other accounts receivable
($702,000), certain inventory valuation adjustments ($5,172,000), and
provisions related to the impairment of long-lived assets ($7,343,000),
including the reassessment of the carrying value of certain machinery and
equipment intended for divestiture and provisions for the reduction of
goodwill and other intangible assets (see Note 4 to the consolidated
financial statements).

The Company's 1996 actual results, 1996 proforma results, which exclude the
non-cash charges discussed above, and 1995 actual results are summarized as
follows, expressed as a percentage of sales:
<TABLE>
<CAPTION>
                                          1996         1996        1995
                                         Actual       Proforma    Actual
                                         -------      --------    -------
<S>                                      <C>          <C>          <C>
Net Sales                                 100.0%      100.0%       100.0%
Cost of Sales                              92.7%       86.6%        83.7%
                                         -----        -----       -----
Gross Profit                                7.3%       13.4%        16.3%
Selling Expenses                           14.6%       14.6%        14.2%
General and Administrative                  5.9%        5.3%         4.4%
Impairment of Long-Lived Assets             8.4%        -            -
Reorganization Items                        2.4%        2.4%         -
Nonrecurring Costs                          -           -            1.2%
Interest Expense                            4.3%        4.3%         3.8%
                                         -----        -----       -----
Loss before income taxes                  (28.3%)     (13.2%)       (7.3%)
                                         =====        =====       =====
</TABLE>
<PAGE> 
                                    -16-
                                      
1996 Compared to 1995
---------------------
Sales in 1996 were $87.8 million as compared to $87.4 million in 1995,
reflecting higher sales to the Company's healthcare and OEM customers,
particularly pharmaceutical coil and other cotton products produced under
contract for Johnson & Johnson Consumer Products, Inc.  Sales of first aid
products to these markets also increased.  Offsetting these gains were
losses in sales to the Company's consumer retail customers, particularly
branded and private label adhesive strips and cotton swabs.

Pro forma cost of sales in 1996 was $76.0 million, or 86.6% of sales as
compared to $73.1 million, or 83.7% of sales, in 1995.  The increase in
cost of sales was primarily related to higher material costs, particularly
in the post-bankruptcy period, unfavorable product mix and a higher level
of sales allowances offered in order to improve cash flow.  These increases
were partially offset with lower labor costs related to the full
implementation of the subcontract agreement with a Mexican facility as well
as increased labor efficiencies at the Company's Houston location.

Selling expenses were $12.8 million, or 14.6% of sales as compared to $12.4
million, or 14.2% of sales in 1995.  Higher distribution costs, were caused
primarily by the duplication and relocation of warehouse operations from
Dayville to Houston during the first six months of the year.  This increase
was partially offset by lower sales salaries and commissions.

Pro forma general and administrative expenses were $4.7 million, or 5.3% of
sales compared to $3.9 million, or 4.4% of sales in 1995.  The increase was
due to a higher level of legal fees, travel, and telephone costs as well as
employee severance costs accrued related to the Chapter 11 Filing.

Reorganization items related to the Chapter 11 Filing were $2.1 million or
2.4% of sales in 1996.

Interest expense of $3.8 million, or 4.3% of sales exceeded 1995 by $.4
million.  The increase was due to a significant increase of the debt
balance prior to the Chapter 11 Filing as well as the increase in interest
rates in the post-petition period.  Interest expense recorded during 1996
was approximately $1.3 million less than interest expense for 1996 that was
required by certain contractual debt agreements as a result of the Chapter
11 Filing (see Notes 2 and 9 to the Company's consolidated financial
statements).

In 1996, the Company incurred a net loss of $29.9 million which included
approximately $13.2 million of asset valuation charges related to products
being divested or discontinued.  The results for 1996 also included a $5.1
million provision for income taxes primarily to record a valuation
allowance on the Company's deferred tax assets (see Note 15 to the

                                    -17-

<PAGE> 

consolidated financial statements).  Excluding these charges, as well as
the $2.1 million of bankruptcy-related professional fees, the Company's net
loss of $9.5 million was higher than the $4.7 million loss incurred in 1995
primarily due to the aforementioned increases in materials, distribution
and administrative expenses.

1995 Compared to 1994
---------------------
Sales in 1995 were $87.4 million as compared to $90.0 million in 1994, a
decrease of $2.6 million, or 2.9%.  Sales in 1995 were impacted by the loss
of volume related to bringing the new Houston facility up to the Company's
historical operating capacity and efficiency.  Sales were also impacted by
the Company's decision to forego certain promotional volume and sales to
certain governmental agencies in order to support higher net pricing in the
longer term.  Sales of branded character adhesive bandages declined in 1995
due to competitive new character introductions.  Partially offsetting these
losses were increases in sales of cotton products to both the Company's
consumer customers as well as to Johnson & Johnson Consumer Products, Inc.

Cost of sales in 1995 was $73.1 million, or 83.7% of sales, as compared to
$72.6 million, or 80.7% of sales, in 1994.  The increase in cost of sales
percentage was primarily related to increased purchase cost of several key
raw materials, specifically raw cotton and paper-based materials, volume
losses and a change in the product mix toward less profitable cotton
products.  The savings related to the relocation of the Company's
manufacturing facilities were lower than anticipated in 1995 due to
operational inefficiencies during the plant start-up phase.

Selling expenses were $12.4 million, or 14.2% of sales, as compared to
$13.6 million, or 15.1% of sales, in 1994.  Freight, commissions and
distribution costs all represented a lower percentage of sales from prior
year levels.

General and administrative expenses were $3.9 million in both 1995 and 1994
as higher goodwill amortization was offset by lower bad debt expenses.

The Company's 1995 results included nonrecurring expenses of $1.0 million,
or 1.2% of sales.  These costs primarily reflect amounts spent in excess of
the $5.3 million pre-tax restructuring charge taken in 1994 related to the
cost of facility relocations which were substantially completed in the
fourth quarter of 1995.  The facilities relocation plan was completed
within the original 18 month estimate.  Also charged to nonrecurring
expenses in 1995 was the settlement of a pension dispute with the union
representing the Company's employees in Connecticut.


                                  -18-

<PAGE> 

Interest expense was $3.4 million in 1995 compared to $2.0 million in 1994,
reflecting the higher level of debt outstanding during 1995.

The Company incurred a net loss of $4.7 million in 1995 compared to a net
loss of $4.8 million in 1994. The 1995 results reflect higher raw material
costs, lower sales volume and inefficiencies related to the Company's
relocation of operations, and an unfavorable product mix in 1995,  while
1994 results reflect the impact of the one-time pre-tax restructuring
charge.  The 1995 results were also negatively impacted by a reduction of
the Company's income tax benefit resulting from reserves established
related to the expiration of certain state operating losses.

Liquidity and Capital Resources
-------------------------------
At December 31, 1996, the Company had working capital of $11.0 million and
a current ratio of 1.5 to 1 as compared to $12.4 million and 1.4 to 1 at
December 31, 1995.  The December 31, 1996 amounts do not include
liabilities normally classified as current, but currently classified as
liabilities subject to compromise (see Notes 2 and 7 to the Company's
consolidated financial statements).

During 1996, net cash used in operating activities totaled $1.1 million.  A
significant portion of the Company's $29.9 million net loss was comprised
of non-cash expenses and charges (including depreciation and amortization,
impairment of long-lived assets,  valuation allowances for deferred tax
assets, and certain other inventory and receivables valuation adjustments)
as well as the impact of reducing inventory levels and the Bankruptcy Court
ordered stay on payment of pre-petition accounts payable.

The Company used $2.0 million in investing activities primarily due to
purchases of property, plant and equipment.

The amount available for borrowings under the Company's Revolving DIP
Facility is determined pursuant to a formula which is based upon the levels
of eligible accounts receivable and inventory subject to a maximum amount
of $30.0 million.  Based on eligible receivables and inventory at December
31, 1996, the Company had approximately $2.5 million available for
additional borrowings at that time.

Management believes that the sale of the Cotton Business is a significant
step in its efforts to emerge from Bankruptcy.  The adequacy of the
Company's available borrowings under the Revolving DIP Facility is
dependent upon a number of factors, including successful confirmation of a
formal plan of reorganization and, therefore, is not assured.



                                    -19-

<PAGE> 

Seasonality
-----------
The Company experiences a seasonal decline in certain of its consumer
product lines, especially adhesive bandages, generally in the fourth
quarter and, to a lesser extent, in the first quarter of the year.  The
Company believes that such seasonal decline results from scrapes and cuts
occurring more often in milder temperatures as well as retailers' need for
holiday promotional shelf space near year end.

Inflation
---------
Cotton and paper prices have historically been subject to wide fluctuations
and are affected by numerous factors beyond the control of the Company,
including economic and political conditions, weather, availability and cost
of other substitute materials and levels of supply and demand.  A
persistent significant increase in the price of these materials or decrease
in their availability could have a material adverse effect on the Company.

Company Outlook
---------------
Since the Chapter 11  filing, the Company has continued to manage its
business as debtor-in-possession.  Key activities during the post-petition
period have included: 1) obtaining post-petition financing which has
supported the continued operations of the business without interruption, 2)
increasing cash flows through a number of operational changes such as
personnel layoffs and negotiated union concessions, 3) evaluating the
Company's strategic direction and cost structure, resulting in a
determination to discontinue certain product lines and to pursue the
divestiture of its Cotton Business (see Note 18 to the Company's
consolidated financial statements), 4) offsetting the effect of certain
customer account losses through a renewed sales effort and focus on
profitable core product lines, and 5) making progress in developing a
formal plan of reorganization.

