SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K


[X]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 or  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended: July 31, 2003

[_]      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 For the transition period from:

                         Commission File No. 2-96510-NY

                              DG LIQUIDATION, INC.
                (Name of registrant as specified in its charter)

          New Jersey                              11-2269958
(State of other jurisdiction of           (IRS Employer Identification No.)
Incorporation or organization)


c/o Med-Care, Building #3, 3535 Route 66, Neptune, NJ        07753
       (Address of principal executive offices)            (Zip Code)


Issuer's telephone number, including area code:            (732) 918-7555


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

                                           Name of exchange on
    Title of each class                     which registered
    -------------------                     ----------------

          None                                 None

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

                               Title of each class

                     Common Stock, par value $1.00 per share

                                       1
<PAGE>

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the  Securities  Exchange Act of 1934 (the
"Act")  during the  preceding  12 months (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes__ No X

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 an  accelerated  filer (as
defined in Rule 12b-2 of the Act). [ ]


State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common  equity,  as of
the last business day of the registrant's most recently  completed second fiscal
quarter.

      There  is no  trading  market  and  therefore  no  market  value  for  the
registrant's voting common equity securities.

Indicate the number of shares  outstanding of each of the registrant's  class of
common stock, as of the latest practicable date:

      As  of  July  14,  2004  there  were  9,274,863  shares  of  common  stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

                                       2
<PAGE>



                                     PART I

ITEM 1. BUSINESS.

General

         DG  Liquidation,  Inc.  (formerly  known as "Drug  Guild  Distributors,
Inc.",  and  sometimes  referred to as the "Company" or the  "Registrant"),  was
previously  engaged in  wholesale  distribution  of a wide  variety of  products
almost  exclusively to drugstores and health and beauty product stores primarily
in the State of New Jersey and the Greater New York City metropolitan area.

         Since the sale of assets to Neuman  Health  Services,  Inc.  and Neuman
Distributors,  Inc.  in July  1997,  the  Company  has  been  operating  under a
liquidation plan and its financial  reporting is now made in accordance with the
liquidation  basis of  accounting.  Therefore,  all  discussions  in this annual
report relate to the Company in liquidation.

Asset Sale

        On July 3, 1997,  the Company sold  substantially  all of its  operating
assets,  subject to substantially  all of the Company's  liabilities,  to Neuman
Health Services,  Inc. and Neuman Distributors,  Inc.  (collectively  "Neuman"),
wholesale distributors of pharmaceuticals and health and beauty products. A Plan
of Complete  Liquidation (the "Liquidation Plan") was approved by the holders of
a majority of the Company's outstanding shares of common stock on June 27, 1997.
The Liquidation Plan provided for: (1) sale of the Company's  operating  assets,
(2) payment of or provision for all of the Company's  remaining  liabilities and
obligations,  (3) payment of $100 per share to holders of preferred  stock prior
to any amount distributed to the common  stockholders and (4) the dissolution of
the Company.

         The purchase  price was composed of $4,000,000 in cash paid on closing,
an unsecured $1,000,000 non-interest bearing promissory note due in August 2001,
and an  adjustable  value  promissory  note recorded at  $10,646,000  payable in
quarterly installments over four years and collateralized by a standby letter of
credit.  Neuman also agreed to assume and to pay,  perform or discharge  certain
specified liabilities of the Company,  including leases, trade accounts payable,
accrued  expenses as  reflected on the closing  balance  sheet,  the  collective
bargaining  agreement  with  the  union  local  representing  former  employees,
expenses  incurred in the ordinary  course of business,  bank debt and long term
notes. However, Neuman did not assume severance or termination payments,  worker
compensation  claims,   liability  for  any  federal,   state  or  local  taxes,
environmental claims,  undisclosed or contingent  liabilities,  penalties,  Drug
Enforcement  Administration  fines or liabilities  with respect to the preferred
stock of the Company.

            The adjustable value note provided for interest at a rate determined
quarterly  equal to the higher of 1% plus the 180-day London  Interbank  Offered
Rate or the rate  specified for U.S.  Treasury  Notes with maturity equal to the
remaining term of the note,  but no lower than the Federal rate as  disseminated
by the Internal  Revenue  Service from time to time.  Payments on the adjustable
value  promissory were made by Neuman until May 2000,  when Neuman  defaulted in
making the required payments.  The Company received  $7,084,000 from the standby
letter of credit as result of Neuman's default.


                                       3
<PAGE>

         In connection with the sale, the Company received an option in favor of
the Company's stockholders to purchase,  under certain conditions,  an aggregate
of 10% of Neuman shares to be made  available in a public  offering in the event
Neuman  filed  a  registration   statement  with  the  Securities  and  Exchange
Commission  prior to July 3,  2001,  at a price  equal  to 85% of the per  share
public offering price. Since no registration  statement was been filed by Neuman
prior to July 3, 2001, the option lapsed.

          The asset  purchase  agreement  provided  that the purchase  price was
subject to adjustment based upon a final valuation of the assets and liabilities
sold.  The terms of sale also provided that Neuman had one year from the date of
purchase to return to the Company any accounts receivable balances which had not
then  been  collected  and  reduce  the  amount of the  adjustable  note by such
uncollected balances.

         On or about July 1, 1998,  Neuman  proposed  to reassign to the Company
uncollected   accounts   receivable  of  four  customers   which  accounted  for
approximately  $1,486,000.  The Company rejected  Neuman's  proposal and claimed
that,  pursuant  to the  provisions  of the  asset  purchase  agreement,  it was
entitled  to  receive  the full  amount of the  pre-acquisition  balance  due of
$1,486,000 out of a pending  payment by a major  pharmaceutical  retail chain to
Neuman of approximately  $2,500,000.  This  disagreement  between Neuman and the
Company was ended by Neuman's bankruptcy in 2000 (see below) and the uncollected
accounts receivable of $1,486,000 were not reassigned to the Company.

         On April 6, 2000,  Neuman  filed a petition  for  reorganization  under
Chapter 11 of the Bankruptcy  Code. As a result,  the Company wrote off the then
$880,000 carrying value of Neuman's unsecured  promissory note as uncollectible.
Neuman's bankruptcy  petition  constituted an "event of default" under the terms
of the secured  adjustable value promissory note. By reason of Neuman's default,
and on May 22, 2000,  the Company made a drawing on the standby letter of credit
which collateralized the note. On May 25, 2000, the Company received $7,084,000,
of which $2,794,000  represented the carrying value of the adjustable rate note,
$102,000  represented  accrued interest thereon through such date and $4,188,000
represented additional proceeds.

