**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K/A**


**AMENDMENT
      NO. 1**




**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**For
      the fiscal year ended December 30, 2006**




**OR**




** ̈**
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**Commission
      File No. 1-15445**





**FAMILYMEDS
      GROUP, INC.**


**(Name
      of registrant as specified in its charter)**




**STATE
                OF NEVADA**
            
            **34-1755390****(State
                or other jurisdiction of**
              **incorporation
                or organization)**
            
            **(IRS
                Employer**
              **Identification
                No.)****312
                Farmington Avenue**
              **Farmington,
                CT**
            
            **06032-1968****(Address
                of Principal Executive Officers)**
            
            **(Zip
                Code)**




**Issuer’s
      telephone number: (860) 676-1222**




**Securities
      registered pursuant to Section 12(b) of the Exchange Act:
      None.**




**Securities
      registered pursuant to Section 12(g) of the Exchange Act:**




**Common
      stock, Par value $.001 per share**


**(Title
      of Class)**




Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes o No x




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Exchange Act. Yes o No x




Indicate
      by check mark whether the issuer (1) filed all reports required to be filed
      by
      Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the past
      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




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer x




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes o No x




The
      aggregate market value of the Common Stock, $.001 par value, held by
      non-affiliates of the Registrant based upon the last price at which the common
      stock was sold as of the last business day of the Registrant’s most recently
      completed second fiscal quarter, July 1, 2006, as reported on the NASDAQ Stock
      Market was approximately $15,777,486. Shares of Common Stock held by each
      officer and director and by each person who owns 5% or more of the outstanding
      Common Stock have been excluded in that such persons may be deemed to be
      affiliates. This determination of affiliate status is not necessarily a
      conclusive determination for other purposes.




The
      number of shares outstanding of common stock as of April 26, 2007 was
      6,959,017.












**EXPLANATORY
      NOTE**




This
      Form
      10-K/A amends the Form 10-K annual report for the fiscal year ended December
      30,
      2006 filed by Familymeds Group, Inc. (the “Company” or “Familymeds”) on April
      16, 2007. This Form 10-K/A is being filed solely to set forth the information
      required by Items 10, 11, 12, 13, 14, and 15 and is Part III of Form 10-K
      because a definitive proxy statement containing such information will not be
      filed within 120 days after the end of the fiscal year covered by the Company’s
      original Form 10-K filing. All other portions of the Company’s original Form
      10-K filing remain in effect.





**PART
      III**




**Item
      10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.**




Set
      forth
      below is the business experience and other biographical information regarding
      the Company’s executive officers and directors as of April 26,
      2007:





**Committee
                Participation****Name**
            
            **Age**
            
            **Year
                Appointed (1)**
            
            **Position**
            
            **Executive**
            
            **Compensation**
            
            **Nominating
                and Governance**
            
            **Audit**Edgardo Mercadante
            
            51
            
            2004
            
            Chairman
                of the Board, President and Chief Executive Officer
            
            CJames
                E. Searson
            
            54
            
            2005
            
            Director,
                Senior Vice President and Chief Operating OfficerDr.
                Philip P. Gerbino
            
            60
            
            2004
            
            Director
            
            
            
            
            
            X
            
            XPeter
                J. Grua
            
            53
            
            2004
            
            Director
            
            X
            
            C
            
            X
            
            XMark
                T. Majeske
            
            49
            
            2004
            
            Director
            
            
            
            XJugal
                K. Taneja
            
            62
            
            2004
            
            DirectorLaura
                L.Witt
            
            38
            
            2004
            
            Director
            
            X
            
            
            
            C
            
            CJames
                A. Bologa
            
            43
            
            —
            
            Senior
                Vice President and Chief Financial OfficerJames
                S. Beaumariage
            
            47
            
            —
            
            Senior
                Vice President Operations, Familymeds, Inc.Allison
                D. Kiene
            
            40
            
            —
            
            Senior
                Vice President, General Counsel and Secretary







(X)
            Member
                of Committee(C)
            Chairperson
                of Committee(1)
            On
                November 12, 2004, DrugMax, Inc. and Familymeds Group, Inc. merged
                and a
                new Board of Directors was elected. Prior to the merger, Mr. Taneja
                served
                as the Company's Chairman of the
                Board.




Pursuant
        to the Company’s bylaws, each director serves for a term of one (1) year or
        until his successor is duly qualified. Officers are appointed annually by
        the
        Board of Directors (subject to the terms of any employment agreement), to
        hold
        such office until an officer’s successor is duly appointed and qualified, unless
        an officer sooner dies, resigns or is removed by the Board. On April 2, 2007,
        Dr. Rakesh Sharma, who had served as a director since November 12, 2004,
        resigned.









There
      are
      no family relationships among any of the Company’s directors and executive
      officers. There are no arrangements or understandings between directors and
      any
      other person concerning service as a director.




**Information
      regarding Directors and Executive Officers:**





**Edgardo
      A. Mercadante** has
      served as the Company’s Chief Executive Officer and Chairman of the Board since
      the merger of DrugMax, Inc. with Familymeds Group, Inc. (“FMG”) on
      November 12, 2004 (the “Merger”). He served as FMG’s Chairman of the Board,
      Chief Executive Officer and President since 1997. Mr. Mercadante has over
      twenty-five years of experience in the prescription health care and managed
      care
      industries including significant experience in retail pharmacy.
      Mr. Mercadante was President of Arrow Corporation between the years of 1987
      to 1996. He was President and Chief Executive Officer of APP, a pharmacy benefit
      management company, which he co-founded in 1991. Mr. Mercadante served in
      management positions from 1980 to 1986 with Rite Aid Corporation.
      Mr. Mercadante is active in many national and state professional pharmacy
      organizations. Mr. Mercadante is a licensed pharmacist and holds a B.S. in
      Pharmacy from Philadelphia College of Pharmacy and Science. Mr. Mercadante
      holds a directorship with ProHealth and was a director with General Nutrition
      Centers until March of 2007. He also holds a Trusteeship with the University
      of
      Sciences in Philadelphia.




**James
      E. Searson** has
      served on the Company’s board of directors since February 24, 2005. Since
      April 13, 2006, he has served as the Company’s Chief Operating Officer. From
      May 23, 2005 to April 13, 2006, he served as the Company’s Chief Financial
      Officer. A certified public accountant, Mr. Searson worked at
      Ernst & Young from 1975 through 2004, most recently as an audit partner
      who managed the firm’s office in Hartford, CT. He also served in
      Ernst & Young’s offices in Chicago, IL; Zurich, Switzerland; Hamburg,
      Germany; and Munich, Germany. During his tenure at Ernst & Young,
      Mr. Searson provided audit, accounting, financial due diligence and
      reporting counsel and services to multinational manufacturing, distribution
      and
      service companies. Mr. Searson has a BSBA degree in accounting from John
      Carroll University, and also has completed the International Executive
      Management and Executive Management programs at Northwestern University. He
      is a
      member of the American Institute of Certified Public Accountants.




**James
      A. Bologa** joined
      the Company as Senior Vice President, Chief Financial Officer on April 13,
      2006.
      Prior to that, since 2004, Mr. Bologa served as Executive Vice President and
      Chief Financial Officer of Daticon, Inc., a privately held company, providing
      electronic document management conversion services. From 2001 to 2004, Mr.
      Bologa served as Vice President and Controller of TranSwitch Corporation
      (Nasdaq: TXCC), a communications semiconductor company. Mr. Bologa, a certified
      public accountant, began his career with PricewaterhouseCoopers LLP. Mr. Bologa
      has a B.S. in Accounting from Elmira College. He is a member of the New York
      State Society and the American Institute of Certified Public Accountants.





**James
      S. Beaumariage** joined
      the Company in March 1996 and has served in a number of executive positions,
      currently as the Senior Vice President of Store Operations. Prior to joining
      Familymeds, Mr. Beaumariage served as Manager of Third-Party Administration
      for
      CVS, from June 1994 until January 1996, and as Manager of Pharmacy Development
      from February 1993 until June 1994. Mr. Beaumariage held the position of
      Regional Pharmacy Supervisor of CVS/People’s Drug from May 1988 until February
      1993. Mr. Beaumariage is a licensed pharmacist. Mr. Beaumariage has served
      as a
      member of the Connecticut Department of Social Services Pharmacy Advisory Panel.
      Mr. Beaumariage holds a B.S. in Pharmacy from Duquesne University and has
      completed the J. L. Kellogg Graduate School of Management Executive Program
      at
      Northwestern University.




**Allison
      D. Kiene** has
      served as the Company’s Senior Vice President, General Counsel and Secretary
      since November 12, 2004. Prior to that, since September 2002, she served in
      a
      similar capacity for FMG. Prior to joining FMG in September 2002, Ms. Kiene
      served as Regulatory Law Counsel for The Stop & Shop Supermarket
      Company headquartered in Quincy, MA from March 2000 until September 2002.
      Ms. Kiene previously served as a Pharmacy Manager for Stop & Shop
      Pharmacy from April 1994 until March 2000. Ms. Kiene is admitted to the Bar
      in Connecticut, Massachusetts, and New York. She also maintains her license
      to
      practice pharmacy in both Connecticut and New York. Ms. Kiene received her
      Bachelor of Science degree in Pharmacy from the University of Connecticut School
      of Pharmacy and her Juris Doctor degree from the University of Connecticut
      School of Law.











**Dr.
      Philip P. Gerbino** has
      served on the Company’s board of directors since November 12, 2004.
      Previously, he served as a director of FMG since December 1996. Dr. Gerbino
      has been President of the University of the Sciences in Philadelphia and the
      Philadelphia College of Pharmacy since January 1995. Dr. Gerbino is also a
      past president of the American Pharmaceutical Association and is a well
      established consultant in the pharmaceutical and health care industry. He earned
      his PharmD. in 1970 from the Philadelphia College of Pharmacy and Science.