As part of the above process, the Company is modifying its focus to be a
preferred supplier of quality disposable first aid products, dedicated to
customer satisfaction and product innovation through the use of its core
strengths in manufacturing technology and distribution. Accordingly, on
March 20, 1997, the Company entered into a definitive agreement to sell the
Cotton Business (see Note 18 to the Company's consolidated financial
statements).  The Company considers this to be a significant step in its
effort to emerge from bankruptcy.





                                    -20-

<PAGE> 

Accounting Pronouncements
-------------------------
See Notes 4 and 11 to the Company's consolidated financial statements for a
summary of Statement of Financial Accounting Standards ("SFAS") No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" and SFAS No. 123 "Accounting for Stock-Based
Compensation".

Item 8.  Financial Statements and Supplementary Data
----------------------------------------------------
The index to consolidated financial statements of the Registrant and its
subsidiaries and notes thereto, appears on Page F-1 of this Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
------------------------------------------------------------------------
        Financial Disclosure
        --------------------
None.

Part III
--------
Information required by Items 10, 11, 12 and 13 (Directors and Executive
Officers of the Registrant, Executive Compensation and Security Ownership
of Certain Beneficial Owners and Management and Certain Relationships and
Related Transactions) is incorporated herein by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the Registrant's fiscal year.

Part IV
-------
Item 14.  Exhibits, Financial Statement Schedules, and Report on Form 8-K
-------------------------------------------------------------------------
     (a)  Documents Filed:
          ---------------
          1.   Financial Statements

               For a listing of financial statements which are included 
               in this document see page F-1.

          2.   Financial Statement Schedules
                                                                     Page
                                                                     ----
               Report of Independent Public Accountants on Schedule    27
               
               Schedule II - Valuation and Qualifying Accounts
                       as of December 31, 1996, 1995 and 1994          28
               
                                    -21-

<PAGE>                
          3.   Exhibits

               Exhibit
               Number        Description
               -------       -----------
               2.1    Stock Purchase Agreement, dated as of April 19, 1993, by
                      and among the Company and the stockholders of The
                      American White Cross Laboratories, Inc.
                      (Incorporated by reference to Exhibit 2 to the
                      Company's Current Report on Form 8-K dated April 19,
                      1993)
               3.1    Certificate of Incorporation of the Company (1)
               3.2    Bylaws of the Company (Exhibit 3.2 to the IPO
                      Registration Statement)(2)
               4.1    Specimen Common Stock Certificate of the Company (1)
               4.2    Securities Purchase Agreement dated as of December 1,
                       1995 among the Company, Electra Investment Trust
                       P.L.C. ("Electra") and Electra Associates, Inc.
                       ("EAI") (including Exhibit A - Form of Senior
                       Subordinated Note and Exhibits B-1 - B-4 - Forms of
                       Warrant Certificate but excluding all other
                       exhibits and schedules which are available upon
                       request to the Company) (6)
               4.3     Registration Rights Agreement dated as of December 1,
                       1995 among the Company, Electra and EAI (6)
               10.1    License agreement for STAT-STRIP (registered) (Exhibit
                       10.23 to the IPO Registration Statement) (2)
               10.2    Lease dated April 8, 1991 for Dayville, Connecticut
                       property (Exhibit 10.7 to the IPO Registration
                       Statement) (2)
               10.3    Form of amendment to Dayville, Connecticut lease
                       (Exhibit 10.8 to the IPO Registration Statement)
                       (2)
               10.4    Amendment No. 2 dated as of November 24, 1994 to
                       Dayville, Connecticut lease
               10.5    Lease dated April 8, 1991 for East Killingly,
                       Connecticut property (Exhibit 10.9 to the IPO
                       Registration Statement)2
               10.6    Amendment dated as of April 4, 1992 to East Killingly,
                       Connecticut lease (Exhibit 10.10 to the IPO
                       Registration Statement) (2)
               10.7    Lease dated as of May 1, 1993 between the Company and
                       Bradford Realty, Ltd. (Exhibit 10.14 to the 1994
                       Registration Statement)(1)
                                      
                                    -22-

<PAGE> 
               10.8    First Amendment to Lease dated as of November 1, 1995
                       between the Company and Bradford Realty, Ltd. (6)
               10.9    Amended and Restated Accounts Financing Agreement dated
                       May 25, 1993 (Exhibit 10.15 to the 1994
                       Registration Statement) (1)
               10.10   Amendment No. 1 to the Amended and Restated Accounts
                       Financing Agreement (Exhibit 10.16 to the 1994
                       Registration Statement) (1)
               10.11   Amendment No. 2 to the Amended and Restated Accounts
                       Financing Agreement (Exhibit 10.17 to the 1994
                       Registration Statement) (1)
               10.12   Amendment No. 3 to the Amended and Restated Accounts
                       Financing Agreement (6)
               10.13   Intentionally omitted
               10.14   Form of stockholders agreement (Exhibit 10.14 to the
                       IPO Registration Statement) (2)
               10.15   Contribution Agreement dated April 8, 1991 (Exhibit
                       10.21 to the IPO Registration Statement) (2)
               10.16   Contribution Agreement in respect of the Corporate
                       Reorganization, together with exhibits thereto
                       (Exhibit 10.22 to the IPO Registration
                       Statement)(2)
               10.17   Collective Bargaining Agreement dated August 1, 1994
                       with the Amalgamated Clothing & Textile Workers
                       Union (6)
               10.18   Form of employment agreement with Howard Koenig
                       (Exhibit 10.16 to the IPO Registration
                       Statement)(2)
               10.19   Amendment dated September 17, 1993 to Employment
                       Agreement with Howard Koenig (Exhibit 10.26 to the
                       1994 Registration Statement)(1)
               10.20   Form of employment agreement with Scott Vertrees
                       (Exhibit 10.17 to the IPO Registration
                       Statement)(2)
               10.21   Amendment dated September 17, 1993 to Employment
                       Agreement with Scott Vertrees (Exhibit 10.28 to the
                       1994 Registration Statement)(1)
               10.22   1992 Stock Option Plan (Exhibit 10.18 to the IPO
                       Registration Statement)(2)
               10.23   1992 Directors' Stock Option Plan (Exhibit 10.19 to
                       the IPO Registration Statement)(2)
               10.24   401(k) Plan (Exhibit 10.20 to the IPO Registration
                       Statement)(2)
               
               
               
                                    -23-

<PAGE>                
               10.25   Master Lease Agreement dated September 1, 1994 between
                       the Company and Banc One Leasing Corporation, and
                       Amendment No. 1 dated March 16, 1995 thereto (Exhibit 
                       10.32 to the 1994 Annual Report)(3)
               10.26   Addendum II to Master Lease Agreement dated September
                       1, 1995 (6)
               10.27   Addendum III to Master Lease Agreement dated
                       November 30, 1995 (6)
               10.28   Financing Lease Schedule to Master Lease Agreement
                       dated September 1, 1995, and Addendum I to
                       Financing Lease Schedule(6)
               10.29   Employment agreement between the Company and Gary
                       E. Avalone dated June 14, 1994 (Exhibit 10.33 to the 
                       1994 Annual Report)(3)
               10.30   Employment agreement between the Company and Thomas M.
                       Rallo dated January 1, 1996 (6)
               10.31   Employment agreement between the Company and John R.
                       Patnovic dated May 16, 1994 (Exhibit 10.35 to the
                       1994 Annual Report)(3)
               10.32   License agreement with the Warner Bros. Division of
                       Time Warner Entertainment Company, L.P. dated
                       September 13, 1994 (Willy 2 (trademark))(Exhibit
                       10.36 to the 1994 Annual Report)(3, 4)
               10.33   License agreement with the Warner Bros. Division of
                       Time Warner Entertainment Company, L.P. dated
                       November 16, 1994 (Looney Tunes
                       (trademark))(Exhibit 10.37 to the 1994 Annual
                       Report)(3, 4)
               10.34   Manufacturing and Supply Agreement between the Company
                       and Johnson & Johnson Consumer Products, Inc. dated
                       September 27, 1994 (Exhibit 10.38 to the 1994
                       Annual Report) (3, 4)
               10.35   Amendment No. 1 to the 1992 Directors' Stock Option
                       Plan (5)
               10.36   First Amended Order Authorizing Post-Petition
                       Financing, granting senior liens and priority
                       administrative expense status, modifying the
                       automatic stay, and authorizing debtor to enter
                       into agreements with Congress Financial Corporation
                       (New England).
               10.37   Amended Ratification and Amendment Agreement
               
               
               
               
                                    -24-

<PAGE>                

               10.38   Final order pursuant to Section 364(c) of the
                       Bankruptcy Code and Rule 4001 of the Federal Rules
                       of Bankruptcy Procedure authorizing the debtors to
                       obtain post-petition financing, granting senior
                       liens and priority administrative expense status,
                       modifying the automatic stay, and authorizing
                       debtor to enter into agreements with Congress
                       Financial Corporation (New England).
               21.1    Subsidiaries (1)
          
             (1) Incorporated by reference to the indicated numbered
                 exhibit filed with the Company's Registration Statement
                 (the "1994 Registration Statement") on Form S-1, as
                 amended (Registration No. 33-76352), originally filed
                 with the Securities and Exchange Commission on March 11,
                 1994.
               