         Within  the  ninety-day  period  prior  to the  filing  of  the  Neuman
bankruptcy  petition,  the Company had received  $885,000 of quarterly  payments
from Neuman in  connection  with the  adjustable  value note.  Subsequent to the
filing of the  Neuman  bankruptcy  petition,  the  Chapter  11  Trustee  filed a
complaint  against the Company in the  Bankruptcy  Court  seeking to recover the
$885,000 as a preference payment. The Company filed an answer including defenses
against the Trustee's  claims and filed a motion for summary  judgment.  October
20, 2000,  the Company also filed a general  unsecured  claim against the Neuman
bankruptcy  estate which reflected  $7,657,000 due from Neuman on the adjustable
value note at March 31, 2000,  including $576,000 of additional accrued interest
through  such date  based on the  increased  amount  of the  note,  prior to the
receipt  of the  $7,084,000  letter of  credit  proceeds,  leaving a balance  of
$573,000 due the Company. In addition,  the Company filed a claim for $1,000,000
in connection with the unsecured note.



                                       4
<PAGE>

         On September 24, 2002, a settlement agreement was entered into pursuant
to which the Company and the Trustee  released each other from all  pre-petition
or  post-petition  claims,  except  that the  Company  was  entitled  to receive
distribution  from the bankruptcy  estate with respect to its unsecured  claims,
referred to above,  which were allowed in full.  The  settlement  agreement  was
approved  by the  Bankruptcy  Court  on  October  9,  2002.  See Note A-2 to the
financial  statements  with respect to the recording of $4,188,000 as additional
gain.

           As of the date of this report,  no additional  distribution  has been
made to the Company from the Neuman  bankruptcy estate and there is no assurance
that any additional distributions will be made in the future.

Employees

   The  Company  has  oral  consulting  agreements  with its  President,  Harold
Blumenkrantz,  and a director,  Michael Katz, and a written consulting agreement
with  Jay  Reba,  its  former  Vice   President-Finance,   for  the  purpose  of
implementing  the Liquidation  Plan. The terms of the consulting  agreement with
Mr. Blumenkrantz provided for his part-time employment on a month-to-month basis
for a  consulting  fee of  $5,000  per  month,  plus  reasonable  and  customary
expenses.  Mr.  Blumenkrantz ceased collecting his consulting fee after July 31,
2001.  Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation  activities  until the end of April 2002. The written  consulting
agreement  with Mr. Reba is dated June 4, 1998,  and provided for his consulting
services  for  a  minimum  of  three  months,  and  on  a  month-to-month  basis
thereafter,  for a  consulting  fee of $11,400 per month  (beginning  in January
1999),  plus  reasonable  and  customary  expenses  and a  severance  payment of
$34,200.  Mr. Reba's  consulting  agreement  terminated  August 31, 1999. He was
thereafter  engaged by the Company on a  month-to-month  basis to render limited
consulting  services for a fee of $2,750 per month from  September 1, 1999 until
April 30, 2002.  His current  engagement by the Company  provides for payment to
him of $125  per  hour,  plus  expense  reimbursement,  for  work he is asked to
perform.

Competition.

       Competition is no longer a material  factor for the Company,  since it is
engaged only in implementing its Liquidation Plan and is not actively engaged in
business as a going concern.

ITEM 2. PROPERTIES.

            The Company occupies office space, on a month-to-month basis, in the
offices of its President,  Harold  Blumenkrantz,  in Neptune,  New Jersey and in
Boca Raton, Florida, at an annual cost, including telephone service, photocopies
and postage, of $1,200.


                                       5
<PAGE>

ITEM 3. LEGAL PROCEEDINGS.

DG Liquidation, Inc. v. Anchin, Block & Anchin, LLP.
---------------------------------------------------

           On March 3, 1998,  the Company  filed a complaint  in New York County
Supreme  Court against its former  auditors,  Anchin,  Block & Anchin,  LLP (the
"Anchin Firm"), seeking to recover damages for professional malpractice,  breach
of fiduciary  duty and breach of contract  exceeding  $16,000,000  in connection
with inventory  defalcations during the period of October 1992 through May 1996.
The Anchin Firm had previously  acted in the  capacities of financial  advisors,
auditors and  accountants for the Company for a continuous  period  beginning in
1977 and ending on July 2, 1996.

       On April 30, 1998,  the Anchin Firm filed an answer  denying the material
allegations,  and  commenced  a  third-party  lawsuit  against  members  of  the
Company's  Executive Committee during the period of January 1990 through May 31,
1996, and the Company's  corporate  attorneys,  alleging that if the Company was
successful  in its claims  against  the  Anchin  Firm,  then  these  third-party
defendants  should be held  liable for the losses to the Company by reason of an
alleged failure to reasonably  perform their  respective  fiduciary  duties.  On
October 27, 1998, the court dismissed all of the third-party  claims against the
Company's  corporate  attorneys and the Anchin Firm withdrew its claims  against
the former members of the Executive Committee.

        The Company's claims against the Anchin Firm were tried before a jury in
Supreme Court, New York County in October and November 2002, which resulted in a
verdict in favor of the  Company.  Judgment  in favor of the Company and against
the Anchin  Firm was  entered in Supreme  Court,  New York County on February 4,
2003.  The  judgment  was  paid  in full on May  16,  2003 in the  total  sum of
$297,000. See Note E-1 to the financial statements.

Claim of Daniel Kantor

        Mr.  Kantor is a former  director  of the  Company  who owns or controls
approximately 134,000 shares of the Company's common stock. In October 1996, the
Company received a letter from an attorney for Mr. Kantor alleging mismanagement
of the  Company  and  requesting  additional  information.  In  June  1997,  the
attorney, acting on behalf of Mr. Kantor and other stockholders who appear to be
related to Mr. Kantor,  asked for copies of the Company's  financial  statements
over the past three years,  which the Company  supplied.  As of the date of this
report, no other action has taken place with regard to this matter.

Michael's Pharmacy and Michael Scicutella v. Drug Guild  Distributors,  Inc., et
al.

        The  plaintiff,  a customer of Drug  Guild,  initiated  this  lawsuit in
February  1997 in the  United  States  District  Court for the  District  of New
Jersey,  alleging that the Company has conspired with co-defendant  wholesalers,
McKesson Corp.,  Cardinal  Health Company,  W. Daly, Inc. and Remo Drug Corp. to
deny credit to the  plaintiff  that was  allegedly  due to it,  amounting  to an
alleged "group boycott" in violation of the federal  Sherman  Anti-trust Act and
New Jersey's Anti-trust Act, as well as an alleged breach of an implied covenant
of good faith and fair dealing,  and tortious  interference with the plaintiff's
contracts.



                                       6
<PAGE>

        The plaintiff asked for preliminary and permanent injunctions as well as
a money  judgment  against  each  defendant  for what were  described as actual,
compensatory,  punitive and trebled damages, attorney's fees and costs, and such
other relief as the court found  appropriate.  The court denied the  plaintiff's
requests for a preliminary  injunction.  The Company filed an answer denying all
of the material allegations of the complaint,  setting forth various affirmative
defenses,  alleging a  counterclaim  against  the  plaintiff  for  approximately
$48,000 owed to the Company, and asked for a dismissal of the complaint.