**Peter
      J. Grua** has
      served on the Company’s board of directors since November 12, 2004.
      Previously, he served as a director of FMG. He also is a Managing Partner of
      HLM
      Venture Partners, where he has been employed since 1992. He has over 20 years
      of
      experience as an investor focused on the health care industry. Prior to joining
      HLM in 1992, Mr. Grua was a Managing Director and Senior Analyst at Alex Brown
      and Sons, where he led the firm’s health care services and managed care research
      efforts. Previously, he was a research analyst at William Blair &
Company and a strategy consultant at Booz Allen Hamilton. Mr. Grua is also
      a director of Health Care REIT, The Advisory Board Company, and four other
      private companies. Mr. Grua holds an AB degree from Bowdoin College and an
      MBA from Columbia University.




**Mark
      T. Majeske** has
      served on the Company’s board of directors since November 12, 2004. From
      July 1996 to June 2000, Mr. Majeske served as Group President of McKesson
      HBOC/Pharmaceutical Group. Prior to becoming Group President, Mr. Majeske served
      as Executive Vice President Customer Operations and Regional Executive Vice
      President for McKesson. Since leaving McKesson in 2000, he has been a private
      investor and advisor to startup companies and most recently served as Chief
      Executive Officer of Day Runner, Inc., which was sold to MeadWestvaco
      Corporation in late 2003.




**Jugal
      K. Taneja** has
      served on the Company’s board of directors since the Company’s inception. From
      April 1996 until November 12, 2004, Mr. Taneja served as the Company’s
      Chief Executive Officer. In addition to his service to the Company,
      Mr. Taneja operates several other companies. He is presently the Chairman
      of the Board of Dynamic Health Products, Inc. (“Dynamic”), a position he has
      held since Dynamic’s inception in 1991. From November 1991 to June 1998, he
      served as Chief Executive Officer of Dynamic. Dynamic, a publicly traded
      company, is a distributor of proprietary and nonproprietary dietary supplements,
      over-the-counter drugs, and health and beauty care products. Mr. Taneja has
      served as the Chairman of the Board of GeoPharma, Inc., a publicly traded
      company that manufactures and distributes generic drugs, health and beauty
      aids,
      nutritional and health products, since June 1998. Mr. Taneja is the
      chairman of Bancequity Petroleum Corporation, a private company owns and
      operates 290 oil and gas wells. Mr. Taneja holds degrees in Petroleum
      Engineering, Mechanical Engineering, and a Masters in Business Administration
      from Rutgers University.




**Laura
      L. Witt** has
      served on the board of directors since November 12, 2004. Previously, she
      served as a director of FMG. She is a General Partner of ABS Capital Partners,
      a
      private equity firm which she joined in 1997. Prior to joining ABS Capital
      Partners, Ms. Witt was a consultant with Monitor Company and with Oliver,
      Wyman & Company, both strategy consulting firms. Ms. Witt received
      a Bachelor of Arts from Princeton University and an M.B.A. from the Wharton
      School of Business, University of Pennsylvania. She currently serves as a
      director of Cyveillance, Inc., Double-Take Software, Inc., and of Rosetta
      Stone, Inc.







**Item
      11. EXECUTIVE COMPENSATION.**





**COMPENSATION
      OF DIRECTORS**





The
      table
      below summarizes the compensation earned by non-employee directors for the
      fiscal year ended December 30, 2006:




**2006
      DIRECTOR COMPENSATION**




**Name**
            
            **Fees earned**
              **or paid in**
              **cash($)**
            
            **Stock**
              **Awards($)(6)**
            
            **Option**
              **Awards($)(7)**
            
            **All Other**
              **Compensation($)**
            
            **Total($)**Phillip
                P. Gerbino
            
            
            $
            44,000
            (1)
            
            $
            26,635
            
            
            
            $
            27,629
            
            
            
            -
            
            
            $
            98,264Laura
                L. Witt
            
            
            $
            55,000
            (2)
            
            $
            26,635
            
            
            
            $
            28,622
            
            
            
            -
            
            
            $
            110,257Peter
                J. Grua
            
            
            $
            56,000
            (3)
            
            $
            26,635
            
            
            
            $
            28,374
            
            
            
            -
            
            
            $
            111,009Mark
                T. Majeske
            
            
            $
            47,000
            (4)
            
            $
            26,635
            
            
            
            $
            27,381
            
            
            
            -
            
            
            $
            101,016Rakesh
                K. Sharma
            
            
            $
            37,000
            (5)
            
            $
            26,635
            
            
            
            $
            27,381
            
            
            
            -
            
            
            $
            91,016Jugal
                K. Taneja
            
            
            $
            -
            
            
            $
            11,385
            
            
            
            $
            497
            
            
            $
            374,170
            (8)
            
            $
            386,052







(1)
            Includes
                $20,000 annual cash compensation plus $24,000 in board and committee
                meeting fees.(2)
            Includes
                $20,000 annual cash compensation plus $35,000 in board and committee
                meeting fees.(3)
            Includes
                $20,000 annual cash compensation plus $36,000 in board and committee
                meeting fees.(4)
            Includes
                $20,000 annual cash compensation plus $27,000 in board and committee
                meeting fees.(5)
            Includes
                $20,000 annual cash compensation plus $17,000 in board and committee
                meeting fees.(6)
            Dollar
                amounts in this column reflect the compensation expense recognized
                by the
                Company for financial statement reporting purposes with respect to
                restricted stock under FAS123(R). These values have been determined
                based
                on the assumptions set forth in Note 12 to our consolidated financial
                statements for the fiscal year ended December 30,
                2006.(7)
            Dollar
                amounts in this column reflect the compensation expense recognized
                by the
                Company for financial statement reporting purposes with respect to
                outstanding stock options under FAS 123(R). These values have been
                determined based on the assumptions set forth in Note 12 to our
                consolidated financial statements for the fiscal year ended
                December 30, 2006.(8)
            Includes
                severance payments of $346,466, life insurance premiums of $10,000,
                car
                allowance of $13,304 and the Company matching contribution of $4,400
                for
                the defined contribution plan.


(9)
              Listed
                  below is the outstanding aggregate numbers of option amounts and
                  stock
                  awards outstanding for each director as well as the grant date
                  fair value
                  of such grants:













**Option
                Awards**
            
            **Stock
                Awards****Name**
            
            **Number
                of Securities Underlying Unexercised Options (#)**
            
            **Grant
                Date Fair Value**
              **($)**
            
            **Option
                Exercise Price ($)**
            
            **Option
                Expiration Date**
            
            **Number
                of Shares of Stock Awarded (#)**
            
            **Grant
                Date Fair Value ($)**Phillip
                P. Gerbino
            
            
            2,500
            
            $
            22,250
            
            $
            31.10
            
            
            1/19/2015
            
            
            9,307
            
            $
            161,0902,000
            
            $
            12,200
            
            $
            11.90
            
            
            12/12/20152,000
            
            $
            7,160
            
            $
            6.40
            
            
            7/21/2016Laura
                L. Witt
            
            
            2,500
            
            $
            22,250
            
            $
            31.10
            
            
            1/19/2015
            
            
            8,807
            
            $
            142,5904,000
            
            $
            24,400
            
            $
            11.90
            
            
            12/12/20154,000
            
            $
            14,320
            
            $
            6.40
            
            
            7/21/2016Peter
                J. Grua
            
            
            526
            
            $
            18,305
            
            $
            5.70
            
            
            11/12/2014
            
            
            7,507
            
            $
            94,4902,500
            
            $
            22,250
            
            $
            31.10
            
            
            1/19/20153,500
            
            $
            21,350
            
            $
            11.90
            
            
            12/12/20153,500
            
            $
            12,530
            
            $
            6.40
            
            
            7/21/2016Mark
                T. Makeske
            
            
            2,500
            
            $
            22,250
            
            $
            31.10
            
            
            1/19/2015
            
            
            7,507
            
            $
            94,4901,500
            
            $
            9,150
            
            $
            11.90
            
            
            12/12/20151,500
            
            $
            5,370
            
            $
            6.40
            
            
            7/21/2016Rakesh
                K. Sharma
            
            
            2,500
            
            $
            22,250
            
            $
            31.10
            
            
            07/02/07
            
            
            7,507
            
            $
            94,4901,500
            
            $
            9,150
            
            $
            11.90
            
            
            07/02/071,500
            
            $
            5,370
            
            $
            6.40
            
            
            07/02/07Jugal
                K. Taneja
            
            
            500
            
            $
            22,100
            
            $
            35.00
            
            
            4/3/2011
            
            
            6,007
            
            $
            48,7404,250
            
            $
            187,425
            
            $
            50.00
            
            
            9/2/20114,250
            
            $
            192,525
            
            $
            15.50
            
            
            9/20/20124,250
            
            $
            192,525
            
            $
            27.20
            
            
            10/10/20132,500
            
            $
            22,250
            
            $
            31.10
            
            
            1/19/20151,000
            
            $
            6,100
            
            $
            11.90
            
            
            12/12/20151,000
            
            $
            3,580
            
            $
            6.40
            
            
            7/21/2016





**Annual
      Compensation of Non-Employee Directors**




Upon
      election to the Board of Directors, each outside Director, receives an award
      of
      restricted stock in the amount of $50,000. Such shares vest 1/3 upon the date
      of
      grant and 1/3 on the first and second anniversary thereafter. Further, on each
      year following his or her election to the Board, each outside Director shall
      receive an award of restricted stock in the amount of $25,000. The foregoing
      shares are granted under the Company’s 2003 Restricted Stock Plan. In addition,
      each outside Director shall be issued an option to purchase 1,000 shares of
      common stock annually each year following his or her election to the Board
      of
      Directors. Each outside Director who serves as a member of a committee shall
      be
      issued an option to purchase 500 shares of the Company’s common stock annually.
      The chairperson of each committee, other than the Audit Committee, shall be
      issued an option to purchase an additional 500 shares of common stock annually.
      The chairperson of the Audit Committee and the Chairman of the Board shall
      receive an option to purchase 1,000 shares of the Company’s common stock
      annually. The foregoing options are granted under the Company’s 1999 Stock
      Option Plan.