             (2) Incorporated by reference to the indicated numbered
                 exhibit filed with the Company's Registration Statement
                 (the "IPO Registration Statement") on Form S-1, as
                 amended (Registration No. 33-47973), originally filed
                 with the Securities and Exchange Commission on May 18,
                 1992.
               
             (3) Incorporated by reference to the indicated numbered
                 exhibit filed with the Company's Annual Report on Form 10-
                 K for the year ended December 31, 1994 (the "1994 Annual
                 Report").
               
             (4) The Company has obtained confidential treatment of
                 portions of this exhibit in connection with the filing of
                 the 1994 Annual Report.
               
             (5) Incorporated by reference to the Company's Proxy Statement
                 dated April 22, 1994.
             
             (6) Incorporated by reference to the indicated numbered
                 exhibit with the Company's Annual Report on Form 10-K for
                 the year ended December 31, 1995 (the "1995 Annual
                 Report").
               
     (b)  Reports on Form 8-K:
          -------------------
          None


                                    -25-

<PAGE> 
     (c)  Exhibits:
          --------
          See Exhibit index included in Item 14(a) 3., which index is 
          incorporated by reference.

     (d)  Financial Statement Schedules:
          -----------------------------
          See Financial Statement Schedule appearing on page 28.



















































                                    -26-

<PAGE> 




     REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE



     To American White Cross, Inc.:

     
     We have audited in accordance with generally accepted auditing
   standards, the consolidated financial statements of American White
   Cross, Inc. (a Delaware corporation) and subsidiaries as of December 31,
   1996 and 1995 and for each of the three years in the period ended
   December 31, 1996, and have issued our report thereon dated March 12,
   1997.  Our audits were made for the purpose of forming an opinion on the
   basic financial statements taken as a whole.  The accompanying schedule
   on page 28 is the responsibility of the Company's management and is
   presented for purposes of complying with the Securities and Exchange
   Commission's rules and is not part of the basic financial statements.
   The schedule has been subjected to the auditing procedures applied in
   the audit of the basic financial statements and, in our opinion, fairly
   states in all material respects the financial data required to be set
   forth therein in relation to the basic financial statements taken as a
   whole.
     







                                   ARTHUR ANDERSEN LLP
     
     
     Hartford, Connecticut
     March 12, 1997
     
















                                    -27-

    <PAGE>           
                                                             Schedule II



    <TABLE>
                     AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                          VALUATION AND QUALIFYING ACCOUNTS
                          December 31, 1996, 1995 and 1994
                                   (In thousands)


    <CAPTION>
                                   Additions
                       Balance at  Charged to                    Balance
                       Beginning   Cost and                      at End
    Description         of Year    Expenses    Deductions(1)     of Year
    -----------        ----------  --------    -------------     -------
    <S>                <C>         <C>         <C>               <C>
    December 31, 1994:
      Allowance for
        doubtful
        accounts           $585       $306            $221        $670

    December 31, 1995:
      Allowance for
        doubtful
          accounts          670         33               7         696

    December 31, 1996:
      Allowance for
      doubtful
        accounts            696        591             280       1,007





(1)  Write off of uncollectible accounts net of recoveries.
</TABLE>













                                    -28-

<PAGE> 
                                 SIGNATURES
                                      
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, Registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized on March 31, 1997.

AMERICAN WHITE CROSS, INC.
                              
                                   By:   /s/SCOTT VERTREES
                                   -----------------------
                                   Scott Vertrees
                                   Vice Chairman of the Board of Directors,
                                   Executive Vice President
                                   and Chief Financial Officer
































                                    -29-

<PAGE> 

Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons in the capacities and on the
dates indicated.

Signature                 Capacity                           Date
---------                 --------                           ----

 /s/ HOWARD KOENIG
-----------------------   Chairman of the Board of           March 31, 1997
Howard Koenig               Directors, President and Chief
                            Executive (Principal Executive
                            Officer)

 /s/ SCOTT VERTREES
------------------------  Vice Chairman of the Board of      March 31, 1997
Scott Vertrees              Directors, Executive Vice
                            President, Chief Financial
                            Officer (Principal
                            Financial Officer)

 /s/ NORBERT R. MARKERT
------------------------  Senior Vice President, Corporate   March 31, 1997
Norbert R. Markert          Development

 /s/ THOMAS M. RALLO
------------------------  Senior Vice President, Finance     March 31, 1997
Thomas M. Rallo             and Administration (Principal
                            Accounting Officer)

 /s/ ROBERTA M. GOLDRING
------------------------  Director                           March 31, 1997
Roberta M. Goldring

 /s/ CLIFFORD J. GUNDLE
------------------------  Director                           March 31, 1997
Clifford J. Gundle

 /s/ JULIUS WAGMAN
-----------------------   Director                           March 31, 1997
Julius Wagman


-----------------------
Edgar Wadley              Director



                                    -30-

<PAGE>                                       




                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




                                                          Page
                                                          ----


Report of Independent Public Accountants                  F-2

Consolidated Balance Sheets as of December 31,
     1996 and 1995                                        F-3

Consolidated Statements of Operations for the
     Years Ended December 31, 1996, 1995 and 1994         F-5

Consolidated Statements of Changes in Stockholders'
     Equity (Deficit) for the Years Ended December 31,
     1996, 1995 and 1994                                  F-6

Consolidated Statements of Cash Flows for the Years
     Ended December 31, 1996, 1995 and 1994               F-7

Notes to Consolidated Financial Statements                F-9




















                                     F-1

<PAGE> 
                  REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To American White Cross, Inc.:

  We have audited the accompanying consolidated balance sheets of American
White Cross, Inc. (a Delaware corporation) and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based
on our audits.

  We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

  In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American White
Cross, Inc.  and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.

  The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  The
accompanying consolidated statements of operations indicate that the
Company incurred significant losses in each of the three years ended
December 31, 1996.  In addition, as discussed in Note 2 to the consolidated
financial statements, on July 17, 1996, the Company filed a voluntary
petition for relief under Chapter 11 of the U.S. Bankruptcy Code.  These
matters raise substantial doubt about the Company's ability to continue as
a going concern.  Management's plans in regard to these matters are
discussed in Note 2 to the consolidated financial statements.  The
Company's ability to continue as a going concern is dependent upon
acceptance of a plan of reorganization by the Bankruptcy Court and the
Company's creditors, maintaining on-going debtor-in-possession financing
and the success of future operations.  The ultimate outcome of these
matters is not presently determinable.  The accompanying consolidated
financial statements do not include any adjustments relating to these
uncertainties or the recoverability and classification of recorded asset

                                     F-2

<PAGE>                                       

amounts or the amounts and classification of liabilities that might be
necessary should the Company  be unable to continue as a going concern.
Also, the accompanying consolidated financial statements do not include
adjustments that the Company can be expected to record to adjust the
carrying values of assets and liabilities to to estimated fair values if
the Company emerges from reorganization under Chapter 11 of the U.S.
Bankruptcy Code as a going concern.

                                        ARTHUR ANDERSEN LLP



Hartford, Connecticut
March 12, 1997

































                                    F-2.1

<PAGE>                                       
<TABLE>
                  AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                                                      
                         CONSOLIDATED BALANCE SHEETS
                      As of December 31, 1996 and 1995
                                                                      
                        (Dollar amounts in thousands)
                                                                      
<CAPTION>
                                                                          
                                                          1996        1995
                                                          ----        ----
                                      ASSETS
<S>                                                 <C>         <C>       
Current assets:                                                           
  Cash                                              $      440  $      848
  Accounts receivable, net of allowances for                              
    doubtful accounts and discounts of $1,007                             
    and $696 in 1996 and 1995                            8,955      10,089
  Inventory                                             19,843      28,171
  Prepaid expenses                                       1,027         765
  Supplies                                               1,511       1,367
  Other current assets                                   1,104       1,875
  Deferred income taxes                                      -       1,061
                                                        ------      ------
          Total current assets                          32,880      44,176
                                                        ------      ------
Property, plant and equipment, net of                                     
  accumulated depreciation of $17,974                                     
  and $15,520 in 1996 and 1995                          15,946      21,827
                                                        ------      ------
Other assets:                                                             
  Goodwill, net of accumulated amortization                               
    of $587 and $421 in 1996 and 1995                    4,388       6,461
  Trademarks, licenses and customer list, net                             
    of accumulated amortization of $777 and                               
    $561 in 1996 and 1995                                  180         616
  Organization and deferred financing costs,                              
    net of accumulated amortization of $1,317                             
    and $1,004 in 1996 and 1995                            869       1,046
    Non-competition agreements, net of accumulated                        
    amortization of $358 and $258 in 1996 and 1995         142         242
  Deferred income taxes                                      -       4,048
                                                        ------      ------
          Total other assets                             5,579      12,413
                                                        ------      ------
          Total assets                              $   54,405  $   78,416
                                                        ======      ======
</TABLE>