         The  defendants,  including  the  Company,  made  motions  for  summary
judgment seeking  dismissal of all of the plaintiff's  claims.  The Company also
asked for summary judgment on its  counterclaim.  On August 12, 2002, all of the
claims were formally dismissed by the court.

           The Company has been a party to several other pending legal  actions,
principally motor vehicle accidents  involving vehicles owned or operated by the
Company, and other claims,  including products liability,  for which the Company
is covered by insurance.  The results of these various  lawsuits and claims will
not materially affect the financial position of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        There  were no matters  submitted  to a vote of the  Company's  security
holders during the fiscal year ended July 31, 2003 through the  solicitation  of
proxies or otherwise.

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         There is no existing public market for any of the Company's securities.

         As of July 14, 2004, there were  approximately 366 holders of record of
the Company's  common stock,  and all of the Company's  preferred stock has been
redeemed.

         The Company has never paid a cash  dividend  and does not expect to pay
cash  dividends  in the  future.  As of the  date  of this  report,  liquidation
payments  have been  made to  preferred  stockholders  ($2,262,000)  and  common
stockholders  ($15,785,000,  with a reserve of $39,000 for certain  stockholders
who could not be located),  and additional  liquidation payments will be made to
the  Company's  common  shareholders  in accordance  with the  provisions of the
Liquidation Plan.

ITEM 6. SELECTED FINANCIAL DATA

         This table has been omitted because the Company's  financial  reporting
is now being made on the liquidation basis of accounting. See Item 8 - Financial
Statements and Supplementary Data.



                                       7
<PAGE>

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

         Since  July  1,  1997,  the  Company  has  been  operating   under  the
Liquidation  Plan and its financial  reporting is being made in accordance  with
the liquidation basis of accounting. Therefore, the following discussion relates
to the financial statements presented on a liquidation basis.

         Statement of Net Assets in Liquidation

         Pursuant to the Liquidation Plan, the Company sold substantially all of
its  operating  assets on July 3,  1997,  subject  to  substantially  all of the
Company's liabilities,  for an aggregate price of $4,000,000 in cash paid at the
closing,  an unsecured,  non interest bearing promissory note for $1,000,000 due
August 2001 and an adjustable  value  promissory  note recorded for  $10,646,000
payable  over four years with  interest at 1% above the  180-day  Libor rate and
collateralized  by an  irrevocable  standby  letter of  credit.  The  $1,000,000
promissory  note  was  recorded  at its  then  present  value  of  approximately
$766,000.  The purchase price was subject to additional  adjustment based on the
final valuation of the assets and liabilities  sold. In addition,  the buyer had
the right to return any receivables not paid after one year from the sale. As of
July 31, 2002,  the Company had collected an aggregate  total of  $12,063,000 of
payments made on the adjustable rate promissory  note, of which  $10,646,000 was
applied to notes  receivable  and the remaining  $1,417,000 to interest.  In the
year ended July 31, 2000,  the Company wrote off the carrying  value of $880,000
of the unsecured promissory note.

         The Company set aside as accrued and estimated  liquidation expenses an
amount  believed to be  adequate  for  payment of all  expenses  and other known
liabilities as well as likely and quantifiable contingent obligations, including
potential tax obligations.  In the event this accrued and estimated  liquidation
expense is not adequate for payment of the Company's  expenses and  liabilities,
each  stockholder  could be held liable for pro rata payments to creditors in an
amount not to exceed the stockholder's prior distributions from the Company. The
Company has  therefore  adopted a  conservative  policy of retaining  sufficient
assets to insure against any unforeseen and non-quantifiable contingencies.

         Statement of Changes in Net Assets in Liquidation

         As of July 31,  2003,  the  Company  had net assets in  liquidation  of
$2,442,000.  This  represented  an increase in  estimated  liquidation  value of
assets over  liabilities of $957,000 from the net assets at July 31, 2002.  This
increase  was  mainly  attributed  to the  additional  gain on sale of assets of
$2,513,000,  net of $1,675,000  income taxes.  This was reduced by a liquidating
distribution to common  shareholders  of $1,856,000.  The increase in net assets
also included  interest  income of $37,000,  collection  of accounts  receivable
previously  written off of $342,000 and by decreased  other expenses of $16,000.
In addition, the net proceeds from the judgment against Anchin was $6,000 net of
expenses of $291,000.  The provision for income taxes related to the increase in
net assets was $1,777,000.



                                       8
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         See the index constituting a part of Item 15.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

         Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

         As required by Rule 13a-15  under the Act,  within the 90 days prior to
the filing date of this report,  the Company  carried out an  evaluation  of the
effectiveness of the design and operation of the Company's  disclosure  controls
and  procedures.  This  evaluation was carried out under the  supervision of the
Company's  management,  the President and Chief Executive Officer and Secretary,
Treasurer,   Principal  Financial  and  Accounting  Officer.   Based  upon  that
evaluation,  the  Company's  President,  Chief  Executive  Officer and Principal
Financial and Accounting  Officer have  concluded that the Company's  disclosure
controls and  procedures  are  currently  effective in timely  alerting  them to
material  information  relating  to the  Company  required to be included in the
Company's periodic SEC filings.

         Disclosure  controls and procedures  are controls and other  procedures
that are designed to ensure that information required to be disclosed in Company
reports filed or submitted under the Act is recorded, processed,  summarized and
reported,  within  the  time  periods  specified  in the SEC  rules  and  forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that  information  required  to be  disclosed  in
Company  reports  filed  under  the  Act  is  accumulated  and  communicated  to
management,  which consists only of the Company's  President and Chief Executive
Officer and Secretary, Treasurer, Principal Financial and Accounting Officer, to
allow timely decisions regarding required disclosures.

Changes in Internal Controls.

         There have been no changes in  internal  controls  or in other  factors
that could  significantly  affect these controls subsequent to the date of their
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.


                                       9
<PAGE>


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

         In connection with adoption of the  Liquidation  Plan in June 1997, the
Company's  shareholders  approved  elimination of staggered terms for members of
the Board of Directors and reduced the number of members from 34 to 7.

          The following  individuals  served as directors and executive officers
of the Company during the fiscal year ended July 31, 2003:

<TABLE>
<CAPTION>
         Name                         Age            Position
         ----                         ---            --------
<S>                                    <C>
         Harold Blumenkrantz           70            President, Chief Executive Officer and Director
         Alfred Hertel                 79            Chairman of the Board and Director
         Michael Katz                  69            Vice President and Director
         Gerald Koblin                 71            Secretary, Treasurer, Chief Accounting and
                                                     Financial Officer and Director
         Paul Emanuel                  82            Director
         Ernest Wyre                   84            Director
</TABLE>

         The Company's officers hold office until the next annual meeting of the
Company's Board of Directors and until their respective successors are elected.

