UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

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

                     For the fiscal year ended July 31, 1997
                        Commission File Number 2-96510-NY

                              DG LIQUIDATION, INC.
                   (formerly "Drug Guild Distributors, Inc.")
             (Exact name of Registrant as specified in its charter)
          New  Jersey                                        11-2269958
(State  or  other  jurisdiction of                    (I.R.S. Employer I.D. No.)
incorporation  or  organization)

       c/o  Harold  Blumenkrantz,  President
6  Industrial  Way West, Building A, Eatontown, NJ                       07724
    (Address  of  principal  executive  offices)                      (Zip Code)

   Registrant's telephone number, including area code:          (732) 542-2300

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

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the Registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements  for  the  past  90  days.

                              YES  |  |   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
registrant's  best  knowledge,  in  definitive  proxy  or information statements
incorporated  by  reference  in  Part III of this Form 10-K or any amendments to
this  Form  10-K.  |X|

There  is  no  trading  market  for  either  class  of  the  Registrant's voting
securities.

 As of July 31, 1997 there were outstanding 9,551,798 shares of the Registrant's
     Common Stock and 22,622.30 shares of the Registrant's Preferred Stock.

                    Documents incorporated by reference: None


                                        1
<PAGE>
                                     PART I

ITEM  1.     BUSINESS.

     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.  The
products  were  comprised of four groups: (1) legend drugs (approximately 80% of
sales), which are dispensed to the public only on a doctor's prescription in the
form  of  pills, tablets, capsules or bulk ingredients; (2) patent or non-legend
drugs  (approximately  13%  of  sales),  which do not require a prescription and
include  such  items as cough medicines and aspirin; (3) sundries (approximately
5% of sales), which include such items as clocks, soaps, deodorants, hair driers
and  most other non-pharmaceutical products commonly sold in drugstores; and (4)
certain  items which were sold under the Company's private labels (approximately
2%  of  sales),  including  vitamins,  shampoos  and  cough  syrups.

     Asset  Sale.

     On July 3, 1997, the Company sold substantially all of its assets, business
and goodwill, including the exclusive right for use of the name "Drug Guild," to
privately-held  Neuman  Health  Services,  Inc.  and  Neuman  Distributors, Inc.
(collectively  referred  to as "Neuman") pursuant to an Asset Purchase Agreement
dated  July  1,  1997.  The  sale  specifically  excluded Company claims for tax
refunds  or  claims  against  its  officers, employees or third parties, certain
insurance policies, certain motor vehicles, any net operating loss carry forward
and any other assets or claims of the Company that did not involve its inventory
or  were  not  specified  on  the  Company's  closing  balance  sheet.

     In connection with the sale of its assets to Neuman, the Company adopted an
Plan  of Liquidation (the "Liquidation Plan") which was approved by the Board of
Directors  and stockholders on June 27, 1997.  The Liquidation Plan provides for
sale  of  the Company's operating assets, payment of or provision for payment of
all  of  the  Company's  remaining  liabilities  and obligations, payment to the
holders  of  the  Company's  preferred  stock  in  the amount of $100 per share,
payment  of  remaining  amounts  to  the  Company's  common  stockholders  and
dissolution  of  the  Company.

     Since  the  sale  of assets to Neuman, the Company has been operating under
the  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.


                                        2
<PAGE>
     Neuman  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  purchase  price  was  $15,646,000 and was based upon the Company's net
asset  value  as of June 30, 1997,  as adjusted by the results of a post-closing
audit  by  Neuman's  independent  auditors.  The  purchase  price was subject to
adjustment  for certain items of accounts payable, accrued expenses and accounts
receivable.  Neuman  and  the  Company  had  the  right for a period of one year
following  the  closing  to  advise  each  other  of any adjustments to items of
accounts  payable  and  accrued  expenses  that  had  been assumed by Neuman. In
addition,  Neuman  had the right to reassign uncollected accounts receivable and
notes to the Company, less certain credits to which the Company may be entitled.
As  of January 2000, the final adjustment of the purchase price had not yet been
determined.