<PAGE>                                       
                                     F-3
<TABLE>
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
                         CONSOLIDATED BALANCE SHEETS
                      As of December 31, 1996 and 1995
                                 (Continued)
                        (Dollar amounts in thousands)
<CAPTION>
                                                          1996        1995
                                                          ----        ----
<S>                                                  <C>         <C>
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                                                                          
    Current liabilities not subject to compromise:                        
    Revolving DIP facility                          $   16,827  $        -
     Current portion of long-term debt and capital                        
      lease obligations                                      -      17,451
    Accounts payable                                     2,108      12,608
    Other accrued expenses                               2,973       1,746
                                                        ------      ------
          Total current liabilities not                                   
            subject to compromise                       21,908      31,805
                                                                          
     Long-term debt and capital lease obligations,                        
              less current portion, not subject to
              compromise                                     -      19,577
                                                                          
  Liabilities subject to compromise (Note 7)            35,371           -
                                                        ------      ------
           Total liabilities                            57,279      51,382
                                                        ------      ------
  Commitments and contingencies (Notes 2, 3,                       
    7, 8, 16 and 18)                                               
                                                                   
  Stockholders' equity (deficit):                                         
    Preferred stock, $.01 par value, 5,000,000                            
      shares authorized, none outstanding                    -           -
    Common stock, $.01 par value, 20,000,000 shares                       
      authorized, 6,675,891 issued and outstanding          67          67
    Additional paid-in capital                          33,990      33,990
    Accumulated deficit                               (36,931)     (7,023)
                                                        ------      ------
          Total stockholders' equity (deficit)         (2,874)      27,034
                                                        ------      ------
          Total liabilities and stockholders'                             
            equity (deficit)                        $   54,405  $   78,416
                                                        ======      ======
                                      
      The accompanying notes are an integral part of these consolidated
                            financial statements.
</TABLE>
                                      
                                     F-4

<PAGE> 

<TABLE>
                   AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                                                         
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                         
               For the Years Ended December 31, 1996, 1995 and 1994
                     (In thousands, except per share amounts)
                                                                             
                                                                             
<CAPTION>
                                                                             
                                                  1996       1995        1994
                                                  ----       ----        ----
<S>                                         <C>         <C>        <C>
Sales                                       $    87,798 $   87,351 $    90,005
                                                                             
Cost of sales                                    81,380     73,088     72,591
                                                ------     ------      ------
      Gross profit                                6,418     14,263     17,414
                                                ------     ------      ------
Operating expenses:                                                          
   Selling                                       12,786     12,387     13,611
   General and administrative                     5,169      3,866      3,927
   Nonrecurring (Note 12)                            -       1,028      5,328
Impairment of long-lived assets (Note 4)          7,343         -           -
Interest expense (1996 less than                                             
   contractual interest by $1,300, Note 9)       3,791      3,365      1,982
Other income                                        (3)       (17)       (33)
                                                ------     ------      ------
Loss before reorganization items and                                     
  (provision for) benefit from income taxes    (22,668)    (6,366)    (7,401)
                                                                             
Reorganization items:                                                    
  Professional fees                             (2,147)         -           -
                                                ------     ------      ------
      Loss before (provision for)                                            
        benefit from income taxes              (24,815)    (6,366)    (7,401)
                                                                             
  (Provision for) benefit from income taxes     (5,093)      1,672      2,643
                                                ------     ------      ------
      Net loss                              $  (29,908) $  (4,694) $  (4,758)
                                                ======     ======      ======
Net loss per share                          $    (4.48) $   (0.70) $   (0.81)
                                                ======     ======      ======
Weighted average shares outstanding               6,676      6,676      5,843
                                                ======     ======      ======
                                                                             
       The accompanying notes are an integral part of these consolidated
                             financial statements.
</TABLE>
                     
                                   F-5                                       

<PAGE> 

<TABLE>
                   AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                                                        
        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
                                                                        
                For the Years Ended December 31, 1996, 1995 and 1994
                                 (In thousands)
                                                                             
<CAPTION>
                                 Stockholders' Equity (Deficit)
                       -------------------------------------------------
                                                     Retained
                       Common Stock   Additional     Earnings     
                       -------------    Paid-In    (Accumulated
                       Shares  Amount   Capital       Deficit)     Total
                       ------  ------   -------     -----------    -----
<S>                    <C>    <C>     <C>          <C>        <C>
Balance, December 31,                                                        
  1993                  4,068 $  41    $  17,960   $   2,429  $    20,430
                                                                             
Proceeds from sale of                                                   
   common stock, net of                                                 
   offering expenses of                                                 
  $817                  2,608    26       13,944           -        13,970
                                                                        
Net loss                   -      -           -       (4,758)       (4,758)
                       -----    ---       ------      -------      -------
Balance, December 31,                                                        
  1994                  6,676    67       31,904      (2,329)       29,642
                                                                             
Warrants issued in                                                           
  conjunction with                                                           
  offering of sub-                                                           
  ordinated notes                                                            
    payable                -      -        2,086            -        2,086
                                                                               
  Net loss                 -      -            -       (4,694)      (4,694)
                       -----    ---       ------       -------     -------
  Balance, December 31,                                                        
    1995                6,676    67       33,990       (7,023)      27,034
                                                                             
  Net loss                 -       -             -    (29,908)     (29,908)
                       -----    ---       ------       -------     -------
  Balance, December 31,                                                        
    1996                  6,676 $  67    $   33,990   $ (36,931)  $   (2,874)
                          =====    ===       ======      =======     =======
                                                                             
        The accompanying notes are an integral part of these consolidated
                                financial statements.
   </TABLE>
                                                                             
                                         F-6                        
  <PAGE>

  <TABLE>
                    AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                                                     
                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     
                For the Years Ended December 31, 1996, 1995 and 1994
                                  (In thousands)
<CAPTION>
                                                                        
                                            1996       1995        1994
                                            ----       ----        ----
<S>                                     <S>         <S>         <S>
CASH FLOWS FROM OPERATING ACTIVITIES:                                   
  Net loss                              $ (29,908)  $  (4,694)  $ (4,758)
  Adjustments to reconcile net                                          
    loss to net cash used in                                            
    operating activities:                                               
      Depreciation and amortization         3,510       3,059      2,935
      Impairment of long-lived assets       7,343          -           -
      Cash flow effect of                                               
        restructuring charge, net                                       
        of deferred income tax                                          
        benefit of $1,880 in 1994               -      (3,065)      3,448
      Provision for (benefit from)                                      
         deferred income taxes              5,109      (1,735)       (815)
      Accretion of subordinated                                         
        notes payable                         142          21          -
      Changes in operating assets                                       
        and liabilities -                                               
         Accounts receivable                1,134         725       1,805
         Inventory                          8,328      (5,995)      3,292
         Prepaid expenses, supplies                                     
            and other current assets          365        (631)       (141)
          Accounts payable and accrued                                  
            expenses                        2,908       5,732     (12,368)
                                          -------     -------     -------
           Net cash used in                                             
             operating activities          (1,069)     (6,583)     (6,602)
                                          -------     -------     -------
CASH FLOWS FROM INVESTING ACTIVITIES:                                   
  Purchases of property, plant             (1,883)     (3,616)     (3,003)
    and equipment                                                       
  Reimbursement of plant and                                            
    equipment costs                             -         976          -
  Other assets                              (166)        (343)      (378)
                                          -------     -------    -------
           Net cash used in                                             
             investing activities         (2,049)      (2,983)    (3,381)
                                          -------     -------    -------
</TABLE>
                                      
                                     F-7

<PAGE> 

<TABLE>
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      
            For the Years Ended December 31, 1996, 1995 and 1994
                                 (Continued)
                               (In thousands)



<CAPTION>
                                             1996       1995       1994
                                             ----       ----       ----
<S>                                         <C>         <C>      <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Borrowings (repayments) on Revolving                                  
      DIP Facility/revolving credit                                     
      loan, net                             4,589       1,934     (8,190)
    Proceeds from other long-term debt          -       3,000     12,507
    Repayments of long-term debt           (1,236)     (2,306)    (6,492)
    Repayments of capital lease                                         
      obligations                            (507)     (1,210)      (964)
    Proceeds from issuance of                                           
      subordinated notes payable                                        
      and related warrants                      -       9,000          -
    Deferred financing costs                 (136)       (902)        (62)
    Net proceeds from sale of                                           
      common stock                              -           -      13,970
                                          -------     -------     -------
             Net cash provided by                                       
               financing activities         2,710       9,516      10,769
                                          -------     -------     -------
             Net (decrease) increase                                    
               in cash                       (408)        (50)        786
                                                                        
CASH, beginning of year                       848         898         112
                                          -------     -------     -------
CASH, end of year                      $      440 $       848  $      898
                                          =======     =======     =======
                                                                        
                                                                        
       The accompanying notes are an integral part of these consolidated
        financial statements, including Note 3 - Supplemental Cash Flow
                                 Information.
                                                                     
</TABLE>
                                      



                                     F-8

<PAGE>                                       
                                      
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                      
                      DECEMBER 31, 1996, 1995 AND 1994
                                      
                                      
                                      
                                      
1.BUSINESS AND ORGANIZATION:

  American White Cross, Inc. (the "Company") manufactures and markets a
wide variety of health and personal care products including disposable
first aid products such as adhesive bandages, sterile pads, first aid kits
and waterproof tape. The Company also produces and sells products
manufactured primarily from cotton (the "Cotton Business"), including
cotton swabs, pharmaceutical coil used in the packaging of drugs and
vitamins in bottles, cosmetic puffs, rounds and squares, cotton rolls and
sterile cotton balls.