         Harold Blumenkrantz has been a member of the Executive Committee of the
Company's Board of Directors for more than the past five years and was appointed
President  in June 1997.  He has been a principal  of West End Family  Pharmacy,
Inc., Long Branch, New Jersey, since 1962.

         Alfred  Hertel has been an officer  and  director of the Company and an
officer and a principal  shareholder  of Oakland Drug Inc.,  located in Oakland,
New Jersey, for more than the past five years.

         Michael Katz was principal of Katz Drug, Brooklyn,  New York and is now
retired.  Mr.  Katz has been a  director  of the  Company  since 1976 and a vice
president of the Company since June 1997.

         Gerald  Koblin has been a principal  of Koblin  Pharmaceuticals,  Inc.,
Nyack,  New York  for more  than the past  five  years.  Mr.  Koblin  has been a
director of the Company since 1995, the Secretary and Treasurer since July 1997,
and the Chief Accounting and Financial Officer of the Company since August 1997.

         Paul  Emmanuel had been the owner of Town and Country  Pharmacy,  Inc.,
Ridgewood,  New  Jersey,  for more than the past five  years  before he sold the
store in 2000. Mr. Emmanuel has been a director of the Company since 1985.



                                       10
<PAGE>

         Ernest Wyre  (deceased  December  14,  2003) was a  principal  of Lenox
Terrace Drugstore, Inc. and Fairview Chemists,  Brooklyn, New York for more than
five years prior to 1987, and since that time has been a private  investor.  Mr.
Wyre has been a director of the Company since 1976.

ITEM 11.          EXECUTIVE COMPENSATION.

Summary Compensation Table

         The  following  table sets forth,  for the fiscal  years ended July 31,
2003,  2002 and 2001,  the cash  compensation  paid by the  Company,  as well as
certain  other  compensation  paid with  respect  to those  years,  to the chief
executive officer and each of the four other most highly  compensated  executive
officers of the Company in all capacities in which they served.

<TABLE>
<CAPTION>
                               ANNUAL COMPENSATION

                                                                                Other
Name                                                                            Annual    All Other
and Principal                                                                   Compen-   Compen-
Position                     Year              Salary         Bonus             sation    sation
-------------------------------------------------------------------------------------------------
<S>                          <C>               <C>            <C>               <C>       <C>
Harold Blumenkrantz          2001              $60,000
President and CEO            2002                  -0-
                             2003                  -0-
All 2003 Executive Officers
as a Group (2 persons)                             -0-
</TABLE>

         None of the  directors or members of the Executive  Committee  received
any direct  remuneration from the Company or reimbursement for expenses,  except
that Michael Katz received a consulting  fee of $1,000 per month for  assistance
in liquidation activities until the end of April 2002 and the Company reimburses
minor amounts of expenses on an infrequent basis.

         None of the  directors or members of the Executive  Committee  received
any direct  remuneration from the Company or reimbursement for expenses,  except
that Michael Katz received a consulting  fee of $1,000 per month for  assistance
in liquidation activities until the end of April 2002 and the Company reimburses
minor amounts of expenses on an infrequent basis.

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


                                       11
<PAGE>

         The following table sets forth certain information  regarding shares of
common stock beneficially  owned as of July 14, 2004, by (i) each person,  known
to the Company,  who  beneficially  owns more than 5% of the common stock,  (ii)
each of the Company's directors and (iii) all officers and directors as a group:

<TABLE>
<CAPTION>
Name and Address of Beneficial Owner     Shares Beneficially Owned (1)         Percentage of Stock Outstanding (1)
------------------------------------     -----------------------------         -----------------------------------
<S>                                                     <C>                                    <C>
Sharon Sternheim, Executrix of The                      492,784                                   5.31%
Estate of Howard Sternheim
1020 Park Avenue
New York, NY  10028

Paul Emanuel                                             24,480                                    .26%
468 Churchill Road
Teaneck, NJ  07666

Harold Blumenkrantz                                      36,685                                    .40%
7411 Orangewood Lane
Boca Raton, FL  33433

Alfred Hertel                                           113,358                                   1.22%
84 Shoreline Drive
Hilton Head Island, SC  29928

Michael Katz
3400 Galt Ocean Drive                                   101,196                                   1.09%
Apt. 1507S
Fort Lauderdale, FL 33308

Gerald Koblin
214 Jewett Road                                          43,997                                    .47%
Upper Nyack, NY 10960

Nilsa Wyre,
Executive of the Eastate of
Ernest Wyre
6613 Pullen Ct.                                         149,699                                   1.61%
Tampa, FL  33625
All Officers and Directors as a Group                   469,415                                   5.06%
(6 persons)
</TABLE>

 (1) All of these shares are owned of record. Common Stock


                                       12
<PAGE>

         The Company is authorized  to issue up to  25,000,000  shares of common
stock,  $1.00 par value each, of which 9,274,863 shares are currently issued and
outstanding. The holders of common stock are entitled to one vote for each share
held of record on all matters to be voted on by  shareholders,  and are entitled
to receive dividends when and if declared by the Board of Directors out of funds
legally available therefore.  The common stock has no conversion,  preemptive or
other subscription rights, and there are no redemption  provisions applicable to
the common stock (except for the  Company's  right of first  refusal,  discussed
below). There is no cumulative voting with respect to the election of directors,
with the result that the holders of more than 50% of the shares of common  stock
can elect all of the directors.

         Holders  of the  common  stock who are  customers  of the  Company  are
required to pledge their shares to the Company as security for their purchase of
products.  All  holders  who intend to sell their  shares are  required to first
offer them to the Company  (the "right of first  refusal")  at a purchase  price
equal to the lesser of (a) the book  value of the  shares or (b) the  greater of
cost or par value. If the Company elects to exercise its right of first refusal,
it must pay for the shares in three equal annual installments, without interest,
commencing 60 days after the offer is made.

         In the event of liquidation,  dissolution or winding up of the Company,
such as that being  implemented the Liquidation Plan, the owners of common stock
are entitled to share all assets remaining  available for distribution after the
payment of liabilities  and after  provision has been made for each class stock,
if any, having a preference over the common stock as such.

Preferred Stock

         The Company is  authorized  to issue up to 250,000  shares of preferred
stock,  $100 par  value  each.  Preferred  stockholders  are  entitled  to an 8%
cumulative  dividend  based on par  value,  payable  in  preferred  stock.  Upon
liquidation  of the Company,  holders of the  preferred  stock are entitled to a
payment  of $100 per share  before  any  amounts  are paid to  holders of common
stock.  The  preferred  stock  is not  entitled  to vote  and  does not have any
preemptive or conversion rights.