     The  adjusted  purchase  price  paid  to the Company, exclusive of Neuman's
assumption  of  liabilities,  consists  of  the  following:
          (a)     a  cash  payment  of  $4,000,000;
          (b)     a  four-year  promissory  note, secured by a letter of credit,
for  $10,646,000,  bearing  interest at a rate determined quarterly equal to the
higher  of  1%  plus  the 180-day London Interbank Offered ("Libor") rate or the
rate  specified  for  U.S. Treasury Notes with maturities 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  (the  "Secured  Note");
          (c)     an unsecured promissory note for $1,000,000 payable four years
after  the  closing  without  interest  (the  "Unsecured  Note");  and
          (d)     an  option in favor of the Company's shareholders to purchase,
under  certain  conditions, an aggregate amount of Neuman shares equal to 10% of
Neuman  shares  to  be  made  available in a public offering in the event Neuman
files a registration statement with the Securities and Exchange Commission prior
to  the fourth anniversary of the closing date (July 3, 2001) for the purpose of
an initial public offering of Neuman shares, at a purchase price equal to 85% of
the  per  share  offering  price.

     The  Secured  Note  is  being  paid  as  follows:
          (a)     $2,000,000  was  paid during the first year in equal quarterly
payments  together  with  interest  on  the  amount  being  paid;
          (b)     the  first  year's interest on the balance of the Secured Note
was  based  upon the principal of that Note after adjustments arising out of the
Neuman post-closing audit and was paid together with the first payment due after
the  adjusted  principal  amount  of  the  Note  was  determined;  and
          (c)     the remaining principal of the Secured Note is being paid over
the  following  three  years  in  12  equal  quarterly  principal payments, with
interest  on  the  unpaid  balance.

     As  of the date of this report the Company has received total payments from
Neuman  on  the  Secured  Note  of  $10,594,808,  of which $1,515,151 represents
interest.  The  Company  is  presently  due  quarterly principal payments on the
Secured  Note  of  $811,416.66,  plus  accrued  interest  on the unpaid balance.


                                        3
<PAGE>
     Neuman  had the right to reassign uncollected accounts receivable and notes
to  the  Company  and  have  the  principal  of the Secured Note reduced by that
amount, less certain credits to which the Company may be entitled (the "Adjusted
Principal  Amount").  Neuman  is  then prohibited for a period of two years from
doing  business  with any customer whose indebtedness has been reassigned.   See
Item 3 - Legal Proceedings.  Neuman also agreed to various provisions preserving
the  payment terms of customers of the Company and provided employment offers to
the  Company's  employees.

     Employees.

     The  Company  has  no  full-time employees.  It has entered into consulting
agreements  with  its  President,  Harold  Blumenkrantz,  and 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 provide 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.  The consulting
agreement  with Mr. Reba is in writing, 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, plus reasonable and
customary  expenses  and  a  severance payment of $34,200. Mr. Reba's consulting
agreement  terminated  August 31, 1999 and he is now engaged by the Company on a
month-to-month  basis  to render limited consulting services for a fee of $2,750
per  month.

     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
pursuing  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 Eatontown, New Jersey, and
Boca Raton, Florida, at an annual cost, including telephone service, photocopies
and  postage,  of  $1,200.

ITEM  3.     LEGAL  PROCEEDINGS.

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

     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.  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.


                                        4
<PAGE>
     Following  an  analysis  of  inventories  undertaken  by  the  Company  in
connection  with  discussions  it  had  been  having  with  Neuman pursuant to a
February  1996  letter  of  intent  regarding  a  possible merger or sale of the
Company  or its business and assets, the Company discovered that it had been the
victim  of  a  long-term  inventory theft during a period commencing in or about
October  1992  and  continuing  through  May  1996,  which appeared to have been
accomplished  and  concealed,  at  least  in  part,  through manipulation of the
Company's computer system.  The Company conducted an extensive investigation and
concluded  that  the  defalcation  was accomplished by the changing of inventory
quantities in its perpetual inventory record and the changing of sale quantities
in  its  sales  records, all of which were maintained on computer, together with
the  improper removal of inventory items from the Company's warehouse facilities
amounting  in  all  to  a  loss  of  not less than $14,900,000 of pharmaceutical
inventory.