  The Company's business was founded in 1925, became a division of National
Patent Development Corporation ("NPDC") in 1972 and was reorganized in
April 1991 as National Patent Medical Partnership, L.P. (the
"Partnership").  Pursuant to the formation of the Partnership, Vamic, Inc.
("Vamic", formerly Clifcor Medical Corp.) acquired a 51% interest in the
Partnership and became the general partner, and National Patent Medical
Inc. ("NPMI"), a wholly owned subsidiary of NPDC, acquired the remaining
49% interest in the Partnership and became the limited partner.

  In November 1992, NPM Healthcare Products, Inc., which was formed for
such purpose, succeeded to the assets, liabilities and business of the
Partnership.

  In May 1993, the Company acquired all of the outstanding capital stock of
The American White Cross Laboratories, Inc. ("AWCL") and its wholly owned
subsidiary, Weaver Manufacturing Corporation ("Weaver").  In March 1994,
AWCL was merged into the Company and the Company changed its name from NPM
Healthcare Products, Inc. to American White Cross, Inc.

  Unless otherwise noted, all references to the Company include Weaver and
Acme/Chaston Puerto Rico, Inc. ("Acme/Chaston"), the Company's wholly owned
subsidiaries, and the Company's predecessor entities.

  See Note 2 for a discussion of the Company's filing for protection under
Chapter 11 of the U.S. Bankruptcy Code on July 17, 1996 and Note 18 for a
discussion of an agreement to sell the Cotton Business (unaudited).

                                     F-9


<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
2.  STATUS OF CHAPTER 11 PROCEEDINGS:

  On July 17, 1996 (the "Filing Date"), the Company and its wholly owned
subsidiaries, Weaver and Acme/Chaston, filed voluntary petitions for
reorganization under Chapter 11 (the "Chapter 11 Filing") of Title 11 of
the United States Code (the "Bankruptcy Code") in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") and
are currently operating their respective businesses as debtors-in-
possession pursuant to section 1107 and 1108 of the Bankruptcy Code.  On
July 29, 1996, a single unsecured creditors' committee was appointed by the
U.S. Trustee for the District of Delaware pursuant to Section 1102 of the
Bankruptcy Code (the "Creditors' Committee").  The Creditors' Committee has
the right to review and object to certain business transactions and is
expected to participate in the negotiation of the Company's plan of
reorganization.

  As of the Filing Date, actions to collect pre-petition indebtedness have
been automatically stayed pursuant to Section 362 of the Bankruptcy Code
(subject to order of the Bankruptcy Court) and, in certain circumstances,
other pre-petition contractual obligations may not be enforced against the
Company.  In addition, the Company may reject pre-petition executory
contracts and lease obligations, and parties affected by these rejections
may file claims with the Bankruptcy Court in accordance with the
reorganization process.  Substantially all liabilities as of the Filing
Date are subject to being paid or compromised under a plan of
reorganization to be voted upon by impaired classes of creditors and equity
security holders and approved by the Bankruptcy Court (see Note 7).

  On July 17, 1996, the Company entered into a ratification and amendment
of its loan agreement with Congress Financial (the "Congress Financing") to
provide a working capital, debtor-in-possession facility, (the "Revolving
DIP Facility") to the Company through December 31, 1996.  The facility was
subsequently extended to May 13, 1997.  The amount available for borrowings
is based upon the levels of eligible accounts receivable and inventory,
subject to maximum borrowings of $30,000,000.  Under the Revolving DIP
Facility, the formulas for calculating available borrowing were modified,
increasing the amount the Company can borrow by up to $1,500,000.  In
exchange for this increase, the Company, (i) pledged previously
unencumbered collateral, (ii) granted a second lien position to Congress
Financial on certain machinery and equipment and, (iii) paid a $50,000
facility fee, along with an additional $20,000 facility fee at the time of
extension.  The interest rate increased to 2% above prime rate (10.25% at


                                    F-10

<PAGE> 

                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
December 31, 1996) from the prime rate plus 1 3/4% at December 31, 1995.
The Revolving DIP Facility, approved by the Bankruptcy Court on August 13,
1996, contains certain financial covenants, related to performance against
weekly cash flow projections provided by the Company.  Borrowings
outstanding on the Revolving DIP Facility at December 31, 1996 were
$16,827,000.  Based on eligible receivables and inventory at December 31,
1996, the Company had approximately $2,500,000 available for additional
borrowings.

  Since the Filing Date, the Company has continued to manage its business
as a debtor-in-possession. Key activities during the post-petition period
have included:  1) obtaining post-petition financing, 2) increasing cash
flows through a number of operational changes such as personnel layoffs and
negotiated union concessions, 3) evaluating the Company's strategic
direction and cost structure, resulting in a determination to discontinue
certain product lines and also to pursue the divestiture of its Cotton
Business (see Note 18), 4) offsetting the effect of certain customer
account losses through a renewed sales effort and focus on profitable core
product lines, and 5) making progress in developing a formal plan of
reorganization.  By a court order in March 1997, the Company has received
an extension of it's exclusive period to file a plan of reorganization to
June 14, 1997.

3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Reporting Periods
-----------------
  The Company's first three fiscal quarters include 13 weeks and end on a
Sunday.  The first fiscal quarter of each year also includes the period
from January 1 to the first Sunday of January.  The Company's year end is
December 31.

Principles of Consolidation
---------------------------
  The accompanying consolidated financial statements include the
consolidated operations of the Company and its subsidiaries. All
significant intercompany balances and transactions have been eliminated in
the consolidated financial statements.






                                    F-11

<PAGE>

                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
  The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. These statements have been prepared on  a
going concern basis, which assumes continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
However, such realization of assets and liquidation of liabilities is
subject to significant uncertainty in light of the Chapter 11 Filing (see

Note 2) and the amount to be realized from the sale of the Cotton Business
(see Note 18). Such accompanying consolidated financial statements,
consequently, do not reflect all potential adjustments to the carrying
value of assets or amounts and classification of liabilities that might be
necessary pursuant to a plan of reorganization.  The Company expects to
adjust the carrying value of assets and liabilities to estimated fair
values if the Company emerges as a going concern from Chapter 11 under the
"Fresh-Start" accounting provisions of AICPA Statement of Position 90-7.
Under the reorganization proceedings, the Company may sell or otherwise
realize assets, and liquidate or settle liabilities, for amounts other than
those reflected in the consolidated financial statements.

Account Reclassifications
-------------------------
  Certain amounts in the accompanying consolidated financial statements
have been reclassified to conform with the current year presentation.

Revenue Recognition
-------------------
  Revenue is recorded upon the shipment of products to the customer.

Inventory
---------
  Inventory is valued at the lower of cost, using the first-in, first-out
(FIFO) method, or market.


                                    F-12

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

Property, Plant and Equipment
-----------------------------
  Property, plant and equipment are carried at cost.  Major additions and
betterments are capitalized, while replacements, maintenance and repairs
which do not extend the lives of the assets are charged to operations as
incurred.  Upon the disposition of property, plant and equipment, any
resulting gain or loss is recognized in income.

  Depreciation and amortization of plant and equipment are provided for,
commencing when such assets become operational, primarily on the straight-
line basis over the following estimated useful lives:

                              Useful Lives
                              ------------
  Building                    20 years
  Machinery and equipment     5 to 15 years
  Furniture and fixtures      5 to 10 years
  Leasehold improvements      Shorter of asset life or term of lease

Intangible Assets and Deferred Costs
------------------------------------
  Intangible assets and deferred costs are amortized on the straight-line
basis over the following estimated useful lives:

                                   Useful Lives
                                   ------------
  Goodwill                         40 years
  Trademarks and licenses          10-20 years
  Customer list                    25 years
  Organization costs               5 years
  Deferred financing costs         Term of financing
  Non-competition agreements       5 years

  Goodwill, which represents the excess of the purchase price over the fair
values of net assets acquired in connection with certain acquisitions, is
amortized on a straight-line basis over an expected forty year life.  The
recoverability of intangible assets and deferred costs is subject to
uncertainty as a result of the Chapter 11 Filing and may be affected by a
plan of reorganization (see Note 2).

                                    F-13


<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
Income Taxes
------------
  The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes".  This statement requires the Company to recognize deferred tax
assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax
returns.  Under this method, deferred tax assets and liabilities are
determined based on differences between the financial statement carrying
amounts and the tax bases of assets and liabilities and net operating loss
carryforwards available for tax reporting purposes, using the applicable
tax rates for the years in which the differences are expected to reverse.
A valuation allowance is recorded on deferred tax assets unless realization
is more likely than not.

Reorganization Items
--------------------
  Professional fees and expenditures directly related to the Chapter 11
Filing are classified as reorganization costs and expensed as incurred.

Net Loss Per Share
------------------
  Net loss per share has been calculated using the weighted average number
of shares outstanding.  The effect of stock options and warrants during
each period is not dilutive and, therefore, not considered.