         Holders of  preferred  stock have the right to require  the  Company to
repurchase their shares at par value ($100.00)  commencing five years after full
payment for the stock has been made.

         The Company  may call  preferred  stock at any time.  The call price is
105% of par value if shares are called  within the first year of issue,  110% of
par value  within the second year,  115% within the third year,  120% within the
fourth year and 125% after four years.

         A holder of shares of preferred  stock desiring to sell his shares to a
third party must first offer them to the Company at the repurchase price. If the
Company  elects to accept such offer,  it is obligated to pay for such shares in
three equal annual installments, without interest, the first such installment to
be made 60 days after such offer.

         As of July 31, 2003, there were no shares issued and outstanding.



                                       13
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The Company has oral consulting  agreements with its President,  Harold
Blumenkrantz,  and a director,  Michael Katz, and a written consulting agreement
with  Jay  Reba,  its  former  Vice   President-Finance,   for  the  purpose  of
implementing  the Liquidation  Plan. The terms of the consulting  agreement with
Mr. Blumenkrantz provided for his part-time employment on a month-to-month basis
for a  consulting  fee of  $5,000  per  month,  plus  reasonable  and  customary
expenses.  Mr.  Blumenkrantz ceased collecting his consulting fee after July 31,
2001.  Michael Katz received a consulting fee of $1,000 per month for assistance
in liquidation  activities  until the end of April 2002. The written  consulting
agreement  with Mr. Reba is dated June 4, 1998,  and provided for his consulting
services  for  a  minimum  of  three  months,  and  on  a  month-to-month  basis
thereafter,  for a  consulting  fee of $11,400 per month  (beginning  in January
1999),  plus  reasonable  and  customary  expenses  and a  severance  payment of
$34,200.  Mr. Reba's  consulting  agreement  terminated  August 31, 1999. He was
thereafter  engaged by the Company on a  month-to-month  basis to render limited
consulting  services for a fee of $2,750 per month from  September 1, 1999 until
April 30, 2002.  His current  engagement by the Company  provides for payment to
him of $125  per  hour,  plus  expense  reimbursement,  for  work he is asked to
perform.

         The Company  occupies office space, on a  month-to-month  basis, in the
offices of its President, Harold Blumenkrantz,  in Neptune, New Jersey, and Boca
Raton, Florida, at an annual cost, including telephone service,  photocopies and
postage, of $1,200.

         No other officer or director received any direct  remuneration from the
Company or reimbursement for expenses,  except that the Company reimburses minor
amounts of expenses on an infrequent basis.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

         AUDIT FEES

         The aggregate fees billed by Eisner LLP for the annual audit and review
of the interim financial  statements were approximately  $17,000 and $17,000 for
the fiscal years ended July 31, 2003 and 2002, respectively.

         AUDIT RELATED  FEES

         Eisner LLP did not render any professional  services to DG Liquidation,
Inc.  involving  "Audit  Related  Fees" other than as set forth in the preceding
paragraph.

         TAX FEES

         Eisner LLP did not render any professional  services to DG Liquidation,
Inc.  during the fiscal  years ended July 31, 2003 and 2002 for tax  compliance,
tax advice and tax planning services.

         ALL OTHER FEES

         The aggregate fees billed by Eisner LLP for all other services rendered
to DG  Liquidation,  Inc.  during the fiscal years ended July 31, 2003 and 2002,
other than audit services, were approximately $16,000 and $3,000,  respectively.
These  "other  fees" were for  services  related to the Anchin  lawsuit  and tax
return preparation.



                                       14
<PAGE>

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT

         Schedules and Reports on Form 8-K

         (a)(1)   Financial Statements.

         The following are filed with this report:

         (i)      Independent Auditors' Report.

         (ii)     Statement of Net Assets  (liquidation  basis) at July 31, 2003
                  and 2002.

         (iii)    Statement of Changes in Net Assets (liquidation basis) for the
                  years ended July 31,  2003,  2002 and 2001.  (iv) Notes to the
                  Financial Statements.

         (a)(2)   Financial Statement Schedules:

                  None

         (a)(3)   Exhibits.

         The following exhibits are filed as part of this report:

                  Exhibit Number                     Exhibit
                  --------------                     -------

                           31       Rule 13(a)-15(e)/15(d)-15(e) Certifications.

                           32       Section 1350 Certification

         (b) Reports on Form 8-K

         No  reports on Form 8-K were  filed  during the last  quarter of fiscal
2003.


                                       15
<PAGE>

                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act  of  1934,  the
Registrant  has duly  caused  this  amended  Section  13 or 15(d)  report  to be
executed on its behalf by the  undersigned,  thereunto duly  authorized,  in the
Town of Neptune, State of New Jersey, on July 14, 2004

                                DG LIQUIDATION, INC.

                                By:  /s/ Harold Blumenkrantz
                                     -----------------------
                                     Harold Blumenkrantz, President
                                     President and Chief Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  amended  report has been signed by the  following  person on behalf of the
Registrant and in the capacity and on the date indicated.

<TABLE>
<CAPTION>
<S>                                 <C>                                 <C>
/s/ Harold Blumenkrantz             President, Chief Executive          July 14, 2004
    -------------------
    Harold Blumenkrantz             Officer and Director

/s/ Gerald Koblin                   Secretary, Treasurer,               July 14, 2004
    --------------------------
    Gerald Koblin                   Principal Financial and
                                    Accounting Officer and Director

/s/ Alfred Hertel                   Chairman of the Board               July 14, 2004
    ----------------------------
    Alfred Hertel                   and Director

/s/ Michael Katz                    Vice President and Director         July 14, 2004
    ---------------------------
    Michael Katz

/s/ Paul Emanuel                    Director                            July 14, 2004
    --------------------------
    Paul Emanuel
</TABLE>


                                       16
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
DG Liquidation, Inc.


We have audited the accompanying statements of net assets (liquidation basis) of
DG Liquidation,  Inc. as of July 31, 2003 and 2002 and the related statements of
changes in net  assets  (liquidation  basis) for each of the three  years in the
period ended July 31, 2003. These financial statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

As described in Note A to the  financial  statements,  the  stockholders  of the
Company approved a plan of liquidation on June 27, 1997 and on July 3, 1997, the
Company  sold  substantially  all  its  net  assets  and  commenced  liquidation
proceedings.  As a result,  the Company has changed its basis of accounting  for
periods  subsequent  to  June  30,  1997  from  the  going  concern  basis  to a
liquidation basis.


In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the net assets in liquidation of DG Liquidation,  Inc. as
of July 31, 2003 and 2002 and the changes in its net assets in  liquidation  for
each of the three years in the period ended July 31, 2003,  in  conformity  with
accounting principles generally accepted in the United States of America applied
on the liquidation basis as described in the preceding paragraph.