     In  its  lawsuit  against its former auditors, the Company alleges that the
Anchin  Firm  breached its professional duties, as well as its contract with the
Company,  by  failing  to  adhere  to  the applicable professional standards and
failing  to  report  to the Company's Executive Committee and Board of Directors
material  weaknesses  in the internal controls regarding the Company's inventory
accounting  system  which  were  or  should have been identified by the auditors
including,  but  not  limited  to,  (a)  returns of inventory not being properly
processed  and  entered;  (b)  the perpetual inventory system not being used for
accounting purposes; (c) the fact that internal accounting and finance personnel
and  Anchin  Firm  personnel  were unable to balance perpetual inventory and the
other  books  of  record;  (d)  that  the  Anchin  Firm,  in  its performance of
additional services in connection with reconciliation of the perpetual inventory
and  books of record, failed to ascertain or correct material weaknesses evident
in  the  inventory  accounting system or effect a reconciliation of those books;
and  (e)  that  Anchin  knew or should have known, and reported to the Executive
Committee and Board of Directors, that an arbitrary $200,000 per month was being
recorded in the Company's books as an inventory "reserve" which contemplated, as
part  of  the  rationale for its adoption, the very inventory defalcations which
the  Anchin  Firm  failed  to  report  to  the  Executive Committee and Board of
Directors.

     The  damages sought from the Anchin Firm relate to the loss of inventory by
reason of the defalcations taking place over a period of four years, 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.

     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.  In October 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  parties  are  engaged  in  extensive  discovery  activities  which are
expected  to  continue for the foreseeable future and a trial is not expected to
take  place  until  sometime  in  2000.  Although  the  Company believes it will
prevail  in  its  case against the Anchin Firm, it is unable to predict a likely
outcome  at  this  time.


                                        5
<PAGE>
     Post-Closing  Neuman  Dispute
     -----------------------------

     Since  in  or about July 1, 1998, the Company has been in negotiations with
Neuman  with  regard  to a proposed reassignment by Neuman to the Company of the
uncollected  accounts  receivable  of  four  customers  which  accounted  for
approximately  $1,485,575  of  accounts receivable purchased from the Company by
Neuman  in  July 1997 pursuant to the Asset Purchase Agreement.  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.  It also
incurred  legal fees and interest in seeking to collect both the pre-closing and
post-closing  accounts  receivables, with the result that Neuman asserts that it
has  made  a  post-closing  extension  of  credit to the four customers totaling
approximately  $2,336,000.  Neuman  has  told  the Company that it should accept
reassignment  of  the  accounts receivable of the four customers in an aggregate
total  of  $1,485,575  without reassignment of the security agreements, and that
the  Secured  Note,  with  a  principal amount of $10,646,000, should be reduced
pursuant  to  the  Asset  Purchase Agreement by the $1,485,575 of the reassigned
accounts  receivable.

     The Company has 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  Secured  Note,  unless it also receives the security
agreements applicable to those accounts receivable.  The Company has 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
is  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 $1,485,575 out of a pending payment by a major
pharmaceutical  retail  chain  (which  had  acquired the customers) to Neuman of
approximately  $2,500,000  for  continuing  purchases.

     The  Company  believes it likely that its differences with Neuman regarding
the  proposed reassignment of the accounts receivable of the four customers will
be  resolved  by  arbitration  pursuant  to the provisions of the Asset Purchase
Agreement, although no arbitration proceeding has been commenced by either party
as  of  the date of this report.  If Neuman prevails, the accounts receivable of
the  four customers would be reassigned to the Company without the security with
which  they  were  assigned  to Neuman, the principal amount of the Secured Note
would  be  reduced  by  the  $1,485,575 balance of those accounts receivable and
there  could be no assurance that the Company would be able to obtain payment of
the reassigned accounts receivable.  If the Company prevails in its dispute with
Neuman and Neuman reassigns those accounts receivable, the Company would be paid
the  full amount of the accounts receivable by the major pharmaceutical retailer
indebted to Neuman and the principal amount of the Secured Note would be reduced
in  an  identical  amount,  with the result that there would be no net change in
financial  consequences  to  the Company as a result of the reassignment.  There
can  be no assurance as to the likely outcome of the current dispute, whether by
negotiation  or  arbitration.


                                        6
<PAGE>
     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 been taken with regard to the claims in
the  October  1996  letter  by  either  Mr.  Kantor  or  his  attorney.

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

     The  plaintiff  was  a customer of Drug Guild who 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  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 tortious 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  are  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,  have  made  motions for summary
judgment  seeking  dismissal of all of the plaintiff's claims, which are pending
before  the  court.  The  Company  has  also  asked for summary judgement on its
counterclaim.  The court is not expected to decide the motions until sometime in
2000.  If  the  motions  are  granted, the plaintiff's case will be dismissed in
whole  or  in  part.  If  all  or any part of the plaintiff's claims survive the
pending motions, additional discovery will take place and the case will probably
go  to  trial  in  2001. The Company believes that it will prevail in this case.