All
      of
      the Company’s outside Directors receive $2,000 for each meeting of the Board of
      Directors that they attend, $5,000 per quarter and reimbursement of their
      reasonable out-of-pocket expenses incurred in connection with such meetings.
      In
      addition, each outside Director who serves on a committee receives $1,000 for
      each meeting attended.




**COMPENSATION
      OF EXECUTIVE OFFICERS**




***Compensation
      Discussion and Analysis***




**Compensation
      Philosophy and Objectives.**




Historically,
      the goals of our compensation program were to attract and retain highly
      qualified leadership personnel, providing them attractive long-term career
      opportunities. Our compensation philosophy was to provide executives with a
      competitive total compensation package which motivated superior job performance,
      the achievement of our business objectives, and the enhancement of shareholder
      value. Rather than basing compensation on a series of specific performance
      objectives, we encouraged initiative, teamwork and innovation, and each
      executive was empowered to use his or her abilities and particular area of
      responsibility to strengthen our overall performance. Our general approach
      to
      compensating executive officers was to pay cash salaries which generally were
      competitive within ranges of salaries paid to executives of comparable
      companies. Our compensation committee set overall compensation at a level it
      believed to be fair, based upon an analysis of the individual executive’s
      experience and past and potential contributions to us.




On
      February 7, 2007, our Board of Directors approved the sale of a majority of
      our
      pharmacy assets (the “Asset Sale”) to Walgreen Co., an Illinois corporation, and
      Walgreen Eastern Co., Inc., a New York corporation (collectively, “Walgreens”)
      and a related plan of complete liquidation and dissolution of the Company (the
      “Plan of Complete Liquidation and Dissolution”) based upon a review of our past
      performance, projected future growth, ongoing liquidity constraints, vendor
      relations, industry outlook, and strategic alternatives. At a special meeting
      of
      shareholders held on March 30, 2007, our shareholders ratified the sale of
      a
      majority of our pharmacy assets and the Plan of Complete Liquidation and
      Dissolution. Since then, we have been working to implement the plan, pursuant
      to
      which we will liquidate all our assets, satisfy our obligations and distribute
      any remaining assets to our shareholders. It is expected that each of our
      executive officers will be terminated on the final closing date of the Asset
      Sale (which is expected to occur on or prior June 30, 2007) or shortly
      thereafter. In connection with such terminations, our executive officers are
      entitled to certain severance payments. See “Severance Arrangements”
below.




**Historical
      Compensation Process**




Our
      compensation program was overseen by a compensation committee (the "Committee")
      comprised of independent directors that operated pursuant to a charter. The
      Committee made all compensation decisions concerning the executive officers.
      To
      assist in determining appropriate overall compensation, the Compensation
      Committee has from time to time engaged compensation specialists to review
      information regarding revenues, income, and executive compensation for other
      similarly situated public companies, and to make recommendations to the
      Committee.









Compensation
      of our executive officers was reviewed annually by the Committee. Changes
      proposed for these employees were evaluated and approved by the Compensation
      Committee on an individual basis. The Committee set the compensation of the
      chief executive officer, and the chief executive officer proposed changes for
      the other executive officers. After discussion, the Committee approved or
      modified the chief executive officer’s recommendations in executive session.




**Historical
      Components of Executive Compensation**




**Salary.** Our
      historical approach to compensating executive officers was to pay cash salaries
      which generally were competitive within ranges of salaries paid to executives
      of
      other comparable companies. Bonuses were utilized from time to time, but salary
      was the primary component of executive compensation. All of our executive
      officers had employment agreements. See "Employment Agreement and Other
      Arrangements."




**Equity
      Compensation.** We
      utilized equity awards as long-term compensation incentives for executive
      officers and other key managers. The two elements of our long-term compensation
      program were restricted shares of Company common stock and stock options,
      granted under written plans approved by our shareholders. Restricted stock
      and
      stock option grants to employees of the Company, including the Chief Executive
      Officer, were made at the discretion of the Compensation Committee pursuant
      to
      the Company’s 1999 Incentive and Non-Statutory Stock Option Plan and the 2003
      Restricted Stock Plan. Factors and criteria used by the Compensation Committee
      in the award of restricted stock and stock options included individual
      responsibilities, individual performance and direct and indirect contributions
      to the profitability of the Company. The mix of restricted shares and stock
      options was entirely within the discretion of the Committee and has varied
      from
      year to year. As indicated above, the Committee has from time to time used
      consultants to make recommendations with respect to the level and elements
      of
      long-term compensation for executive officers.




**Retirement
        Plan.** All of
        our executives, along with all of our other employees, were eligible to
        participate in our 401(k) Plans (collectively, the "Plan"). Under the
        tax-qualified Plan, all employees were able to contribute the lesser of up
        to
        100% of their annual salary or the limit prescribed by the Internal Revenue
        Service to the Plan on a before-tax basis. Based on years of service, we
        matched
        a portion of what was contributed to the Plan. All contributions are fully
        vested upon contribution.




**Other
      Compensation.** Senior
      management participates in our benefit plans on the same terms as other
      employees. These plans include medical and dental insurance, and group life
      insurance. We provide only limited perquisites and other personal benefits
      including car allowances, country club and health club fees, pharmacy and
      medical allowance, and disability insurance.




**2007
      Severance Arrangements**





In
        connection with our Plan of Complete Liquidation and Dissolution and the
        sale of
        substantially all of our assets, we expect that each of our executive officers
        will be involuntarily terminated by the Company. We
        expect
        the terminations to occur upon the completion of the Asset Sale to Walgreens
        (which is expect to be finalized by the end of June, 2007) or shortly
        thereafter. Each
        of
        our executive officers’ employment agreements provide for severance pay in
        certain circumstances, including upon the sale of substantially all of our
        assets. Some of the agreements provide for a lump sum payment and others
        provide
        for the payment over a period of time. On March 21, 2007, our Compensation
        Committee met to consider the Company’s severance obligations to our executive
        officers and determined that it was necessary and appropriate to confirm
        and in
        certain instances accelerate those obligations in order to retain critical
        persons and assure that the sale of our assets and the Plan of Complete
        Liquidation and Dissolution are executed in a fashion calculated to maximize
        return to the Company’s shareholders.








To
        date,
        the executive officers of the Company have not been offered comparable positions
        by any of the companies acquiring the pharmacy assets of the Company. Further,
        it is expected that each of the executive officers will be involuntarily
        terminated on the final closing date of the Asset Sale or shortly thereafter,
        the following table summarizes the estimated payments that may be made by
        the
        Company to its executive officers in connection with the forgoing
        terminations:





**Name of Executive Officer**
            
            **Payments in Respect**
              **of Common Stock(1)**
            
            **All Other Payments**
            
            **Total Payments**Edgardo
                A. Mercadante
            
            $
            125,251
            (2)
                (12)
            $
            792,932
            (7)
            $
            918,183James
                E. Searson
            
            $
            35,190
            (3)
            $
            300,000
            (8)
            $
            335,190James
                A. Bologa
            
            $
            25,500
            (4)
            $
            265,000
            (9)
            $
            290,500James
                S. Beaumariage
            
            $
            12,750
            (5)
                (12)
            $
            211,889
            (10)
            $
            224,639Allison
                D. Kiene
            
            $
            5,100
            (6)
                (12)
            $
            195,000
            (11)
            $
            200,100







(1)
              Assumes
                  total estimated liquidating distributions with respect to our common
                  stockholders in connection with our Plan of Complete Liquidation
                  equal to
                  $2.55 per common share. There can be no assurances in this regard.
                  See
                  Risk Factors in Form 10-K.




(2)
              Consists
                  of (i) anticipated distributions of $7,650 with respect to 3,000
                  shares of
                  common stock purchased by Mr. Mercadante and owned as of April
                  16, 2007,
                  (ii) anticipated distributions of $117,601 with respect to 46,118
                  shares of restricted common stock, of which 39,451 are vested and
                  held by
                  Mr. Mercadante as of April 16, 2007 and (iii) zero for
                  Mr. Mercadante’s existing “out of the money” options to purchase
                  164,668 shares of common stock, of which 151,335 are vested and
                  13,333 are
                  unvested. All unvested securities will accelerate upon the liquidation
                  and
                  dissolution of the Company.




(3)
              Consists
                  of (i) anticipated distributions of $5,865 with respect to 2,300
                  shares to
                  common stock purchased by Mr. Searson and owned as of April 16,
                  2007,
                  (ii) anticipated distributions of $29,325 with respect to 11,500
                  shares of restricted common stock, of which 8,167 are vested and
                  held by
                  Mr. Searson as of April 16, 2007 and (iii) zero for
                  Mr. Searson’s existing “out of the money” options to purchase 65,000
                  shares of common stock, of which 38,333 are vested and 26,667 are
                  unvested. All unvested securities will accelerate upon the liquidation
                  and
                  dissolution of the Company.