Eisner LLP

New York, New York
October 24, 2003


                                      F-1
<PAGE>



DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

STATEMENTS OF NET ASSETS
(liquidation basis)
(in thousands, except share and per share amounts)

<TABLE>
<CAPTION>

                                                                                        JULY 31,
                                                                                    2003        2002
                                                                                 ---------   ---------
ASSETS
<S>                                                                              <C>         <C>
Cash                                                                             $   2,653   $   4,550
Deferred tax asset                                                                      50       1,763
Other assets                                                                            21          71
                                                                                 ---------   ---------

                                                                                     2,724       6,384


LIABILITIES
Estimated liquidation expenses                                                         125         220
Accrued expenses                                                                        48          67
Income taxes payable                                                                    40          --
Liquidating distributions payable                                                       69         424
Deferred gain related to proceeds from letter of credit                                          4,188
                                                                                 ---------   ---------
                                                                                       282       4,899

Commitments and contingencies (Note E)

NET ASSETS IN LIQUIDATION                                                        $   2,442   $   1,485
                                                                                 =========   =========



NET ASSETS IN LIQUIDATION PER COMMON SHARE (BASED ON 9,275,000 COMMON SHARES
         OUTSTANDING IN 2003 AND 2002, RESPECTIVELY)                             $    0.26   $    0.16
                                                                                 =========   =========
</TABLE>


See notes to financial statements                                         F-2

<PAGE>
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

STATEMENTS OF CHANGES IN NET ASSETS
(liquidation basis)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                                          YEAR ENDED JULY 31,
                                                                                     2003         2002         2001
                                                                                 ----------    ----------   ----------
<S>                                                                              <C>           <C>          <C>
Net assets in liquidation - beginning of year                                    $    1,485    $      102   $    4,990
                                                                                 ----------    ----------   ----------
Gain from life insurance policy proceeds                                                            1,511
Additional gain - related to prior year sale of assets                                4,188

Interest and other income                                                                37            94          302
Decrease in estimated costs to be incurred during period of liquidation                  33            95            6
Recovery of receivables previously written-off                                          342            13           80
Gain on settlement of litigation, net of legal expenses                                   6
Other adjustments to net assets                                                         (16)          (31)         (43)
                                                                                 ----------    ----------   ----------
Increase in net assets before income taxes and items shown below                      4,590         1,682          345

Provision for income taxes related to change in net assets, including
a deferred tax provision of $1,713 in 2003, $84 in 2002 and $127 in 2001             (1,777)         (299)        (132)
                                                                                 ----------    ----------   ----------
Increase in net assets before items shown below                                       2,813         1,383          213

Liquidating distributions to common stockholders ($0.20 in 2003 and
$0.55 per share in 2001)                                                             (1,856)                    (5,101)
                                                                                 ----------    ----------   ----------
Increase (decrease) in net assets                                                       957         1,383       (4,888)
                                                                                 ----------    ----------   ----------
Net assets in liquidation - end of year                                          $    2,442    $    1,485   $      102
                                                                                 ==========    ==========   ==========
</TABLE>

See notes to financial statements                                         F-3
<PAGE>

DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002

NOTE A - PLAN OF LIQUIDATION, SALE OF ASSETS AND BASIS OF PRESENTATION

[1]    PLAN OF LIQUIDATION:

       DG  Liquidation,  Inc.  (the  "Company"),  formerly  known as Drug  Guild
       Distributors,  Inc.,  was a wholesale  distributor  of a wide  variety of
       products  to drug  stores  and  health  and  beauty  aid  stores  located
       primarily  in  the  State  of New  Jersey,  the  greater  New  York  City
       metropolitan area and Connecticut.

       A Plan of Complete  Liquidation  (the "Plan") was approved by the holders
       of a majority of the Company's outstanding shares of common stock on June
       27, 1997. The Plan provided for: (1) the sale of the Company's  operating
       assets,  (2)  the  payment  of or  provision  for  all of  the  Company's
       remaining  liabilities and obligations,  (3) payment of $100 per share to
       the holders of preferred  stock prior to any amounts  distributed  to the
       common stockholders and (4) the dissolution of the Company.

[2]    SALE OF ASSETS:

       On July 3, 1997,  the Company  sold  substantially  all of its  operating
       assets,  subject to substantially  all of the Company's  liabilities,  to
       Neuman Health Services, Inc. and Neuman Distributors,  Inc. (collectively
       "Neuman"),  wholesale  distributors  of  pharmaceuticals  and  health and
       beauty  products,  for  $4,000,000 in cash paid on closing,  an unsecured
       $1,000,000 noninterest bearing promissory note due in August 2001 and the
       remainder  in  an  adjustable   value   promissory   note,   recorded  at
       $10,646,000,  payable  in  quarterly  installments  over  four  years and
       collateralized by a standby letter of credit.  The $1,000,000  promissory
       note was recorded at its present value using an imputed  interest rate of
       6.69%.  The  adjustable  value  note  provided  for  interest  at a  rate
       determined  quarterly  equal to the higher of 1% plus the 180-day  London
       Interbank Offered Rate or the rate specified for U.S. Treasury Notes with
       maturity  equal to the remaining  term of the note, but no lower than the
       Federal rate as disseminated by the Internal Revenue Service from time to
       time.  During the year ended July 31, 1998,  pursuant to the terms of the
       note,  interest  was  paid  quarterly  based  on the  principal  payments
       received  by  the  Company.  Subsequent  thereto,  interest  was  payable
       quarterly based on the unpaid principal balance of the note.

       The asset  purchase  agreement  provided that the purchase price would be
       subject  to  adjustment  based upon a final  valuation  of the assets and
       liabilities sold. In addition, the terms of sale provided that Neuman had
       one year from the date of purchase to return to the Company any  accounts
       receivable  balances  which had not then been  collected  and  reduce the
       amount of the  adjustable  note by such  uncollected  balances  (see Note
       E[2]). The gain recognized on the sale was $3,683,000.

       On April 6,  2000,  Neuman  filed a  petition  for  reorganization  under
       Chapter 11 of the Bankruptcy  Code. As a result thereof,  during the year
       ended July 31, 2000, the Company wrote off their $880,000  carrying value
       of the unsecured promissory note due from Neuman. In addition, on May 22,
       2000 the Company  made a drawing on the  standby  letter of credit and on
       May 25, 2000 received  $7,084,000  of which  $2,794,000  represented  the
       carrying value of the adjustable value note, $102,000 represented accrued
       interest thereon through such date and $4,188,000  represented additional
       proceeds.