     United  States  Drug  Enforcement  Administration
     -------------------------------------------------

     In June 1997 the Company accepted an offer of settlement made by the United
States  Department  of  Justice  on behalf of the United States Drug Enforcement
Administration  ("DEA")  relating  to  approximately  800  violations  of record
keeping requirements which had been discovered by the DEA in a prior audit, with
the result that the Company paid a $110,000 fine to the United States Department
of  Justice  in  full  satisfaction  of  all  claims.


                                        7
<PAGE>
     Other  Litigation  and  Claims.
     ------------------------------

     On  June  16, 1997 the Company entered into a settlement agreement with its
former  chief  executive  officer  concerning  the  Company's claims against him
regarding  losses it suffered as a result of certain questionable payments which
the  Company  believed  had been made during that officer's tenure and which the
officer  denied  responsibility  for.  The  terms  of  the  settlement agreement
provided  that all such claims would be released in consideration for the former
chief  executive  officer  contributing  back  to the capital of the Company all
right,  title  and  interest  in and to the 339,851.0869 shares of the Company's
common  stock held of record by him and his wife and his waiver and surrender of
all  of  his  rights to receive any unpaid deferred compensation provided for in
his  Employment  Agreement  of  October  1,  1993.

     The  Company is a party to several other pending legal actions, principally
motor  vehicle accidents involving vehicles owned or operated by the Company and
claims  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

     The  following  matters  have  been  submitted  to  a vote of the Company's
security  holders  during  the  fiscal  year  ended  July  31,  1997 through the
solicitation  of  proxies  or  otherwise:

     (a)     The  Company's  annual meeting of shareholders was held on June 27,
1997.

     (b)     Proxies  for  the  annual  meeting  of  shareholders were solicited
pursuant to Regulation 14A under the Securities Exchange Act of 1934.  There was
no solicitation in opposition to management's nominees for election to the Board
of  Directors  as  listed  in the proxy statement and all of those nominees were
elected.

     (c)     The  following  is a brief description of each matter voted upon at
the  annual  meeting of shareholders together with the number of votes cast for,
against,  withheld,  abstained  or  broker  non-votes  as  to  each such matter:


          (i)     The  Board of Directors proposed 11 nominees for election from
whom  the  7  members  of the Board of Directors would be elected with the seven
highest  total  votes.  The following named persons received the number of votes
set  forth  opposite  their  respective names, the same being a plurality of the
votes  cast  by holders of shares entitled to vote thereon, for the directors of
the  Company  for  the  ensuing  year:

<TABLE>
<CAPTION>
Names                   Votes
-------------------  ------------
<S>                  <C>
Harold Blumenkrantz  4,689,046.09
Paul Emmanuel        4,045,604.78
Michael Katz         3,946,219.09


                                        8
<PAGE>
Alfred Hertel        3,445,698.64
Ernest Wyre          3,170,002.20
Howard Sternheim     3,045,389.13
Jerry Koblin         3,022,921.27
</TABLE>

     (ii)     A  resolution submitted to the shareholders ratifying an amendment
to  the  Company's  By-Laws  reducing  the  number  of  members  of the Board of
Directors  to  seven and those constituting a quorum to five, was adopted by the
following  vote:

     For  the  resolution  5,926,658.23  votes;  Against  199,850.48  votes;
     Abstained 107,488.50.

     (iii)     A resolution submitted to the shareholders ratifying an amendment
to  the  Company's  Certificate  of  Incorporation  and  By-Laws  to eliminate a
classified Board of Directors and provide that directors shall be elected at the
annual meeting of shareholders for a term of one year and until their successors
are  elected  and  qualified,  was  adopted  by  the  following  vote:

     For the resolution 5,906,515.64 votes; Against 142,663.25; Abstained
     184,818.32.

     (iv)     A  resolution  submitted to the shareholders ratifying the sale of
substantially  all  of the Company's assets and business to Neuman Distributors,
Inc.,  a wholly-owned subsidiary of Neuman Health Services, Inc., was adopted by
the  following  vote:

     For  the  resolution  5,353,637.76  votes; Against 1,168,890.96 votes;
     Abstained 41,265.61.

     (v)     A  resolution  submitted to the shareholders ratifying the adoption
of an amendment to the Company's Certificate of Incorporation to change its name
to  "DG  Liquidation,  Inc.",  was  adopted  by  the  following  vote:

     For  the  resolution  5,326,126.59  votes; Against 1,137,180.56 votes;
     Abstained 100,488.18.