(4)
              Consists
                  of (i) anticipated distributions of $25,500 with respect to 10,000
                  shares of restricted common stock, of which 3,333 are vested and
                  held by
                  Mr. Bologa as of April 16, 2007, and (ii) zero for
                  Mr. Bologa’s existing “out of the money” options to purchase 10,000
                  shares of common stock, of which 3,333 are vested and 6,667 are
                  unvested.
                  All unvested securities will accelerate upon the liquidation and
                  dissolution of the Company.




(5)
              Consists
                  of (i) anticipated distributions of $12,750 with respect to 5,000
                  shares of restricted common stock, of which 5,000 are vested and
                  held by
                  Mr. Beaumariage as of April 16, 2007 and (ii) zero for
                  Mr. Beaumariage’s existing “out of the money” options to purchase
                  26,832 shares of common stock, of which 22,665 are vested and 4,167
                  are
                  unvested. All unvested securities will accelerate upon the liquidation
                  and
                  dissolution of the Company.




(6)
              Consists
                  of (i) anticipated distributions of $5,100 with respect to 2,000
                  shares of restricted common stock, of which 2,000 are vested and
                  held by
                  Ms. Kiene as of April 16, 2007 and (ii) zero for
                  Ms. Kiene’s existing “out of the money” options to purchase 34,668
                  shares of common stock, of which 20,501 are vested and 14,167 are
                  unvested. All unvested securities will accelerate upon the liquidation
                  and
                  dissolution of the Company.




(7)
              Mr.
                  Mercadante serves as the Company’s Chairman of the Board, President and
                  Chief Executive Officer. On March 31, 2006, the Company entered
                  into an
                  employment agreement with Mr. Mercadante. The initial term of
                  Mr. Mercadante’s agreement terminates on November 30, 2008. The
                  agreement provides an initial salary of approximately $346,466,
                  which
                  represents no change from fiscal year ended December 31, 2005.
                  If the
                  employment agreement is terminated other than for cause prior to
                  November 30, 2009, or if the Company fails to renew the agreement at
                  least through November 30, 2009, the Company is required to continue
                  to pay to Mr. Mercadante (or to his estate in the event of
                  termination due to his death) two year’s severance equal to the amount of
                  the compensation and other benefits to which he was entitled at
                  the time
                  of termination, subject to the terms of the agreement. Also, in
                  accordance
                  with a proposed consulting and non-competition agreement between
                  Mr.
                  Mercadante and Walgreens, Mr. Mercadante will provide transition
                  assistance to Walgreens and will be paid by Walgreens $90,000 for
                  each
                  three month period in which he provides such service. This agreement
                  may
                  be unilaterally extended by Walgreens for one additional three
                  month
                  period on the same terms and conditions as the preceding three
                  month
                  period. Pursuant to this agreement, Mr. Mercadante will agree to
                  be
                  subject to certain non-competition restrictions for a period of
                  at least
                  one year after the end of the consulting period. If Walgreens elects
                  to
                  maintain the services of Mr. Mercadante for a period beyond the
                  initial
                  three-month term, the non-competition restrictions will survive
                  an
                  additional six month term for each three month extension of the
                  consulting
                  term. The consulting fee of $90,000 for the first three month period
                  of
                  service which will be paid by Walgreens has not been included in
                  the table
                  above. If Walgreens extends this arrangement for another three
                  month
                  period then another $90,000 would be paid to Mr. Mercadante by
                  Walgreens.











(8)
              Mr. Searson
                  currently serves as the Company’s Senior Vice President and Chief
                  Operating Officer. On August 14, 2006, the Company entered into
                  an
                  employment agreement with Mr. Searson. The initial term of
                  Mr. Searson’s agreement terminates on May 2, 2008, and is
                  subject to successive, automatic two-year renewals, provided that
                  either
                  party may terminate the agreement at any time by providing 90-days
                  prior
                  written notice. The agreement provides for an initial annual base
                  salary
                  of $275,000. If the employment agreement is terminated other than
                  for
                  cause, the Company is required to continue to pay to Mr. Searson one
                  year’s severance equal to the amount of the compensation and other
                  benefits to which he was entitled at the time of termination, subject
                  to
                  the terms of the agreement. Mr. Searson has agreed to assist the
                  Company
                  through the dissolution and liquidation process. The Company expects
                  to
                  terminate Mr. Searson’s employment by the end of the third quarter of 2007
                  and has agreed to pay his severance, in the amount of the sum of
                  one
                  year’s compensation and other benefits, in three equal monthly
                  installments commencing on the date on which the Company’s senior lender
                  is repaid, which is expected to occur upon the completion of the
                  Asset
                  Sale to Walgreens.





(9)
              Mr.
                  Bologa serves as the Company’s Senior Vice President and Chief Financial
                  Officer. On March 30, 2006, the Company entered into an employment
                  agreement with Mr. Bologa. The initial term of the agreement ends
                  on April
                  12, 2009. Pursuant to the agreement, Mr. Bologa will receive a
                  base salary
                  of $240,000. Mr. Bologa’s employment agreement contains standard
                  termination provisions for disability, for cause, and for good
                  reason, and
                  it also contains non-compete and confidentiality provisions that
                  prohibit
                  him from disclosing certain information belonging to the Company.
                  Mr.
                  Bologa’s employment agreement will be terminated on May 19, 2007. The
                  Company will pay to Mr. Bologa his severance, in the amount of
                  the sum of
                  one year’s compensation and other benefits, in three equal monthly
                  installments commencing on May 1, 2007. Following Mr. Bologa’s termination
                  on May 19, 2007, Mr. Bologa has agreed to assist the Company in
                  executing
                  the Plan of Complete Dissolution and Liquidation and will provide
                  10 hours
                  of service per week to the Company at no cost until July 1, 2007
                  and
                  thereafter subject to a consulting agreement to be negotiated at
                  a later
                  time.




(10)
            Mr.
                Beaumariage is the Senior Vice President of Operations for Familymeds,
                Inc. (a wholly-owned subsidiary). In May 1998, Familymeds, Inc. entered
                into an employment agreement with Mr. Beaumariage, which was amended
                August 8, 2002 and August 13, 2004. The amended agreement
                provides for a two-year term and is subject to automatic one-year
                renewals. The agreement provides a minimum annual base salary of
                $191,889.
                The employment agreement is expected to be terminated during May
                2007. The
                Company will pay to Mr. Beaumariage his severance in the amount of
                the sum
                of one year’s compensation and other
                benefits.




(11)
              Ms.
                  Kiene serves as the Company’s Senior Vice President, General Counsel and
                  Secretary. In September 2002, Familymeds Group, Inc. entered into
                  an
                  employment agreement with Ms. Kiene. The amended agreement provides
                  a
                  two-year term and automatic one-year renewals. The agreement provides
                  a
                  minimum annual base salary of $175,000. If the employment agreement
                  is
                  terminated other than for cause, the Company is required to continue
                  to
                  pay to Ms. Kiene one year’s severance equal to the amount of the
                  compensation and other benefits, to which she was entitled at the
                  time of
                  termination, subject to the terms of the agreement. Ms. Kiene’s employment
                  agreement will be involuntarily terminated in connection with the
                  liquidation on June 30, 2007. The Company will pay to Ms. Kiene
                  her
                  severance in the amount of the sum of one year’s compensation and other
                  benefits. Following Ms. Kiene’s termination on June 30, 2007, Ms. Kiene
                  has agreed to assist the Company in executing the Plan of Complete
                  Dissolution and Liquidation subject to a consulting agreement to
                  be
                  negotiated at a later time.









(12)
            In
                2004, in connection with the merger of DrugMax, Inc. and Familymeds
                Group,
                Inc., Mr. Mercadante, Mr. Beaumariage, and Ms, Kiene waived in writing
                any
                and all rights they may have had, by way of their employment agreements
                or
                otherwise, to obtain a change of control bonus caused by the merger
                of
                DrugMax, Inc. and Familymeds Group, Inc. Instead, Mr. Mercadante,
                Mr.
                Beaumariage, and Ms. Kiene, were granted 26,118, 5,000, and 2,000
                restricted shares and 122,168, 14,332, and 3,168 options, respectively.
                All of the options are “out of the
                money.”




Summary
      Compensation




The
        following summary compensation table sets forth the cash and non-cash
        compensation paid during the past fiscal year to (a) the individual serving
        as the Company’s Chief Executive Officer during the fiscal year ended December
        30, 2006, (b) the individual serving as the Company Chief Financial Officer
        during the fiscal year ended December 30, 2006, and (c) the three most
        highly compensated executive officers of the Company, receiving compensation
        of
        at least $100,000, during the fiscal year ended December 30, 2006 other than
        the
        CEO and CFO (the “Named Executive Officers”):




**Summary
      Compensation Table**





**Name
                  and Principal Position**
              
              **Fiscal
                  Year Ended**
              
              **Salary**
              
              **Bonus**
              
              **Stock
                  Awards**(1)
              
              **Option
                  Awards**(2)
              
              **All
                  Other**
                **Compensation**(3)
              
              **Total**Edgardo
                  A. Mercadante,
                Chairman
                  of the Board
                and
                  Chief Executive Officer
              
              
              2006
              
              $
              346,466
              
              $
              -
              
              $
              162,165
              
              $
              7,831
              
              $
              32,4243
              
              $
              548,886James
                  A. Bologa
                Senior
                  Vice President,
                Chief
                  Financial Officer(4)
              
              
              2006
              
              $
              163,384
              
              $
              -
              
              $
              17,499
              
              $
              9,584
              
              $
              5,464
              
              $
              195,931James
                  E. Searson,
                Senior
                  Vice President,
                Chief
                  Operating Officer(5)
              
              
              2006
              
              $
              266,346
              
              $
              -
              
              $
              96,333
              
              $
              90,451
              
              $
              15,431
              
              $
              468,561Allison
                  D. Kiene,
                Senior
                  Vice President,
                General
                  Counsel & Secretary
              
              
              2006
              
              $
              175,000
              
              $
              -
              
              $
              -
              
              $
              33,097
              
              $
              15,304
              
              $
              223,127James
                  S. Beaumariage,
                Senior
                  Vice President, Operations,
                Familymeds,
                  Inc.
              