                                                                             F-4
<PAGE>

DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002

NOTE A -  PLAN  OF  LIQUIDATION,  SALE  OF  ASSETS  AND  BASIS  OF  PRESENTATION
(CONTINUED)


[2]    SALE OF ASSETS:  (CONTINUED)


       Within the  ninety-day  period prior to the filing of the  petition,  the
       Company  received  $885,000 from Neuman in connection with the adjustable
       value  note.  Subsequent  to the filing,  the Chapter 11 Trustee  filed a
       complaint  against the Company in the  Bankruptcy  Court to recover  such
       alleged preference  payment.  The Company maintained that it had defenses
       against the Trustee's claims and filed a motion for summary judgment.  In
       addition,  on October 20,  2000,  the Company  filed a general  unsecured
       claim against the bankruptcy  estate which  reflected that $7,657,000 was
       due from Neuman on the adjustable value note at March 31, 2000, including
       $576,000 of additional  accrued  interest  through such date based on the
       increased  amount of the note,  prior to the  receipt  of the  $7,084,000
       letter of credit proceeds, leaving a balance of $573,000 due the Company.
       In addition,  the Company filed a claim for $1,000,000 in connection with
       the unsecured note.

       On September 24, 2002, a settlement agreement,  which was approved by the
       Bankruptcy  Court on October 9, 2002,  was entered into pursuant to which
       the Company and the Trustee  released each other from all pre-petition or
       post-petition  claims,  except  that the  Company is  entitled to receive
       distribution  from  the  bankruptcy  estate  as to its  unsecured  claims
       referred to above which were allowed in full.  Accordingly  during fiscal
       2003,  the Company  recorded an additional  gain on sale of its assets of
       $4,188,000.

[3]    BASIS OF PRESENTATION:

       Subsequent to June 30, 1997, the Company adopted the liquidation basis of
       accounting.  Accordingly,  the net assets of the Company at July 31, 2003
       and 2002 are stated at  liquidation  value  whereby  assets are stated at
       their  estimated net  realizable  values and  liabilities,  which include
       estimated  liquidation  expenses to be incurred through the date of final
       dissolution of the Company,  are stated at their  anticipated  settlement
       amounts.

       The valuation of assets and liabilities  necessarily  requires  estimates
       and assumptions.  Net assets and future liquidating distributions will be
       subject to  uncertainties  including the ultimate  amount of  liquidation
       expense and the amount, if any, ultimately  collected on unsecured claims
       against the bankruptcy estate.

                                                                             F-5
<PAGE>
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002

NOTE B - ESTIMATED LIQUIDATION EXPENSES

Estimated liquidation expenses, consisting of legal and other professional fees,
consulting fees and insurance expense,  to be incurred through the date of final
dissolution  of the  Company  have been  accrued in the  accompanying  financial
statements.  Analysis of  transactions  reflected in the liability for estimated
liquidation expenses during fiscal 2001, 2002 and 2003 follows:


<TABLE>
<CAPTION>

<S>                     <C> <C>                                                          <C>
        Balance at July 31, 2000                                                         $     746
        Liquidation expenses paid during the year ended July 31, 2001                         (312)
        Decrease in estimated liquidation expenses to be incurred                               (6)
                                                                                         ---------
        Balance at July 31, 2001                                                               428
        Liquidation expenses paid during the year ended July 31, 2002                         (113)
        Decrease in estimated liquidation expenses to be incurred                              (95)
                                                                                         ---------
        Balance at July 31, 2002                                                               220
        Liquidation expenses paid during the year ended July 31, 2003                          (62)
        Decrease in estimated liquidation expenses to be incurred                              (33)
                                                                                         ---------
        Balance at July 31, 2003                                                         $     125
                                                                                         =========
</TABLE>

                                                                             F-6

<PAGE>
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002

NOTE C - INCOME TAXES

The Company accounts for income taxes utilizing the asset and liability approach
requiring  the  recognition  of  deferred  tax  assets and  liabilities  for the
expected future tax consequences of temporary  differences  between the basis of
assets and liabilities for financial reporting purposes and tax purposes.

The net deferred tax asset at July 31, 2003 and 2002 relates to the following:

<TABLE>
<CAPTION>

                                                                                2003            2002
                                                                           ------------    -------------
<S>                                                                        <C>             <C>
       Estimated liquidation expenses                                      $     50,000    $      88,000
       Deferred gain related to proceeds from letter of credit                                 1,675,000
       Alternative minimum tax credit carryover                                 165,000          215,000
                                                                           ------------    -------------
                                                                                215,000        1,978,000
       Valuation allowance                                                     (165,000)        (215,000)
                                                                           ------------    -------------

                                                                           $     50,000    $   1,763,000
                                                                           ============    =============
</TABLE>

For the year ended July 31, 2002, the gain from life insurance  policy  proceeds
which amounted to $1,511,000, although exempt from regular corporate income tax,
resulted  in an  alternate  minimum  tax of  $215,000  which is  included in the
provision  for  income  tax in the  accompanying  statements  of  changes in net
assets.  Although the  alternative  minimum tax ("AMT") is available as a credit
against the regular tax  liability in future years and is therefore  included as
deferred tax assets, a valuation allowance has been provided against such amount
as the amount of credit which will  ultimately be realized is uncertain.  During
the year ended July 31,  2003,  $50,000 of the AMT credit was used to offset the
regular tax liability  leaving a remaining  AMT credit  carryover of $165,000 at
July 31, 2003.


NOTE D - OFFICER'S LIFE INSURANCE

The Company was the owner and  beneficiary of insurance  policies of $1,600,000,
on the life of its former president.  In December 2001,  subsequent to the death
of  the  Company's  former   president,   the  Company  received   approximately
$1,599,000,  net of outstanding  loans of $157,000 from the insurance company in
settlement of the policies, resulting in a gain of $1,511,000 in fiscal 2002.


NOTE E - COMMITMENT AND CONTINGENCIES

[1]    On March 3, 1998,  the Company  filed a complaint in Supreme Court of the
       State of New York,  in New York  County,  against  its  former  auditors,
       Anchin,  Block & Anchin,  LLP (the  "Anchin  Firm")  seeking  to  recover
       damages for professional malpractice, breach of fiduciary duty and breach
       of  contract  exceeding  $16,000,000  in  connection  with  an  inventory
       defalcation.  The Anchin Firm had  previously  acted in the capacities of
       financial  advisors,  auditors  and  accountants  for the  Company  for a
       continuous period beginning in 1977 and ending on July 2, 1996.

       The damages  sought from the Anchin Firm relate to the loss of  inventory
       by reason of the defalcations taking place during the period from October
       1992 through May 1996, a reduction in the  consideration  received in the
       asset sale  transaction  with  Neuman and  restitution  of  approximately
       $900,000  of fees paid to the  Anchin  Firm and  various  other  fees and
       expenses.