     (vi)     A  resolution submitted to the shareholders ratifying the adoption
of  a Plan of Complete Liquidation of the Company providing, among other things,
for  the  dissolution  of  the  Company,  was  adopted  by  the  following vote:

     For  the  resolution  5,133,653.12  votes; Against 1,329,653.03 votes;
     Abstained 100,488.18.


                                        9
<PAGE>
                                     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 31, 1997, there were approximately 381 holders of record of the
Company's  Common  Stock and approximately 33 holders of record of its Preferred
Stock.  Since 17 Shareholders owned both Common and Preferred Stock, the Company
had  397 Shareholders as of that date. As of the date of this report, 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 ($2,262,230) and common stockholders
($4,333,360,  with  a reserve of $178,369 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  INCOME  STATEMENT  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.

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, since statements
previously  presented  on  a  going  concern  basis  are  no  longer material to
stockholder  value.

     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 June 30,
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  has  been  recorded  at  its  present  value  of approximately
$766,000.  The  purchase  price is subject to additional adjustment based on the
final  valuation of the assets and liabilities sold.  In addition, the buyer has
the  right  to return any receivables not paid after one year from the sale.  As
of January 2000 final  adjustment of the purchase price had not been determined.
Any  adjustment  will be  recognized  in the period in which the  adjustment  is
determined.


                                       10
<PAGE>
     The  Company has 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,  1997,  the  Company  had net  assets  in  liquidation  of
$12,659,000.  This  represented  an increase in estimated  liquidation  value of
assets over  liabilities  of $767,000 from the net assets at June 30, 1997,  the
last day the Company  operated on a going concern basis.  This change was mainly
attributed to a gain on sale of net assets (primarily  inventory) of $3,683,000,
and an insurance  claim  recovery of  $1,000,000  as a result of the prior years
loss on  defalcation.  This was offset by the  estimated  costs for  liquidation
(primarily  legal and other  professional  fees) of  $2,017,000  and a charge of
$305,000 on the  termination  of the Company's  pension plan.  The provision for
income taxes related to the change in net assets was $1,789,000 due primarily to
the write off of deferred tax assets.

     The  Company  will  receive  payments  of interest on the Neuman notes.  In
addition,  as a result of the Company's conservative policy of retaining assets,
the Company will earn interest income.  The estimated interest income from these
sources  (until  July  31,  2002,  the  estimated  date of final liquidation) is
$2,200,000.  The  terms  of  the  asset  sale  also provided for Neuman to lease
trucks  from  the  Company  for  one  year for $365,000.  The estimated interest
income  and  the truck rental are not included in the July 31, 1997 Statement of
Changes  in  Net  Assets.

     Year  2000  Issues
     ------------------

     The  "Year 2000" Issue is the result of computer systems and programs using
two  digits  rather  than  four  digits to define the applicable year.  Computer
systems  and programs that have date-sensitive applications may recognize a date
using  "00"  as  the  year  1900  rather than the year 2000.  this can result in
system  failures  or miscalculations causing disruption of operations including,
but not limited to, complete system failures, erroneous results and inability to
process  transactions,  send invoices, make payments or otherwise conduct normal
business  activities.

     The only computers utilized by the Company in its liquidation phase are two
desktop  computers  used  by Messrs. Blumenkrantz and Reba.  The Company's "Year
2000"  compliance  program  involves review and updating of the desktop computer
software  to versions which are "Year 2000 compliant."  The Company's budget for
these  activities  is  less  than  $1,000.

     The Company has communicated with Neuman and understands that its financial
and payment systems have become year 2000 compliant and are expected to be fully
operational  without  disruption.


                                       11
<PAGE>
ITEM  8.     FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA.

       See  the  index  constituting  a  part  of  Item  14.

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

     (a)     On  July  2, 1996, the Company's Executive Committee decided to end
the  engagement of the Anchin Firm as the independent auditors of the Company as
a result of concerns that the independence of the Anchin Firm might be deemed to
be  impaired  by the Company's then pending investigation of recently discovered
defalcations  of  inventory  of  the  Company.

     The independent auditors' reports on the Company's financial statements for
the  fiscal  years  ended  July  31,  1994  and July 31, 1995 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to  uncertainty,  audit  scope  or  accounting  principles.