              
              2006
              
              $
              191,889
              
              $
              -
              
              $
              -
              
              $
              1,716
              
              $
              13,562
              
              $
              207,167











(1)
            Dollar
                amounts in this column reflect the compensation expense recognized
                by the
                Company for financial statement reporting purposes with respect to
                restricted stock under FAS123(R). These values have been determined
                based
                on the assumptions set forth in Note 12 to our consolidated financial
                statements for the fiscal year ended December 30,
                2006.(2)
            Dollar
                amounts in this column reflect the compensation expense recognized
                by the
                Company for financial statement reporting purposes with respect to
                outstanding stock options under FAS 123(R). These values have been
                determined based on the assumptions set forth in Note 12 to our
                consolidated financial statements for the fiscal year ended
                December 30, 2006.(3)
            Represents
                amounts relating to reimbursed pharmacy and medical expenses, club
                dues
                and auto allowances, amounts contributed to defined contribution
                plans and
                premiums paid on life insurance.(4)
            Mr.
                Bologa joined the Company on April 13, 2006 and his annual salary
                is
                $240,000.(5)
            Mr.
                Searson’s annual base salary was increased to $275,000 effective May 2,
                2006.




**EQUITY
      COMPENSATION**




The
      following table provides information as to options granted to each of the Named
      Executive Officers of the Company during fiscal year ended December 30, 2006.
      All such options were granted under the 1999 Stock Option Plan.





**2006
      GRANTS OF PLAN-BASED AWARDS**




**Name**
              
              **Grant
                  Date**
              
              **All
                  Other Stock Awards: Number of Shares of Stock or
                  Units**
                **(#)**
              
              **All
                  Other Option Awards: Number of Securities Underlying
                  Options**
                **(#)**
              
              **Exercise
                  or Base Price of Option Awards**
                ******($
                  per Share)**
              
              **Grant
                  Date Fair Value of Stock and Option Awards**Edgardo
                  A. MercadanteJames
                  A. Bologa
              
              
              4/13/2006
              
              
              10,000
              
              
              10,000
              
              $
              7.00
              
              $
              108,000James
                  E. Searson
              
              
              5/2/2006
              
              
              
              
              
              30,000
              
              $
              6.50
              
              $
              108,000James
                  S. BeaumariageAllison
                  D. Kiene
              
              
              5/2/2006
              
              
              
              
              
              15,000
              
              $
              6.50
              
              $
              54,000





**OUTSTANDING
      EQUITY AWARDS AT 2006 FISCAL YEAR-END**




The
      following table reports, on an award-by-award basis, each outstanding equity
      award held by the Named Executive Officers on December 30, 2006. All awards
      are subject to the grantee being an employee of Familymeds on the vesting date,
      except under certain circumstances such as a change in control, death or
      disability. See “Employment Agreements and Other Arrangements.” The Company
      generally does not permit executive officers to transfer awards prior to the
      vesting date, and no transfers were permitted during 2006.




**OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-END FOR 2006**




**Option
                    Awards**
                
                **Stock
                    Awards****Name of**
                  **Executive**
                
                **Number of**
                  **Securities**
                  **Underlying**
                  **Unexercised**
                  **Options**
                  **(#)**
                  **Exercisable**
                
                **Number of**
                  **Securities**
                  **Underlying**
                  **Unexercised**
                  **Options**
                  **(#)**
                  **Unexercisable**
                
                **Option**
                  **Exercise**
                  **Price**
                  **($)**
                
                **Option**
                  **Expiration**
                  **Date**
                
                **Number of**
                  **Shares of**
                  **Stock That**
                  **Have Not**
                  **Vested (#)**
                
                **Market**
                  **Value of**
                  **Shares of**
                  **Stock That**
                  **Have Not**
                  **Vested**
                  **($)(3)**Edgardo
                    A. Mercadante
                
                
                122,168
                
                
                -
                
                $
                5.70
                
                
                11/12/2014
                
                
                20,000
                (1)
                $
                54,6002,500
                
                
                -
                
                $
                31.10
                
                
                1/19/201526,667
                
                
                13,333
                (1)
                $
                13.90
                
                
                10/7/2015James
                    A. Bologa
                
                
                
                
                
                10,000
                (2)
                $
                7.00
                
                
                4/13/2016
                
                
                10,000
                (2)
                $
                27,300James
                    E. Searson
                
                
                15,000
                
                
                -
                
                $
                28.00
                
                
                6/1/2015
                
                
                3,833
                (6)
                $
                10,46413,333
                
                
                6,667
                (1)
                $
                13.90
                
                
                10/7/2015-
                
                
                30,000
                (3)
                $
                6.50
                
                
                5/2/2016Allison
                    D. Kiene
                
                
                3,168
                
                
                -
                
                $
                5.70
                
                
                11/12/2014
                
                
                -
                
                
                -2,667
                
                
                1,333
                (4)
                $
                28.00
                
                
                6/1/20158,333
                
                
                4,167
                (5)
                $
                12.00
                
                
                9/27/2015-
                
                
                15,000
                (3)
                $
                6.50
                
                
                5/2/2016James
                    S. Beaumariage
                
                
                14,332
                
                
                -
                
                $
                5.70
                
                
                11/12/2014
                
                
                -
                
                
                -8,333
                
                
                4,167
                (5)
                $
                12.00
                
                
                9/27/2015





(1)
            Shares
                will vest on October 7, 2007.(2)
            Shares
                will vest 1/3 each on April 13, 2007, April 13, 2008 and April 13,
                2008.(3)
            Shares
                will vest 1/3 each on May 2, 2007, May 2, 2008 and May 2,
                2008.(4)
            Shares
                will vest on June 1, 2007.(5)
            Shares
                will vest on September 27 2007.(6)
            Shares
                will vest 1/3 each on April 13, 2007, April 13, 2008 and April 13,
                2008.




All
          unvested shares and options will vest upon the sale of substantially all
          of the
          Company’s assets, which is expected to occur on or prior to June 30,
          2006.
  **2006
        OPTION EXERCISES AND STOCK VESTED**




The
      following table provides information as to options exercised by each of the
      Named Executive Officers of the Company during the fiscal year ended December
      30, 2006. The table sets forth the value of options held by such officers at
      year end measured in terms of the closing price of the Company’s Common Stock on
      December 30, 2006.




**Option
                  Awards**
              
              **Stock
                    Awards****Name**
              
              **Shares
                  Acquired on Exercise**
                **(#)**
              
              **Value
                  Realized**
                **on
                  Exercise**
                **($)**
              
              **Number
                  of Shares**
                **Acquired
                  on Vesting**
                **(#)
                  (1)**
              
              **Value
                  Realized**
                **on
                  Vesting ($) (1)**Edgardo
                  A. Mercadante
              
              -
              
              -
              
              -
              
              
              -James
                  A. Bologa
              
              -
              
              -James
                  E. Searson (2)
              
              -
              
              -
              
              7,167
              
              
              28,251James
                  S. Beaumariage
              
              -
              
              -
              
              -
              
              
              -Allison
                  D. Kiene
              
              -
              
              -
              
              -
              
              
              -





(1)
            Represents
                the number of shares acquired upon vesting of restricted stock and
                the
                value realized, each before payment of any applicable withholding
                taxes.(2)
            Mr. Searson’s
                ownership interest vested in 7,167 shares with a market price of
                $3.94 per
                share on October 7, 2006.









***Employment
      Agreements and Other Arrangements***




**Edgardo
        A. Mercadante** —Mr.
        Mercadante serves as the Company’s Chairman of the Board, President and Chief
        Executive Officer. On March 31, 2006, the Company entered into a new employment
        agreement with Mr. Mercadante. The initial term of Mr. Mercadante’s
        agreement terminates on November 30, 2008, and is subject to successive,
        automatic one-year renewals, unless one party notifies the other of its desire
        not to renew the agreement. The agreement provides an initial salary of
        approximately $346,466, which represents no change from fiscal year ended
        December 31, 2005, and for bonuses as determined by the board of directors.
        For
        2006, the employment agreement requires, if the Company achieves the performance
        levels set by the board, that Mr. Mercadante receive a cash bonus equal to
        100% of his salary. The bonus was not earned in
        2006. Additionally, at the end of the first year of the initial term of the
        employment, the Company is required to issue to Mr. Mercadante stock options
        and
        restricted stock at fair market value and comparable in amounts to those
        issued
        to a chief executive officer and chairman of the board of directors of a
        comparable publicly traded corporation. The agreement also contains standard
        termination provisions for disability, for cause, and for good reason, and
        it
        also contains confidentiality and non-competition provisions that prohibit
        Mr. Mercadante from disclosing certain information belonging to the Company
        and from competing against the Company. If the employment agreement is
        terminated other than for cause prior to November 30, 2009, or if the
        Company fails to renew the agreement at least through November 30, 2009,
        the Company is required to continue to pay to Mr. Mercadante (or to his
        estate in the event of termination due to his death) two year’s severance equal
        to the amount of the compensation and other benefits to which he was entitled
        at
        the time of termination, subject to the terms of the
        agreement.