                                                                             F-7
<PAGE>
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002


NOTE E - COMMITMENT AND CONTINGENCIES  (CONTINUED)

[1] (continued)

       On April 30, 1998,  the Anchin Firm filed an answer  denying the material
       allegations,  and commenced a third-party  lawsuit against members of the
       Company's  Executive  Committee during the period of January 1990 through
       May 31, 1996, and the Company's corporate attorneys, alleging that if the
       Company is successful in its claims  against the Anchin Firm,  then these
       third-party defendants,  by reason of their alleged failure to reasonably
       perform their respective fiduciary duties,  should be held liable for the
       losses to the  Company  for which  the  Anchin  Firm is sought to be held
       responsible.  On October 27, 1998,  the court  dismissed the  third-party
       claims  against the  Company's  corporate  attorneys  and the Anchin Firm
       withdrew  its  claims   against  the  former  members  of  the  Executive
       Committee, thereby discontinuing the third-party lawsuit.

       The Company's  claims against the Anchin Firm were tried before a jury in
       Supreme  Court,  New York  County,  in October and November  2002,  which
       resulted in a verdict in favor of the  Company.  Judgment in favor of the
       Company and against  the Anchin  Firm was entered in Supreme  Court,  New
       York County,  on February 4, 2003 in the aggregate  sum of  approximately
       $290,000.  The judgment was paid in full on May 16, 2003 in the total sum
       of  $297,000,  including  interest of $7,000,  which  amount net of legal
       expense of $291,000,  is included as gain on  settlement of litigation in
       the statement of changes in net assets for the year ended July 31, 2003.

[2]    On or about  July 1, 1998,  the buyer of the  Company's  assets  (Neuman)
       proposed to reassign to the Company  uncollected  accounts  receivable of
       four customers which accounted for  approximately  $1,486,000 of accounts
       receivable  purchased from the Company in July 1997 (see Note A[2]).  The
       Company had assigned  those accounts  receivable to Neuman  together with
       related  security  agreements.  After the  closing of the asset  purchase
       Neuman  made  additional  sales  to those  four  customers  and  extended
       additional  credit to them.  Neuman also incurred legal fees and interest
       in seeking to collect  both the  pre-closing  and  post-closing  accounts
       receivable  with  the  result  that  Neuman  asserted  that it has made a
       post-closing   extension  of  credit  to  the  four  customers   totaling
       approximately  $2,336,000.  Neuman  had told the  Company  that it should
       accept  reassignment of the accounts  receivable of the four customers in
       an aggregate  total of $1,486,000  without  reassignment  of the security
       agreements,  with a corresponding  reduction in the adjustable value note
       receivable.

       The Company had taken the  position  that the  security  agreements  must
       follow the accounts receivable which they secure and that it is therefore
       not  obligated to accept  reassignment  of the accounts  receivable,  and
       therefore  a  reduction  in the face  amount of the note,  unless it also
       receives the security agreements applicable to those accounts receivable.
       The  Company  had  told  Neuman  that  pursuant  to  the  asset  purchase
       agreement, the oldest accounts receivable must be paid in full before the
       newer accounts  receivable  are paid and that it was therefore  entitled,
       under the security  agreements which must be reassigned together with the
       accounts  receivable,  to receive the full amount of the  pre-acquisition
       balance  due  of  $1,486,000  out  of  a  pending   payment  by  a  major
       pharmaceutical retail chain to Neuman of approximately $2,500,000.

       As described in Note A[2],  a  settlement  agreement  was approved by the
       Bankruptcy  Court on October 9, 2002,  pursuant  to which the  Trustee in
       Neuman's  bankruptcy  and  the  Company  released  each  other  from  all
       pre-petition  or  post-petition  claims  and,  accordingly,  none  of the
       accounts receivable were reassigned to the Company.


                                                                             F-8
<PAGE>
DG LIQUIDATION, INC.
(formerly known as Drug Guild Distributors, Inc.)

NOTES TO FINANCIAL STATEMENTS
JULY 31, 2003 AND 2002

NOTE E - COMMITMENT AND CONTINGENCIES  (CONTINUED)

[3]    A customer  of the Company  initiated  a lawsuit in February  1997 in the
       United  States  District  Court for the District of New Jersey,  alleging
       that the Company had  conspired  with  co-defendant  wholesalers  to deny
       credit to the  plaintiff  that is  allegedly  due to it,  amounting to an
       alleged "group  boycott" in violation of the federal  Sherman  Anti-trust
       Act and New  Jersey's  Anti-trust  Act, as well as a breach of an implied
       covenant of good faith and fair  dealing and tortuous  interference  with
       the plaintiff's contracts.

       The plaintiff asked for preliminary and permanent  injunctions as well as
       a money  judgment  against  each  defendant  for what were  described  as
       actual,  compensatory,  punitive and trebled damages, attorney's fees and
       costs and such other relief as the court may deem appropriate.  The court
       did not enter any  preliminary  injunction  against  any  defendant.  The
       Company filed an answer  denying all of the material  allegations  of the
       complaint,   setting  forth  various  affirmative  defenses,  alleging  a
       counterclaim  against the  plaintiff  for the money it owes the  Company,
       approximately $48,000, and asking for a dismissal of the complaint.

       The  defendants,  including  the  Company,  had made  motions for summary
       judgment seeking dismissal of all of the plaintiff's  claims,  which were
       pending before the court. The Company had also asked for summary judgment
       on its  counterclaim.  On August 12, 2002, these claims were dismissed by
       the court.

[4]    The Company  entered into  consulting  agreements  with its President,  a
       Director  and its former  Vice  President  - Finance  for the  purpose of
       implementing  the plan of  liquidation.  The agreement with the Company's
       President provides for his part-time employment on a month-to-month basis
       for a fee of $5,000 per month plus  expenses.  The consulting fee for the
       Director was $1,000 per month and ended in April 2002. The agreement with
       the  former  Vice  President  -  Finance  commenced  on June 4,  1998 and
       provided for a monthly  consulting  fee of $11,400  (beginning in January
       1999) plus expenses,  and a severance payment of $34,000.  This agreement
       terminated   in  August  1999  and  he  was  engaged   thereafter   on  a
       month-to-month basis for a fee of $2,750 through April 2002.

[5]    In connection with the sale of the Company's  assets on July 3, 1997, the
       purchaser assumed the Company's  obligation under existing leases and the
       landlord  released the Company from liability for future lease  payments.
       The  Company,  subsequent  to  the  sale,  occupies  office  space  on  a
       month-to-month  basis in the offices of its President,  at an annual cost
       including telephone service, photocopies and postage of $1,200.


[6]    The  Company has been a party to several  other  pending  legal  actions,
       principally motor vehicle accidents  involving vehicles owned or operated
       by the Company,  and other claims including one for product liability for
       which the Company is covered by its insurance.  The Company  believes the
       results of these various  lawsuits and claims will not materially  affect
       the financial position of the Company.

                                                                             F-9