Supplemental Cash Flow Information
----------------------------------
  Following is a summary of cash paid for interest and income taxes and non-
cash transactions for the years ended December 31, 1996, 1995 and 1994 (in
thousands):
<TABLE>
<CAPTION>
                                                1996      1995      1994
                                                ----      ----      ----
<S>                                           <C>       <C>       <C>
  Cash paid during the year -
    Interest (Note 9)                         $3,334    $3,312    $1,964
    Income taxes                                  51        78        85
  Non-cash transactions -
    Capital lease obligations                      -     1,220     1,099
    Reduction in deferred purchase price
      payable in conjunction with AWCL
      acquisition (Note 16)                        -         -     2,911
</TABLE>
                                      F-14

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
4. IMPAIRMENT OF LONG-LIVED ASSETS:

  Effective January 1, 1996, the Company adopted  SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." In accordance with SFAS No. 121 and in connection with the
Company's decision to discontinue certain product lines and to pursue the
divestiture of the Cotton Business (see Note 18), the Company recorded non-
cash charges totaling $7,343,000 to write down certain assets to the
expected future net proceeds from the sale of such assets.  The actual net
proceeds ultimately realized could differ materially from these estimates
(see Note 18, unaudited).  These charges included the reassessment of the
carrying value of certain machinery and equipment ($5,052,000) and goodwill
and other intangible assets ($2,291,000) primarily related to the Cotton
Business.

5.INVENTORY:

  Inventory as of December 31, 1996 and 1995 consists of the following (in
thousands):

<TABLE>
<CAPTION>
                                             December 31,
                                            --------------
                                            1996      1995
                                            ----      ----
     <S>                                 <C>       <C>
     Raw materials                       $ 7,044   $10,037
     Work in process                       2,059     2,848
     Finished goods                       10,740    15,286
                                          ------    ------
                                         $19,843   $28,171
                                          ======    ======
</TABLE>










                                    F-15

<PAGE>                                       

                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

6.PROPERTY, PLANT AND EQUIPMENT:

  Property, plant and equipment as of December 31, 1996 and 1995 consists
of the following (in thousands):
<TABLE>
<CAPTION>
                                              December 31,
                                             --------------
                                             1996      1995
                                             ----      ----
     <S>                                 <C>       <C>
     Land                                $   100   $   100
     Building                                290       290
     Machinery and equipment              30,379    34,148
     Leasehold improvements                1,758     1,282
     Furniture and fixtures                1,393     1,527
                                          ------    ------
                                          33,920    37,347

     Less:  Accumulated depreciation      17,974    15,520
                                          ------    ------
                                         $15,946   $21,827
                                          ======    ======
</TABLE>
  Depreciation expense for the years ended December 31, 1996, 1995 and 1994
was approximately $2,714,000, $2,390,000 and $2,380,000, respectively.

7. LIABILITIES SUBJECT TO COMPROMISE:

  Pursuant to Section 362 of the Bankruptcy Code, the commencement of the
Chapter 11 Filing imposed an automatic stay, applicable generally to
creditors and other parties in interest, of:  (i) the commencement or
continuation of a judicial, administrative or other action or proceeding
against the Company that was or could have been commenced prior to
commencement of the Chapter 11 Filing or to recover for a claim that arose
prior to commencement of the Chapter 11 Filing; (ii) the enforcement
against the Company or its property of any judgments obtained prior to
commencement of the Chapter 11 Filing; (iii) the taking of any action to
obtain possession of property of the Company to exercise control over
property of the Company; (iv) the creation, perfection or enforcement of
any lien against the property of the Company's bankruptcy estate; (v) any
act to create, perfect or enforce against property of the Company any lien

                                    F-16

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
that secures a claim that arose prior to the commencement of the Chapter 11
Filing; (vi) the taking of any action to collect, assess or recover claims
against the Company that arose before commencement of the Chapter 11
Filing; (vii) the setoff of any debt owing to the Company that arose prior
to commencement of the Chapter 11 Filing against any claim against the
Company; or (viii) the commencement or continuation of a proceeding before
the United States Tax Court concerning the Company.  Any entity may apply
to the Bankruptcy Court, upon an appropriate showing of cause, for relief
from the automatic stay to exercise the foregoing remedies.

  Pursuant to the provisions of the Bankruptcy Code, liabilities arising
prior to the Chapter 11 Filing may not be paid without prior approval of
the Bankruptcy Court.  Pre Chapter 11 Filing liabilities that are expected
to be settled as part of a plan of reorganization are denoted as
liabilities subject to compromise and include the following (all or a
portion of which may be disputed by the Company (dollars in thousands)):
<TABLE>
<CAPTION>
                                                  December 31, 1996
                                                  -----------------
          <S>                                          <C>
          Accounts payable                             $11,717
          Term loans:
            Notes payable to Bank One                   11,636
          Other notes:
            Subordinated notes payable to Electra        7,079
            Subordinated note payable to NPMI            1,700
            Other                                           73
          Capital lease obligations                      2,702
          Accrued interest                                 264
          Other accrued expenses                           200
                                                       -------
          Total liabilities subject to compromise      $35,371
                                                       =======
</TABLE>

  Liabilities subject to compromise under reorganization proceedings
include the Company's present estimates of substantially all liabilities,
except the Revolver, as of the Chapter 11 Filing.  As discussed above,
payment of these liabilities, including the maturity of debt obligations,
are stayed while the Company continues to operate its business as debtor-in-
possession.  The Company notified all known or identifiable potential
claimants for the purpose of identifying all pre-petition claims against
the Company.  Additional bankruptcy claims and pre-petition liabilities may

                                    F-17

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
arise by termination of contractual obligations, Bankruptcy Court
determination of allowed claims, and as certain contingent and/or
potentially disputed bankruptcy claims are settled for amounts which may
differ from those shown in the consolidated balance sheets.

  The Bankruptcy Court entered an order setting January 17, 1997 as the
deadline for filing proofs of claim in the Chapter 11 Filing (except for
proofs of claim arising from the rejection of unexpired leases or executory
contracts, which must be filed within the later of (i) the time period
established by the Bankruptcy Court in a final order approving such
rejection, and (ii) if no such time period is or was established, thirty
(30) days from and after the date of entry of such final order approving
such rejection).  Creditors who fail to file proofs of claim in respect of
pre-Filing Date claims before this date are barred from thereafter
asserting such claims against the Company, the reorganized Company or any
of their respective affiliates.

  Any plan of reorganization ultimately approved by the Company's impaired
pre-petition creditors and stockholders and confirmed by the Bankruptcy
Court may materially change the amounts and terms of these pre-petition
liabilities.  Such amounts are estimated as of December 31, 1996, and the
Company anticipates that claims filed with the Bankruptcy Court by the
Company's creditors will be reconciled to the Company's financial records.
The additional liability arising from this reconciliation process, if any,
is not subject to reasonable estimation, and accordingly, no provision has
been recorded for these possible claims.  The termination of other
contractual obligations and the settlement of disputed claims may create
additional pre-petition liabilities.  Such amounts, if any, will be
recognized in the consolidated balance sheet and statement of operations as
they are identified and become subject to reasonable estimation.

8.FINANCING ARRANGEMENTS:

  Amounts outstanding as of the Filing Date related to debt and capital
lease obligations at December 31, 1995, excluding the revolving credit loan
which was amended and represents the Revolving DIP Facility (see Note 2),
are included in "Liabilities subject to compromise" in the accompanying
consolidated balance sheet as of December 31, 1996 (see Note 7).  No
payments have been made on the amounts subject to compromise since the
Filing Date except as noted below.  Long-term debt and capital lease
obligations at December 31, 1995 consisted of the following (in thousands):

                                    F-18

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
<TABLE>
<CAPTION>
                                           December 31, 1995
                                           -----------------
     <S>                                        <C>
     Revolving credit loan (see Note 2)         $12,238
     Term loans payable to Bank One              12,772
     Subordinated notes payable to Electra        6,936
     Subordinated note payable to NPMI            1,800
     Capital lease obligations                    3,209
     Other                                           73
                                                 ------
                                                 37,028
     Less: Current portion, including
     revolving credit loan                       17,451
                                                 ------
                                                $19,577
                                                 ======
</TABLE>

  On September 1, 1994, the Company refinanced its machinery and equipment
with Bank One for $12,500,000.  The term loan is secured by substantially
all of the Company's machinery and equipment, other than the equipment
which collateralizes capital lease obligations, and bears interest at a
fixed rate of 9%.  Payments were due in sixty equal monthly installments of
approximately $260,000, which includes principal and interest, through
September 15, 1999. The Company also entered into two term loans with Bank
One on September 1, 1995 for aggregate proceeds of $3,000,000.  The loans
are secured by machinery and equipment located in Mexico and Puerto Rico,
excluding any equipment which secures capital lease obligations.  The loans
bear interest at 11.57% per annum and mature on September 1, 2000.
Payments were due in sixty equal installments, of principal and interest,
of approximately $66,000.  Pursuant to an adequate protection order signed
by the Bankruptcy Court on February 3, 1997, the Company is required to
make aggregate principal payments of $50,000 per month for the period
November 1, 1996 through March 31, 1997 related to these loans.

  On December 1, 1995, the Company issued senior subordinated notes for
proceeds of $9,000,000. The senior subordinated notes are subordinate in
right of payment to the revolving credit facility and to the term loans (up
to a maximum aggregate principal amount of $44,000,000) and are guaranteed
by the Company's subsidiaries.  The notes were due on December 1, 2003 and
bore interest at an annual rate of 8% through December 1, 1996.  The

                                    F-19

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
interest rate was to increase by 2% annually until December 1, 1999 at
which time the rate would have been 16%.  Interest was accrued through the
Filing Date at the rate to be paid for each period.