**Jugal
      K. Taneja—** Mr.
      Taneja currently serves as a director of the Company and from the date of the
      Merger until November 30, 2005 he served as the Company’s Co-Chairman of the
      Board. On June 7, 2005, as contemplated by the Merger, the Company entered
      into a new employment agreement with Mr. Taneja. The initial term of
      Mr. Taneja’s agreement terminated on November 30, 2005. The agreement
      had provided for an initial annual base salary of $346,466, plus bonuses as
      determined by the board of directors. The agreement contains confidentiality
      and
      non-competition provisions that prohibit Mr. Taneja from disclosing certain
      information belonging to the Company and from competing against the Company.
      The
      employment agreement was terminated on November 30, 2005. Therefore, the
      Company is required to continue to pay to Mr. Taneja (or to his estate in
      the event of termination due to his death) his compensation and other benefits
      until November 30, 2007, subject to the terms of the
      agreement.











**James
      E. Searson** —Mr. Searson
      currently serves as the Company’s Senior Vice President and Chief Operating
      Officer. On August 14, 2006, the Company entered into an employment agreement
      with Mr. Searson. The initial term of Mr. Searson’s agreement
      terminates on May 2, 2008, and is subject to successive, automatic two-year
      renewals, provided that either party may terminate the agreement at any time
      by
      providing 90-days prior written notice. The agreement provides for an initial
      annual base salary of $275,000. If the employment agreement is terminated other
      than for cause, the Company is required to continue to pay to Mr. Searson
      one year’s severance equal to the amount of the compensation and other benefits,
      to which he was entitled at the time of termination, subject to the terms of
      the
      agreement. Mr. Searson has agreed to assist the Company through the dissolution
      and liquidation process. The Company expects to terminate Mr. Searson’s
      employment by the end of the third quarter of 2007 and has agreed to pay his
      severance, in the amount of the sum of one year’s compensation and other
      benefits, in three equal monthly installments commencing on the date on which
      the Company’s senior lender is repaid, which is expected to occur upon the
      completion of the Asset Sale to Walgreens.





**James
        A. Bologa -** Mr.
        Bologa serves as the Company’s Senior Vice President and Chief Financial
        Officer. On March 30, 2006, Familymeds Group, Inc. entered into an employment
        agreement with Mr. Bologa. The initial term of the agreement ends on April
        12,
        2009, provided that the agreement will renew automatically for successive
        one-year terms, except that after the initial term either party may terminate
        the agreement by providing the other party notice of termination 90 days
        prior
        to the proposed termination date. Pursuant to the agreement, Mr. Bologa will
        receive a base salary of $240,000. Additionally, Mr. Bologa will be entitled
        to
        participate, at the discretion of the board, in any incentive or bonus plan
        adopted by the compensation committee, based on performance goals set by
        the
        board from time to time. As a signing bonus, effective on the date his
        employment commences (April 13, 2006), Mr. Bologa received an option to purchase
        up to 10,000 shares of the Company’s common stock at fair market value on April
        13, 2006 and a grant of 10,000 shares of the Company’s restricted common stock.
        Mr. Bologa’s employment agreement also contains standard termination provisions
        for disability, for cause, and for good reason, and it also contains non-compete
        and confidentiality provisions that prohibit him from disclosing certain
        information belonging to the Company. Mr. Bologa’s employment agreement will be
        terminated on May 19, 2007. The Company will pay to Mr. Bologa his severance,
        in
        the amount of the sum of one year’s compensation and other benefits, in three
        equal monthly installments commencing on May 1, 2007. Following Mr. Bologa’s
        termination on May 19, 2007, Mr. Bologa has agreed to assist the Company
        in executing the Plan of Complete Dissolution and Liquidation and will
        provide 10 hours of service per week to the Company at no cost until July
        1,
        2007 and thereafter subject to a consulting agreement to be negotiated at
        a
        later time.





**James
      S. Beaumariage** —Mr.
      Beaumariage is the Senior Vice President of Operations for Familymeds, Inc.
      (a
      wholly-owned subsidiary). In May 1998, Familymeds, Inc. entered into an
      employment agreement with Mr. Beaumariage, which was amended August 8,
      2002 and August 13, 2004. The amended agreement provides for a two-year
      term and is subject to automatic one-year renewals. The agreement provides
      a
      minimum annual base salary of $191,889, plus bonuses and stock options as
      determined by the board of directors. Mr. Beaumariage’s employment
      agreement contains standard termination provisions for disability, for cause,
      and for good reason, and it also contains non-compete and confidentiality
      provisions that prohibit him from disclosing certain information belonging
      to
      the Company. The employment agreement is expected to be terminated during May
      2007. The Company will pay to Mr. Beaumariage his severance in the amount of
      the
      sum of one year’s compensation and other benefits.





**Allison
        D. Kiene** —Ms.
        Kiene serves as the Company’s Senior Vice President, General Counsel and
        Secretary. In September 2002, Familymeds Group, Inc. entered into an employment
        agreement with Ms. Kiene, which was amended on August 13, 2004. The amended
        agreement provides a two-year term and automatic one-year renewals. The
        agreement provides a minimum annual base salary of $175,000 plus bonuses
        as
        determined by the board of directors. Ms. Kiene’s employment agreement contains
        standard termination provisions for disability, for cause, and for good reason,
        and it also contains non-compete and confidentiality provisions that prohibit
        her from disclosing certain information belonging to the Company. Ms. Kiene’s
        employment agreement will be involuntarily terminated in connection with
        the
        liquidation on June 30, 2007. The Company will pay to Ms. Kiene her severance
        in
        the amount of the sum of one year’s compensation and other benefits. Following
        Ms. Kiene’s termination on June 30, 2007, Ms. Kiene has agreed to assist the
        Company in executing the Plan of Complete Dissolution and Liquidation
        subject to a consulting agreement to be negotiated at a later
        time.







**EQUITY
      COMPENSATION PLAN INFORMATION**




The
      following table summarizes the Company’s equity compensation plan information as
      of December 30, 2006. Information is included for both equity compensation
      plans
      approved by the Company’s stockholders and equity compensation plans not
      approved by the stockholders.


**Plan
                  Category**
              
              **Number of securities**
                **to
                  be issued upon**
                **exercise
                  of**
                **outstanding
                  options,**
                **warrants
                  and rights**
              
              **Weighted-average**
                **exercise price of**
                **outstanding options,**
                **warrants
                  and rights**
              
              **Number of securities**
                **remaining
                  available**
                **for
                  future issuance**
                **under
                  equity**
                **compensation
                  plans**
                **(excluding
                  securities**
                **reflected
                  in**
                **column (a)****(a)**
              
              **(b)**
              
              **(c)**Equity
                  compensation plan approved by security holders (1)
              
              
              390,907
              
              $
              11.61
              
              
              375,012Equity
                  compensation plan not approved by security holders
              
              
              -
              
              
              -
              
              
              -Total
              
              
              390,907
              
              $
              11.61
              
              
              375,012







(1)
            Equity
                compensation plans approved by stockholders include the 1999 Incentive
                and
                Non-Statutory Stock Option Plan and the 2003 Restricted Stock Plan.
                All
                shares to be issued upon exercise in column (a) and the weighted
                average
                exercise price in column (b) represent shares to be issued upon the
                exercise of options granted under the 1999 Incentive and Non-Statutory
                Stock Option Plan. Number of securities remaining available for future
                issuance in column (c) includes 200,879 shares remaining available
                under
                the 2003 Restricted Stock Plan.







**Item
      12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**





**Beneficial
      Owners**





The
      following table summarizes information regarding the beneficial ownership of
      Company common stock, the only class of voting securities of the Company
      outstanding, as of April 16, 2007. The stockholders identified below are the
      only holders of Company common stock we know that beneficially own more than
      five percent of the outstanding common stock. The information shown below is
      based on information reported by those stockholders on Schedules 13D or 13G,
      as
      amended, filed with the SEC.




**Name
                and Address of Beneficial Owner (1)**
            
            **Amount
                and Nature of Beneficial Ownership (2)**
            
            **Percent
                of Class****JAMES
                E. FLYNN (3)**
              780
                Third Avenue, 37thfloor
              New
                York, New York 10017
            
            
            2,008,679
            
            
            23.33
            %**DEERFIELD
                INTERNATIONAL LIMITED (3)**
              **DEERFIELD
                SPECIAL SITUATIONS FUND INTERNATIONAL LIMITED (3)**
              Care
                of Bisys Management
              Bison
                Court, Columbus Centre
              P.O.
                Box 3460, Road Town
              Tortola,
                British Virgin Islands
            
            
            1,341,867
            
            
            16.65
            %**DEERFIELD
                MANAGEMENT COMPANY, L.P. (3)**
              780
                Third Avenue, 37thfloor
              New
                York, New York 10017
            
            
            1,341,867
            
            
            16.65
            %**DEERFIELD
                CAPITAL, L.P. (3)**
              **DEERFIELD
                PARTNERS, L.P. (3)**
              **DEERFIELD
                SPECIAL SITUATIONS FUND, L.P. (3)**
              780
                Third Avenue, 37thfloor
              New
                York, New York 10017
            
            
            666,782
            
            
            8.88
            %**KELLOG
                CAPITAL GROUP, LLC (5)**
              55
                Broadway, 4thfloor
              New
                York, New York 10006
            
            
            1,265,687
            
            
            18.19
            %**AUSTIN
                W. MARXE and DAVID M. GREENHOUSE (4)**
              **Care
                of SPECIAL SITUATIONS FUNDS (4)**
              527
                Madison Avenue, Suite 2600
              New
                York, New York 10022
            