     The  Company believes, and was advised by the Anchin Firm that it concurred
in  such  belief,  that during the fiscal years ended July 31, 1994 and July 31,
1995,  and  from  that  date  to  the date of termination of the services of the
Anchin  Firm, the Company and the Anchin Firm did not have any disagreement on a
matter  of accounting principles or practices, financial statement disclosure or
auditing  scope  or  procedure.

     The Anchin Firm had refused to provide reissued manually signed reports for
fiscal  1995 and 1994 due to their concern that they had lost their independence
as  auditors  because of potential claims against the Anchin Firm by the Company
as  a  result of the inventory defalcations discovered in May of 1996 (discussed
elsewhere  in this report) and which relate to each of the three fiscal years of
the Company ended July 31, 1996.  There can be no assurance that the Anchin Firm
would  issue  the  report  in its original form and without qualification if the
aforesaid  concern  regarding  their  independence  was  resolved.

     The Company inquired of the Anchin Firm whether investors should be advised
that  the  previously  issued  report has been withdrawn and could not be relied
upon.  The  Anchin  Firm  responded  that  the  report  should not be withdrawn.

     (b)     On  July 11, 1996, the Company engaged Richard A. Eisner & Company,
LLP  ("Eisner")  as  its  independent  auditors to audit the Company's financial
statements  for  the  fiscal  year  ended  July  31, 1996. In November 1996, the
Company  engaged  Eisner  to  audit  the  Company's financial statements for the
fiscal  years  ended  July 31, 1995 and July 31, 1994.  The Company subsequently
engaged  Eisner to audit its financial statements for the fiscal year ended July
31,  1997.


                                       12
<PAGE>

                                    PART III

ITEM  10.     DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT.

     The following individuals have served as officers of the Company during the
fiscal  year  ended  July 31, 1997 or have been subsequently appointed to fill a
vacancy  created  by  the  resignation  or  retirement  of  an  officer:

<TABLE>
<CAPTION>

Name                              Age  Position
--------------------------------  ---  ------------------------------------------------
<S>                               <C>  <C>
Harold Blumenkrantz                59  President, Chief Executive Officer and Director
Alfred Hertel                      68  Chairman of the Board and Director
Roman Englander                    68  President and Chief Executive Officer (resigned)
Alan Glenn                         67  Senior Vice President and Chief Operating
Officer and President (resigned)
Michael Katz                       58  Vice President and Director
Howard Sternheim                   65  Vice President and Director
Gerald Koblin                      60  Secretary - Treasurer and Director
Paul Emanuel                       71  Director
Ernest Wyre                        73  Director
Mark Englander                     41  Vice President (not reappointed)
Norman Genzer                      55  Vice President (not reappointed)
Jay Reba                           56  Vice President - Finance (not reappointed)
Martin Shapiro                     66  Secretary - Treasurer (resigned)
Jack Lynch                         56  Secretary - Treasurer (not reappointed)
</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.

Alan  Glenn  was  appointed  President of the Company in March 1996. He became a
Vice  President  in  1973;  Senior  Vice  President in 1980; and Chief Operating
Officer in 1995. Prior thereto and for more than 25 years, he was a principal of
Ritz Drugstores, which operates in New Jersey. Mr. Glenn retired as President of
the  Company  on  August  31,  1996.


                                       13
<PAGE>
Michael  Katz was principal of Katz Drug, Brooklyn, New York since prior to 1989
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.

Howard  Sternheim  has  been  president  and principal shareholder of Vanderveer
Pharmacy,  Inc.  in  Brooklyn,  New  York,  as  well as other drugstores and one
variety  story  in  the  New York City metropolitan area, for more than the past
five  years.  He  has  been  a  director  of  the  Company since 1976 and a vice
president  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.

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

Ernest  Wyre  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.

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  table  sets  forth the names of the directors of the Company who
served during the fiscal year ended July 31, 1997 and, as to each such director,
the  year  in  which  each  began  as  director and the number and percentage of
outstanding  shares  of Common Stock and Preferred Stock of the Company owned by
him.  The  table  also  contains  information as to the ownership of such Common
Stock and Preferred Stock by the officers of the Company who own such securities
and  by  all  such  officers  and  directors  as  a  group.