  Warrants were also issued to the investors in the senior subordinated
notes to purchase up to 1,334,511 shares of the Company's common stock at
an exercise price of $1 per share.  The estimated fair value of the
warrants of $2,086,000 was recorded as a reduction in the carrying value of
the debt. The discount was amortized on the straight-line basis until the
Filing Date.

  The Company issued a subordinated note payable to NPMI in the principal
amount of $1,800,000 in connection with the formation of the Partnership
(see Note 1).  The note bore interest at a rate per annum equal to the
prime rate plus 1/2%.  The Company refinanced this note in April 1996, in
the principal amount of $1,750,000, after a principal payment of $50,000.
The note bore interest at a rate per annum equal to the prime rate plus
1/2% (8.75% at December 31, 1996).  The note was due in twenty-seven
monthly installments beginning April 11, 1996.

  SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires entities to disclose the fair value of financial instruments, both
assets and liabilities, recognized and not recognized in the balance
sheets, for which it is practicable to estimate fair value.  For purposes
of this disclosure, the fair value of a financial instrument is the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.  Fair value is
based on quoted market prices for the same or similar financial
instruments.  The uncertainties related to the outcome of the Company's
Chapter 11 Filing and the resulting effect upon the ultimate value of the
Company's financial assets and liabilities add significantly to the
uncertain nature of any estimate of fair value.  The estimates of fair
value required under SFAS No. 107 require the application of broad
assumptions and estimates.  Accordingly, any actual exchange of such
financial instruments could occur at a value significantly different from
the amounts disclosed.

  Amounts outstanding on the Company's term loans, subordinated notes
payable and capital lease obligations are subject to adjustment at the
direction of the Bankruptcy Court.  In addition, the timing of the ultimate
payment of these liabilities, as well as interest, if any, is also subject

                                    F-20


<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
to determination by the Bankruptcy Court.  Accordingly, it is not
practicable to determine the fair value of these liabilities.  The Company
believes that the carrying value of the Revolving DIP Facility (see Note 2)
approximates its fair value as of December 31, 1996.  SFAS No. 107
disclosures for 1995 have been omitted due to the Chapter 11 Filing.

9. INTEREST EXPENSE:

  For the year ended December 31, 1996, interest expense in the accompanying
consolidated statement of operations is comprised of the following (in
thousands):

          Interest expense
            Revolving DIP Facility/
              Revolving credit loan                          $1,999
            Term loans                                        1,103
            Subordinated debt                                   494
            Other                                               195
                                                             ------
            Total interest expense                           $3,791 
                                                             ======

  Interest expense recorded during 1996 was approximately $1.3 million less
than interest expense for 1996 that was required by the related contractual
debt agreements as a result of the Chapter 11 Filing (see Note 2).

10.  STOCKHOLDERS' EQUITY:

  In connection with the Company's initial public offering of 2,150,000
shares of common stock in 1992, the Company sold warrants to purchase
100,000 shares of common stock to representatives of the underwriters at an
exercise price of $8.40 per share.  The warrants were exercisable
commencing November 17, 1993 and expire on November 17, 1997.  As of
December 31, 1996, no warrants had been exercised.

  In April 1994, the Company completed the public sale of 2,608,300 shares
of common stock at an offering price of $6.00 per share.  The net proceeds
to the Company, after underwriting discounts and other offering expenses,
were approximately $13,970,000.

                                    F-21

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

  In connection with the issuance of subordinated notes payable to certain
investors (see Note 8), warrants to purchase up to 1,334,511 shares of the
Company's common stock at $1.00 per share were issued.  As of December 31,
1996, 1,101,523 warrants were exercisable and no warrants had been
exercised.  The remaining warrants generally become exercisable between
1999 and 2005 depending on the trading price of the Company's common stock.
The warrants all expire on December 1, 2005, except in certain
circumstances.

  In connection with the issuance of the two term loans in September 1995,
warrants to purchase 10,000 shares of the Company's common stock were
issued to the lender.  The warrants are exercisable at a per share price of
$.01 and expire on September 1, 2000.  As of December 31, 1996, no warrants
have been exercised.

  As of December 31, 1996, there were 6,675,891 shares of common stock
outstanding of which Vamic owned 1,326,000 shares of common stock, or
19.9%.

11.  STOCK OPTION PLANS:

  In November 1992, the Company's Board of Directors adopted the 1992 Stock
Option plan.  In May 1995, the Plan was amended to increase the number of
shares reserved for issuance to 1,272,500 shares.  The amendment also
limited the aggregate amount of options received by an individual in any
calendar year to options convertible to 250,000 shares of common stock.
These options vest in three equal installments on the six month, 18-month
and 30-month anniversaries of the date of grant.  As of December 31, 1996,
options to acquire  763,750 shares, net of cancellations, had been granted
pursuant to the plan and options to acquire 508,750 shares were available
for grant.

  The Board of Directors also adopted, in November 1992, the 1992
Directors' Stock Option plan, a stock option plan for certain non-employee
directors of the Company.  A total of 37,500 shares of stock had been
reserved for issuance under this plan.  In May 1994, the plan was amended
to increase the amount reserved for issuance thereunder to 97,500 shares.
This amendment also contains provisions for the grant of options to
purchase 7,500 shares to each non-employee director on the date such
director is first elected to the Board of Directors.  The options vest in

                                    F-22


<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
three equal annual installments commencing on the first anniversary of the
date of grant.  As of December 31, 1996, options to acquire 57,500 shares
had been granted pursuant to the directors' plan, of which 300 had been
exercised, and options to acquire 40,000 shares were available for grant.

A summary of the status of the Company's two stock option plans at December
31, 1996, 1995, and 1994 and changes during the years then ended is
presented in the table and narrative below.  All options were granted at
the fair market value of the common stock on the date of grant of the
option.
<TABLE>
<CAPTION>
                           1996               1995                 1994
                     ----------------    ----------------    ----------------
                             Weighted            Weighted            Weighted
                              Average             Average             Average
                             Exercise            Exercise            Exercise
                     Shares     Price    Shares     Price    Shares     Price
                     ------  --------    ------  --------    ------  --------
<S>                  <C>       <C>       <C>       <C>       <C>       <C>
Outstanding at
  beginning of year  804,200   $5.94     681,950   $6.71     584,700   $7.03
Granted              232,500    2.29     147,500    2.50     122,000    5.52
Canceled            (215,750)   4.45     (25,250)   6.73     (24,750)   8.35
                     -------             -------             -------
Outstanding at
  end of year        820,950    5.30     804,200    5.94     681,950    6.71
                     =======             =======             =======
Exercisable at
  end of year        647,616    6.08     518,699    6.64     299,218    6.75
                     =======             =======             =======
Weighted average
  fair value of
  options granted      $1.34               $1.49               N/A
                        ====                ====               ===
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation".  SFAS No. 123 requires the
measurement of the fair value of stock options to be included in the
statement of operations or disclosed in the notes to financial statements.
The Company has determined that it will continue to account for stock-based
compensation for employees under Accounting Principles Board Opinion No. 25
and elect the disclosure-only alternative under SFAS No. 123.  The Company

                                    F-23

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
has computed the pro forma information required under SFAS No. 123 for
options granted in 1995 and 1996 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 and proforma compensation cost for the
Company's stock option plans for 1996 and 1995 was not material.
Accordingly, no pro forma amounts are presented.

12.  NONRECURRING EXPENSES:

  The Company's results for 1994 include a pre-tax charge to earnings of
$5,328,000 taken in the second quarter of 1994 related to the accrual of
the estimated cost to restructure certain of its facilities.  Additionally,
the 1995 results include costs of $886,000 over the amount initially
reserved.  The restructuring plan was designed to reduce the number of the
Company's manufacturing and distribution facilities and shift production to
modernized facilities which offer lower labor and general operating costs.
Also charged to nonrecurring expenses in 1995 was approximately $142,000
related to the settlement of a pension dispute with the union representing
the Company's employees in Connecticut.

13.  BENEFIT PLANS:

  Certain factory employees of the Company participate in a union sponsored
multi-employer pension plan.  Contributions to the plan (which are
determined in accordance with the union contract and are based upon hours
worked and eligible employees) for the years ended December 31, 1996, 1995
and 1994 were approximately $139,000, $224,000 and $296,000, respectively.
In August 1996, the Company and the union agreed to suspend cash
contributions to the plan.  The Company has continued to accrue amounts due
in accordance with the plan.  Accrued contributions at December 31, 1996
were $48,000.

Substantially all employees of the Company, except for certain unionized
employees and employees of Acme/Chaston are covered by a defined
contribution benefit plan intended to comply with Section 401(k) of the
Internal Revenue Code.  Each year, eligible participants may elect to make
salary reduction contributions on their behalf up to a maximum of the
lesser of 15% of compensation or the annual maximum contribution
established by the Internal Revenue Service.  Participants may also make
voluntary after-tax contributions to the plans.  The Company makes
contributions in an amount equal to one-tenth of the first 10% of
participants' salary reduction contributions.  Contributions to the plans
by the Company for the years ended December 31, 1996, 1995 and 1994 were
approximately $15,000, $22,000 and $27,000, respectively.