            
            1,143,889
            
            
            16.44
            %**C.
                FRED TONEY (6)**
              **MEDCAP
                MANAGEMENT & RESEARCH LLC (6)**
              **MEDCAP
                PARTNERS L.P. (6)**
              500
                Third Street, Suite 535
              San
                Francisco, CA 94107
            
            
            742,925
            
            
            10.11
            %**ABS
                CAPITAL PARTNERS LTD. (7)**
              400
                East Pratt Street, Suite 910
              Baltimore,
                MD 21202
            
            
            618,344
            
            
            8.69
            %**SPRINGVIEW
                GROUP LLC (10)**
              **INTEGRATED
                HOLDING GROUP, L.P.**
              **MILLENNIUM
                MANAGEMENT, LLC**
              **ISRAEL
                A. ENGLANDER**
              666
                Fifth Avenue, 8th Floor
              New
                York, NY 10103
            
            
            473,189
            
            
            6.80
            %**DELTA
                PARTNERS LLC (8)**
              One
                International Place, Suite 2401
              Boston,
                MA 02110
            
            
            458,081
            
            
            6.47
            %**MICHAEL
                A. ROTH and BRIAN J. STARK (9)**
              3600
                South Lake Drive
              Saint
                Francis, WI 53235
            
            
            380,590
            
            
            5.37
            %











**Officers
      and Directors**




The
        following table shows, as to the directors, the named executive officers
        and the
        directors and executive officers of the Company as a group, the equity
        securities that, to our knowledge, were beneficially owned by them as of
        April 16, 2007.





**Officers
                and Directors**Edgardo
                A. Mercadante (11)
            
            
            193,786
            
            
            2.73
            %James
                E. Searson (12)
            
            
            48,800
            
            
            *
            %James
                A. Bologa (13)
            
            
            6,666
            
            
            *
            %James
                S. Beaumariage (14)
            
            
            27,665
            
            
            *
            %Allison
                D. Kiene (15)
            
            
            22,501
            
            
            *
            %Peter
                J. Grua (16)
            
            
            171,889
            
            
            2.46
            %Dr.
                Philip P. Gerbino (17)
            
            
            12,503
            
            
            *
            %Mark
                T. Majeske (18)
            
            
            9,703
            
            
            *
            %Jugal
                K. Taneja (19)
            
            
            171,720
            
            
            2.46
            %Laura
                L. Witt (20)
            
            
            634,347
            
            
            8.36
            %**All
                Directors and Executive Officers as a group**
            
            
            1,299,580
            
            
            16.19
            %





*
            Less
                than 1% of the outstanding common
                stock.




(1)
      Unless otherwise indicated, the address of each of the beneficial owners
      identified is 312 Farmington Avenue, Farmington, CT 06032. Our common stock
      is
      quoted on the OTC Bulletin Board under the ticker symbol “FMRX.OB” since January
      18, 2007. Prior to January 18, 2007, our common stock was quoted on the Nasdaq
      Capital Market under the symbol “DMAX”. All per share information has been
      adjusted for our 1 for 10 reverse stock split effective on August 16,
      2006.









(2)
      Based
      on 6,959,017 shares of common stock and no shares of preferred stock outstanding
      as of April 16, 2007 plus any warrants or vested restricted stock and options
      for each beneficial owner. Beneficial ownership is determined in accordance
      with
      the rules of the SEC and generally includes voting or investment power with
      respect to securities. Shares of vested restricted stock and of common stock
      subject to options currently exercisable or exercisable within 60 days of April
      16, 2007 (“Presently Exercisable Securities”) are deemed outstanding for
      computing the percentage held by each person or entity listed, but are not
      deemed outstanding for computing the percentage of any other person or entity.
      The table does not include any accelerated vesting that may occur upon the
      termination of our directors and officers.





(3)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13G, as amended, filed by this entity with the United States
      Securities and Exchange Commission on February 13, 2007. Such amount includes
      1.65 million warrants received in connection with the private placement of
      two
      term notes in the aggregate amount of $10.0 million issued in June 2006. Such
      warrants are subject to conversion caps that preclude the holder thereof from
      utilizing its exercise rights to the extent that it would beneficially own
      (determined in accordance with Section 13(d) of the Exchange Act) in excess
      of
      9.95% of the common stock, giving effect to such exercise.




(4)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13G, as amended, filed by this entity with the United States
      Securities and Exchange Commission on January 10, 2007. In addition, the Company
      relied on Form 4 filed on April 16, 2007.





(5)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13G, as amended, filed by this entity with the United States
      Securities and Exchange Commission on February 21, 2007. In addition, the
      Company relied on Form 4’s filed on February 21, 2007.





(6)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13G, as amended, filed by this entity with the United States
      Securities and Exchange Commission on February 14, 2007. Such amount includes
      390,456 warrants received in connection with the private investment in our
      stock
      which closed on October 3, 2005. Such warrants are subject to conversion caps
      that preclude the holder thereof from utilizing its exercise rights to the
      extent that it would beneficially own (determined in accordance with Section
      13(d) of the Exchange Act) in excess of 9.99% of the common stock, giving effect
      to such exercise. Medcap Management & Research LLC, as general partner and
      investment manager of MedCap Partners and MedCap Master Fund, and C. Fred Toney
      as managing member of Medcap Management & Research LLC, may be deemed to
      beneficially own the securities owned by MedCap Partners and MedCap Master
      Fund
      in that they may be deemed to have the power to direct the voting or disposition
      of the Securities. Medcap Management & Research LLC and C. Fred Toney
      disclaim beneficial ownership as to such securities, except to the extent of
      their respective pecuniary interests therein.





(7)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13D, as amended, filed by this entity with the United States
      Securities and Exchange Commission on October 19, 2005 such amount includes
      156,179 warrants to purchase common stock. The shares are owned by ABS Capital
      Partners III, L.P. ABS Partners III, L.L.C., as the General Partner, and Donald
      B. Hebb, Jr, Timothy T. Weglicki and John D. Stobo, Jr, as the Managing Members
      of the General Partner are indirect beneficial owners of the reported
      securities. The General Partner and Managing Members disclaim beneficial
      ownership of theses shares except to the extent of their respective pecuniary
      interest therein. Laura Witt, a director of Familymeds Group, is a manager
      of
      the general partner of ABS Capital Partners III, L.P. Ms. Witt disclaims
      beneficial ownership of all such securities held by ABS Capital Partners III,
      L.P., except to the extent of her proportionate pecuniary interests therein.





(8)
      Shares reported for Delta Partners, LLC and Charles Jobson include shares
      beneficially owned by Prism Partners L.P., Prism Offshore Fund Limited, and
      Prism Partners QP, LP and one separate account. In calculating the beneficial
      ownership of this entity, the Company has relied upon the Schedule 13G, as
      amended, filed by this entity with the United States Securities and Exchange
      Commission on February 13, 2007. Such amount includes 125,000 warrants received
      in connection with the private investment in our stock which closed on October
      3, 2005. Such warrants are subject to conversion caps that preclude the holder
      thereof from utilizing its exercise rights to the extent that it would
      beneficially own (determined in accordance with Section 13(d) of the Exchange
      Act) in excess of 9.99% of the common stock, giving effect to such
      exercise.











(9)
      Michael A. Roth and Brian J. Stark may be deemed to be the control persons
      of
      the shares owned by such entity. In calculating the beneficial ownership of
      this
      entity, the Corporation has relied upon the Schedule 13G, filed by this entity
      with the United States Securities and Exchange Commission on February 14, 2007.
      Such amount includes 130,200 warrants received in connection with the private
      investment in our stock which closed on October 3, 2005. Such warrants are
      subject to conversion caps that preclude the holder thereof from utilizing
      its
      exercise rights to the extent that it would beneficially own (determined in
      accordance with Section 13(d) of the Exchange Act) in excess of 9.99% of the
      common stock, giving effect to such exercise.




(10)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13D, as amended, filed by this entity with the United States
      Securities and Exchange Commission on March 7, 2007.





(11)
      Edgardo A. Mercadante serves as our President, Chief Executive Officer and
      Chairman of the Board and owns 42,451 shares and 151,335 shares issuable upon
      exercise of Presently Exercisable Securities.





(12)
      James E. Searson serves as our Senior Vice President, Chief Operating Officer
      and Director and owns 10,467 shares and 38,333 shares issuable upon exercise
      of
      Presently Exercisable Securities.





(13)
      James A. Bologa serves as our Senior Vice President, Chief Financial Officer
      and
      Treasurer and owns 3,333 shares and 3,333 shares issuable upon exercise of
      Presently Exercisable Securities.





(14)
      James S. Beaumariage serves as our Senior Vice President, Operations,
      Familymeds, Inc. and owns 5,000 shares and 22,665 shares issuable upon exercise
      of Presently Exercisable Securities.





(15)
      Allison D. Kiene serves as our Senior Vice President, General Counsel and
      Corporate Secretary owns 2,000 shares and 20,501 shares issuable upon exercise
      of Presently Exercisable Securities.





(16)
      Peter J. Grua serves as a director of Familymeds Group, Inc. and owns 4,503
      shares and 10,026 shares issuable upon exercise of Presently Exercisable
      Securities. As an officer of HLM Management, Mr. Grua may be deemed to
      beneficially own an additional 157,360 shares of common stock. He disclaims
      beneficial ownership of all such securities held by all such entities, except
      to
      the extent of his proportionate pecuniary interests therein. For Validus L.P.
      includes 20,362 warrants to purchase common stock. For HLM/CB Fund, L.P.,
      includes 8,171 warrants to purchase common stock. For HLM/UH Fund, L.P.,
      includes 11,212 warrants to purchase common stock.