                                       14
<PAGE>
<TABLE>
<CAPTION>
                                                 Common  Stock      Preferred  Stock
                                              Owned  Beneficially  Owned  Beneficially
                                               at July 31, 1997    at July 31, 1997 *
                                              -------------------  -------------------
Director                            Number     Percent    Number    Percent
Name                                 Since    of Shares  of Class  of Shares  of Class
---------------------------------  ---------  ---------  --------  ---------  --------
<S>                                <C>        <C>        <C>       <C>        <C>
Harold Blumenkrantz                     1981     36,685       .38   1,053.99      4.69
Marco Cutinello                         1992         --        --         --        --
Louis Del Rosso                         1986     30,790       .32         --        --
Herbert Dudak                           1986     96,578      1.01     312.19      1.38
Harold Eckstein                         1983    217,563      2.28         --        --
Paul Emanuel                            1985     24,480       .25         --        --
Hal Epstein                             1987     63,962       .67         --        --
Peter Esposito                          1991     13,242       .14         --        --
Sidney Falow                            1979     24,740       .26         --        --
Sanford Fishman                         1976     93,705       .98         --        --
Herbert Gordon                          1995    123,403      1.29         --        --
Gerald Ginsberg                         1978    222,346      2.33         --        --
George Grumet                           1988     47,935       .50   2,072.50      9.16
Alfred Hertel                           1976    113,358      1.19         --        --
Steven J. Kabakoff                      1989     50,999       .53         --        --
Michael Katz                            1976    101,196      1.06         --        --
Jay Kessler                             1986    112,231      1.17         --        --
Gerald Koblin                           1995     43,997       .46         --        --
Jerry Koizim                            1988     23,398       .25         --        --
Anthony Kranjac                         1992     57,658       .60         --        --
Ely Krellenstein                        1976    206,323      2.16         --        --
John Lynch                              1976    289,162      3.03         --        --
George Manolakis                        1983    108,456      1.14         --        --
Boris Mantell                           1991     45,026       .47         --        --
Richard Rostholder                      1988    370,913      3.88         --        --
Bipinchandra Shah                       1987    134,693      1.41         --        --
Murray Shapiro                          1976     27,504       .29         --        --
Howard Sternheim                        1976    663,567      6.95         --        --
Alan Traster                            1989    117,608      1.23         --        --
Ernest Wyre                             1976    149,699      1.57         --        --
Total of All Officers and
Directors as a group (34 persons)             3,691,707     38.65   3,438.68      15.2
______________________
<FN>
     *Preferred  shareholders  have  received their liquidation payments and have been
fully redeemed. Messrs. Blumenkrantz, Dudak and Grumet were redeemed during the fiscal
year  ended  July  31,  1998.
</TABLE>


                                       15
<PAGE>
ITEM  11.     EXECUTIVE  COMPENSATION.

     Summary  Compensation  Table

     The  following  table sets forth, for the fiscal years ended July 31, 1997,
1996  and  1995,  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(1)
-----------------------  -----------  -----------  -----  ------  -----------
<S>                      <C>          <C>          <C>    <C>     <C>
Roman Englander                 1996  $272,198.00     --      --  $ 10,327.00
President and                   1995  $526,400.00     --      --  $ 10,320.00
CEO(2)

Alan Glenn                      1997  $ 46,333.00     --      --           --
Senior Vice                     1996  $202,800.00     --      --  $  3,064.00
President,                      1995  $202,800.00     --      --  $  2,870.00
CEO, COO(3)

Jay Reba                        1997  $109,170.00     --      --           --
Vice President                  1996  $107,600.00     --      --           --
Finance(4)                      1995  $107,600.00     --      --           --

Mark Englander                  1997  $103,552.00     --      --           --
Vice President(4)               1996  $106,000.00     --      --           --
                                1995  $105,500.00     --      --           --

Norman Genzer                   1997  $112,521.00     --      --           --
Vice President(4)               1996  $105,500.00     --      --           --
                                1995  $108,000.00     --      --           --

All Executive Officers
as a Group  (5 persons)               $413,351.00     --      --           --
<FN>
(1)     Value  of  insurance  premiums  paid  by  the Company during the covered
fiscal  year  with  respect  to term life insurance for the benefit of the named
executive  officer.


                                       16
<PAGE>
(2)     Retired  effective  December  31,  1995.

(3)     Appointed  President  of  the  Company  in  March 1996. Retired from the
Company  effective  August  31,  1996.

(4)     Resigned from the Company in July 1997 in connection with the asset sale
to  Neuman.
</TABLE>

     Mr. Englander resigned as a Director of the Company and as a trustee of the
Company's  Pension  Plan  and  Profit  Sharing Plan effective February 28, 1997.