                                    F-24

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      


14.  RELATED PARTY TRANSACTIONS:

  In connection with formation of the Partnership, the Company entered into
operating lease agreements with NPDC for the Company's Dayville
manufacturing, distribution and administrative  facility and its East
Killingly distribution facility.  The Dayville lease, as amended, provides
for annual rent of $630,000 subject to an annual cost of living escalator.
This lease expires in 2006.  The Company extended the East Killingly lease
at an annual rent of $78,750 through April 1997. For the years ended
December 31, 1996, 1995 and 1994, rental expense under these leases was
approximately $764,000, $748,000 and $582,000, respectively.

  The above lease agreements provide for NPDC to pay to an affiliate of
Vamic, 50% of (i) the excess of the monthly rental payments under the
leases over the monthly interest, principal and other payments due under
the related mortgage obligation and (ii) any proceeds in excess of the
outstanding mortgage obligations upon sale of the properties.

  The Company also leases a manufacturing and distribution facility in
Houston, Texas from an affiliate of Vamic.  The Company entered into the
lease in May 1993.  In 1995, the lease was amended to provide for the
lessor to build a warehouse extension to the facility.  The amended lease
provides for annual rent through 2013 based upon percentage occupancy by
the Company and subject to an annual cost of living escalator.  Rent
expense related to the lease for the years ended December 31, 1996, 1995
and 1994 was approximately $825,000, $609,000 and $466,000, respectively.

15.  INCOME TAXES:

  The (provision for) benefit from income taxes for the years ended
December 31, 1996, 1995 and 1994  is as follows (in thousands):
<TABLE>
<CAPTION>
                                      1996         1995        1994
                                      ----         ----        ----
     <S>                           <C>         <C>         <C>
     Current                       $    16     $    (63)    $   (52)
     Deferred                       (5,109)       1,735       2,695
                                    ------       ------      ------
          Total                    $(5,093)     $ 1,672     $ 2,643
                                    ======       ======      ======
</TABLE>
                                    F-25

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

  A reconciliation of the difference between the statutory federal income
tax rate and the effective income tax rate for the years ended December 31,
1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
                                             1996      1995      1994
                                             ----      ----      ----
     <S>                                     <C>       <C>       <C>
     Statutory federal income tax rate       34.0%     34.0%     34.0%
     State income taxes, net of federal
       benefit                                2.0       1.4       2.3
     Nondeductible goodwill amortization     (3.9)     (2.3)     (0.6)
     Change in valuation allowance          (52.6)    (12.1)      -
     Other                                    -         5.3       -
                                             ----      ----      ----
        Effective tax rate                  (20.5%)    26.3%     35.7%
                                             =====     =====     =====
</TABLE>
  As of December 31, 1996 and 1995, the Company had net deferred tax assets
resulting primarily from net operating loss carryforwards partially offset
by deferred tax liabilities primarily related to plant and equipment.
During the year ended December 31, 1996, as a result of continuing losses
incurred by the Company, management determined that it was no longer more
likely than not that the value of the deferred tax asset would be realized.
As a result, a valuation allowance was recorded in 1996 to fully offset the
$5.1 million deferred tax asset recorded as of December 31, 1995.

  As of December 31, 1996 the Company had available approximately $32
million of Federal and state net operating loss carryforwards for income
tax reporting purposes that expire, if unused, in 2009 - 2011 for federal
purposes and in 1999 - 2001 for state purposes.  Usage of the net operating
loss carryforwards is restricted in the event of certain changes in
ownership.

  According to Section 936 of the Internal Revenue Code, one-half of
Acme/Chaston's earnings are included in the Company's tax returns and taxed
in the United States.  In September 1992, Acme/Chaston was granted a 10-
year partial Puerto Rico tax exemption equivalent to 60% of its income,
property tax and Puerto Rico municipal license taxes under the Puerto Rico
Industrial Incentive Act of 1987, as amended.  Acme/Chaston's earnings are
also subject to a 10% toll tax if they are repatriated to the United
States.  As of December 31, 1996, the amount accrued for toll taxes was
approximately $150,000.

                                    F-26

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

16.  COMMITMENTS AND CONTINGENCIES:

  As part of the Chapter 11 Filing, creditors of the Company are required
to file proofs of claim with the Bankruptcy Court.  These claims will have
to be reconciled with schedules of liabilities filed by the Company with
the Bankruptcy Court and the differences will have to be resolved or
litigated (see Notes 2 and 7).

  The Company leases its operating facilities, a distribution facility and
certain manufacturing and office equipment under operating leases.  Future
minimum payments under operating leases as of December 31, 1996 are as
follows (in thousands):

                                  Amount
                                  ------
          1997                  $  1,841
          1998                     1,733
          1999                     1,592
          2000                     1,551
          2001                     1,522
          Thereafter              12,915

  Rental expense for operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $2,134,000, $2,626,000 and
$2,134,000, respectively.  Due to the Chapter 11 Filing, the Company may
reject pre-petition lease obligations (see Notes 2 and 7).

  The Company markets various products, including adhesive bandages with
imprints of certain characters, under non-exclusive licenses.  These
products accounted for an aggregate of approximately 6.5%, 6.1% and 8.4% of
the Company's sales for the years ended December 31, 1996, 1995 and 1994,
respectively.  The Company expensed approximately $532,000, $397,000 and
$739,000 for the years ended December 31, 1996, 1995, and 1994,
respectively, under these agreements.  The Company has a license agreement
for use of certain manufacturing technology which requires minimum
royalties of $100,000 per year until the agreement expires in 2000.

  The Company has employment agreements, subject to assumption by the
Company and approval by the Bankruptcy Court, with certain officers which
provide for base salaries, plus bonuses based on the Company achieving
annual operating income amounts, as defined.  The agreements also provide

                                    F-27

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      
for termination payments to be made to certain of these employees in the
event of a change in control of the Company or the involuntary removal of
the employee from the board of directors of the Company.  Upon such event,
the Company would have to pay the individuals an amount equal to 35 months
of his base salary as in effect as of the termination date plus three times
the amount of the largest annual bonus payable to such employees, or a
minimum aggregate amount of approximately $1.9 million as of December 31,
1996.

  The purchase agreement related to the Company's 1993 acquisition of all
the outstanding stock of AWCL provided for a reduction in the purchase
price in certain circumstances.  Subsequent to the acquisition, the Company
reviewed various aspects of the condition and operations of AWCL and, as a
result thereof, has made certain adjustments to AWCL's historical financial
statements as of and for the years ended December 31, 1992 and 1991. In
connection therewith, the Company is seeking additional reductions to the
purchase price, which under the purchase agreement are based on a multiple
of the amount of the adjustments to the historical financial statements, in
an aggregate amount substantially in excess of the balance due ($2,911,000)
on the deferred portion of the purchase price otherwise payable to the
sellers.  As a result of the adjustments, the Company offset the $2,911,000
purchase price due against goodwill in 1994.  The sellers dispute the
Company's claims and filed a claim with the Bankruptcy Court for
approximately $3,300,000.  Additionally, in connection with the acquisition
of AWCL, the Company entered into employment agreements with certain former
owners and employees.  One of these contracts, which provided for a base
annual salary of $350,000 through 1996, was subsequently terminated by the
Company for cause based on provisions in the employment agreement.  The
former employee advised the Company in 1993 that he believed the
termination was without support and in 1996 filed a claim with the
Bankruptcy Court for approximately $1,050,000.  The Company believes these
claims are without merit.

  A former customer of the Company filed a claim with the Bankruptcy Court
for approximately $5,000,000 alleging, among other things, breach of
contract and unfair trade practices.  The Company believes this claim to be
without merit.



                                    F-28

<PAGE> 
                 AMERICAN WHITE CROSS, INC. AND SUBSIDIARIES
                                      
          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
                                      
                                      

  The Company is a party to various litigation arising in the normal course
of business.  This litigation has been stayed as a result of the Chapter 11
Filing.  Management believes the disposition of these matters will not have
a material adverse effect on the Company's consolidated results of
operations or financial condition.

  Most of the Company's raw materials, including cotton and paper which
comprise a significant percentage of the Company's purchases, are purchased
from a variety of suppliers. Cotton and paper prices have historically been
subject to wide fluctuations and are affected by numerous factors beyond
the control of the Company, including economic and political conditions,
weather, availability and cost of other substitute materials and levels of
supply and demand.  A persistent significant increase in the price of these
materials or decrease in their availability could have a material adverse
effect on the Company.

17.  SIGNIFICANT CUSTOMER:

  A single customer accounted for approximately 13.8%, 12.7% and 11.5% of
the Company's sales for the years ended December 31, 1996, 1995 and 1994,
respectively.

18.  SUBSEQUENT EVENT (UNAUDITED):

  On March 20, 1997 the Company entered into a definitive agreement for the
sale of its Cotton Business.  The Cotton Business sales were approximately
$41 million, or 47% of the Company's sales, for the year ended December 31,
1996.  The primary terms of the transaction include cash of $10,000,000,
which approximates the carrying value of the Cotton Business assets,
primarily inventory and equipment to be sold, subject to adjustment for
equipment and inventory values as of the closing date, and the assumption
of the Canovanas, Puerto Rico facility lease.  The contract provides for
$8,500,000 to be paid at closing and the remaining $1,500,000 held in
escrow.  The proceeds will be paid to secured creditors holding liens on
the assets sold.  Additionally, the Company will enter into a supply
agreement for up to nine months from the closing date to manufacture cotton
products for the purchaser using equipment sold to the purchaser.  This
agreement is subject to Bankruptcy Court approval.



                                    F-29

<PAGE>