(17)
      Dr.
      Philip P. Gerbino serves as a director of Familymeds Group, Inc. and
      owns 6,003 shares and 6,500 shares issuable upon exercise of Presently
      Exercisable Securities.





(18)
      Mark
      T. Majeske, serves as a director of Familymeds Group, Inc. and owns 4,203 shares
      and 5,500 shares issuable upon exercise of Presently Exercisable
      Securities.





(19)
      Jugal K. Taneja serves as a director of Familymeds Group, Inc. Mr. Taneja
      beneficially owns the following shares and warrants: 21st Century Healthcare
      Fund LLC, 30,000; Carnegie Capital, 42,455; Dynamic Health Products, 12,246;
      First Delhi Trust, 4,837; and Manju Taneja, his spouse, 46,950. Mr. Taneja
      disclaims beneficial ownership of all such securities held by his wife and
      son.
      Mr. Taneja owns 153,970 shares and 17,750 shares issuable upon exercise of
      Presently Exercisable Securities.





(20)
      In
      calculating the beneficial ownership of this entity, the Company has relied
      upon
      the Schedule 13D, as amended, filed by this entity with the United States
      Securities and Exchange Commission on October 19, 2005 and includes 156,179
      warrants to purchase common stock. The shares are owned by ABS Capital Partners
      III, L.P. ABS Partners III, L.L.C., as the General Partner, and Donald B. Hebb,
      Jr, Timothy T. Weglicki and John D. Stobo, Jr, as the Managing Members of the
      General Partner are indirect beneficial owners of the reported securities.
      The
      General Partner and Managing Members disclaim beneficial ownership of theses
      shares except to the extent of their respective pecuniary interest therein.
      Laura Witt, a director of Familymeds Group, is a manager of the general partner
      of ABS Capital Partners III, L.P. Ms. Witt disclaims beneficial ownership of
      all
      such securities held by ABS Capital Partners III, L.P., except to the extent
      of
      her proportionate pecuniary interests therein. Ms. Witt owns 5,503 shares and
      10,500 shares issuable upon exercise of Presently Exercisable
      Securities.











**Item
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**





During
      fiscal year ended December 31, 2005, the Company operated two drug distribution
      facilities: Valley Drug Company and Valley Drug Company South. During the third
      quarter of 2005, the Company determined that it would sell certain assets of
      the
      drug distribution business and eliminate operations conducted out of the New
      Castle, Pennsylvania facility and the St. Rose, Louisiana facility related
      to
      the distribution to independent pharmacies. Accordingly, as of October 1, 2005,
      the Company considered substantially all of the wholesale distribution business
      as discontinued operations for financial statement presentation purposes. In
      December 2005, Rochester Drug Cooperative (“RDC”) acquired certain assets from
      the Company’s wholly-owned subsidiary, Valley Drug Company, including a customer
      list, furniture, fixtures and equipment located at the Company’s New Castle,
      Pennsylvania facility. In connection with the sale, RDC assumed certain property
      leases, customer and other miscellaneous contracts. The total purchase price
      for
      these select assets was $0.7 million, of which $0.4 million was received upon
      closing and $0.3 million is required to be paid if and when the Pennsylvania
      Industrial Development Authority (“PIDA”) consents to a lease assignment of the
      New Castle facility to RDC. The Company leased this premises from Becan
      Development LLC (“Becan”), a company owned by a current director of the Company
      (Jugal Taneja) and certain former directors, officers and employees of the
      Company.





The
        original lease (dated December 30, 2003) (the “Original Lease”) provided for a
        term of 15 years, expiring December 30, 2018, and monthly lease payments
        of
        $0.017 million.  When the Original Lease was executed, Becan and Valley
        North entered into a Consent, Subordination and Assumption Agreement (the
        “Guarantee”) with PIDA and Regional Industrial Development Corporation of
        Southwest Pennsylvania (“RIDC”) dated December 30, 2003, pursuant to which,
        among other things, Becan and Valley Drug Company (Valley North”), jointly and
        severally, assumed all obligations of RIDC to make payments and discharge
        all
        obligations expenses, costs and liabilities of RIDC in connection with the
        PIDA
        note (the “PIDA Note”).  The PIDA Note is also secured by the Original
        Lease and the property.




In
        connection with the previously disclosed December 2005 sale of the business
        operated out of the Pennsylvania facility to RDC (the “Asset Sale”), Becan and
        Valley North agreed to shorten the lease to five years ending, December 2010,
        and to sublease the premises to RDC. It was the intent of the parties at
        that
        time to assign the lease to RDC upon the consent to such assignment by
        PIDA.  RDC held back $0.3 million of the purchase price related to the
        Asset Sale pending receipt of PIDA’s consent. Recently, PIDA agreed to consent
        to the assignment of the lease to RDC subject to the preparation of final
        documents, including documents evidencing the parties agreement to shorten
        the
        maturity of the PIDA Note to five years ending December 2010; but, during
        October 2006, RDC notified PIDA that it was withdrawing its application to
        PIDA
        and that it was no longer willing to assume the lease.  
Contemporaneously with its notice to PIDA, RDC notified the Company that
        it
        refused to pay the $0.3 million holdback to Valley because of the delays
        in
        obtaining the PIDA consent.  RDC has signed a sublease for the property and
        remains legally responsible for the lease payments.  In October 2006, the
        Company filed a demand for arbitration claiming RDC has acted in bad faith
        and
        demanding $0.3 million. Becan and its principals, including Mr. Taneja,
        indemnified Valley North and the Company against any claims or demands PIDA
        may bring against Valley or the Company in connection with the PIDA Note
        and
        will use their best efforts to have Valley released from all obligations
        under
        the PIDA Note.





In
      January 2004, prior to the Merger, the Company executed a second commercial
      lease agreement (the “Second Lease”) with an entity controlled by certain
      directors and officers of the Company at the time, including Mr. Jugal K.
      Taneja, a current director. The Second Lease is for an initial period of fifteen
      years with a base monthly lease payment of $0.017 million. During the fiscal
      year ended December 31, 2005, the Company recorded rent expense of $0.2 million
      related to the Second Lease. This lease was terminated in accordance with the
      terms therein on October 16, 2006. The landlords, are now claiming the Company
      owes them past due rent and other amounts associated with the lease of the
      property.











**Item
      14.**  **PRINCIPAL
      ACCOUNTING FEES AND SERVICES**




*Audit
      and Related Fees*




The
      following tables set forth the aggregate fees billed by Deloitte & Touche
      LLP for the services indicated for the years ended December 30, 2006 and
      December 31, 2005 (amounts in thousands).





**2006**
            
            **2005**Audit
            
            $
            460
            
            $
            808Audit
                Related
            
            
            -
            
            
            15Total
            
            $
            460
            
            $
            823




**Audit
      Fees.**Audit
      fees were for professional services incurred in connection with the audit of
      the
      Company’s annual financial statements for the fiscal years ended December 30,
      2006 and December 31, 2005 and for the reviews of the financial statements
      included in the Company’s Quarterly Reports on Form 10-Q.





**Audit
      Related Fees** . 
      Audit related fees for the fiscal year ended December 31, 2005 consist of fees
      for services provided in connection with the audit of the Company’s benefit
      plan.





Familymeds’
      audit committee pre-approves all non-audit services provided to Familymeds
      by
      its independent accountants. According to its revised audit committee charter,
      a
      copy of which was previously filed with the SEC, this pre-approval authority
      may
      be delegated to a single member of the audit committee and then reviewed by
      the
      entire audit committee at the committee’s next meeting. Approvals of non-audit
      services will be publicly disclosed in Familymeds’ periodic reports filed with
      the SEC. For the fiscal years 2005 and 2006, all non-audit services were
      pre-approved by the audit committee. The audit committee determined the
      rendering of the “audit related” work, listed above, by Deloitte & Touche
      LLP is compatible with maintaining the auditor’s independence.





**PART
      IV**





**Item
      15.**  **EXHIBITS**


31.3
          Certification of the Chief Executive Officer pursuant to Section 302 of
          the
          Sarbanes-Oxley Act of 2002*
 
 31.4
          Certification of the Chief Financial Officer pursuant to Section 302 of
          the
          Sarbanes-Oxley Act of 2002*
 
 *
          Filed
          herewith
  
  **SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**FAMILYMEDS
                GROUP, INC.**Date: April
                30, 2007
            By:
            /s/ Edgardo
                A. MercadanteEdgardo
                A. MercadanteChairman
                of the Board, Chief Executive Officer and
                President




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




**Signatures**
            
            **Title**
            
            **Date***/s/
                Edgardo A. Mercadante*
            
            Chairman
                of the Board, Chief Executive Officer, President and Director
              (Principal
                Executive Officer)
            
            April
                30, 2007Edgardo
                A. Mercadante*/s/
                James A. Bologa*
            
            Senior
                Vice President, Chief Financial Officer
              (Principal
                Financial and Accounting Officer)
            
            April
                30, 2007James
                A. Bologa*/s/
                James E. Searson*
            
            Senior
                Vice President, Chief Operating Officer, and Director
            
            April
                30, 2007James
                E. Searson*/s/
                Philip P. Gerbino*
            
            Director
            
            April
                30, 2007Philip
                P. Gerbino*/s/
                Peter J. Grua*
            
            Director
            
            April
                30, 2007Peter
                J. Grua*/s/
                Mark T. Majeske*
            
            Director
            
            April
                30, 2007Mark
                T. Majeske*/s/
                Jugal K. Taneja*
            
            Director
            
            April
                30, 2007Jugal
                K. Taneja*/s/
                Laura L. Witt*
            
            Director
            
            April
                30, 2007Laura
                L. Witt