     None  of  the  directors  or members of the Executive Committee, except Mr.
Englander  (who  has resigned) and Mr. Katz (who receives a salary of $1,000 per
month  for  assistance  in  liquidation  activities),  received  any  direct
remuneration  from  the  Company  or reimbursement for expenses, except that the
Company paid the premiums for term life insurance policies covering most of them
with  the benefits of $100,000 each payable to their designees until the sale of
its  assets  on  July 3, 1997.  The aggregate annual premiums for these policies
was  approximately  $49,000.

     Although most of the directors are affiliated with certain customers of the
Company,  all  transactions  between  such customers and the Company were in its
normal  course  of  business  and  these customers received no preferences as to
price  or other terms and conditions at which they buy products from the Company
by  virtue  of  being  affiliated  with directors, except that during the fiscal
years  ending  with  July 31, 1995, customers of the Company who were affiliated
with  members  of  the Executive Committee received a courtesy credit of $10,000
against  their  respective  accounts  payable  to  the  Company, an aggregate of
$50,000  for  the  fiscal  year  ended  July  31,  1995.

     The  Company's  non-contributory  defined benefit pension plan for eligible
non-union  employees  was  terminated  in  August  1997.  See Note H of Notes to
Financial  Statements.

     The  Company  also  had  a  profit-sharing  plan,  including  a 401(k), for
non-union employees, including its officer-employees, which requires no fixed or
minimum contribution.  There has been no contribution to the profit-sharing plan
since the fiscal year ended July 31, 1994.  Under the plan, contributions by the
Company  are  allocated  among  the  accounts  of  participating  employees  in
proportion  to  their  respective  compensations,  as defined.  Upon retirement,
death  or disability, participating employees are entitled to the value of their
accounts  as  provided  in the plan.  An employee's interest in the plan becomes
vested  in  increments  over  the  first  five  years  of  his  membership.


                                       17
<PAGE>
ITEM  12.     SECURITY  OWNERSHIP  OF  CERTAIN  BENEFICIAL OWNERS AND MANAGEMENT

To  the  knowledge of the Company, no person owns beneficially or of record more
than  5%  of  any  class  of  the  Company's  voting  securities  except for the
following:

<TABLE>
<CAPTION>
(1)                                (2)                            (3)                   (4)
Title of                     Name and Address            Amount of Shares and         Percent
Class                      of beneficial owner      Nature of Beneficial Ownership   of Class
----------------------  --------------------------  -------------------------------  ---------
<S>                     <C>                         <C>                              <C>
Preferred               John Hoover                                        2,065.9       9.13%
Stock                   714 North Market Street
                        Cortez, CO  81321

-                       Maurice Malin                                      2,339.4      10.34%
-                       45 Hall Place
-                       Tappan, New York  10983

-                       George Grumet                                      2,072.5       9.16%
-                       17 Phillips Road
-                       Edison, New Jersey  08816

Common                  Howard Sternheim                                   663,567       6.95%
Stock                   1020 Park Avenue
                        New York, NY  10028
</TABLE>
ITEM  13.     CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     The  Company  entered into consulting agreements with its President, Harold
Blumenkrantz,  and  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  provide  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.  The consulting agreement with Mr. Reba is in writing,
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,  plus  reasonable  and  customary  expenses and a severance
payment  of  $34,200. Mr. Reba's consulting agreement terminated August 31, 1999
and he is now engaged by the Company on a month-to-month basis to render limited
consulting  services  for  a  fee  of  $2,750  per  month.

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


                                       18
<PAGE>
     Michael  Katz,  a  director,  receives  a  salary  of  $1,000 per month for
assistance  in  liquidation  activities.  No  other director received any direct
remuneration  from  the  Company  or reimbursement for expenses, except that the
Company paid the premiums for term life insurance policies covering most of them
with  the benefits of $100,000 each payable to their designees until the sale of
its  assets  on  July 3, 1997.  The aggregate annual premiums for these policies
was  approximately  $49,000.

     Although most of the directors are affiliated with certain customers of the
Company,  all  transactions  between  such customers and the Company were in its
normal course of business and these customers receive no preferences as to price
or  other  terms  and  conditions at which they buy products from the Company by
virtue  of  being affiliated with directors, except that during the fiscal years
ending  with  July  31, 1995,  customers of the Company who were affiliated with
members of the Executive Committee received a courtesy credit of $10,000 against
their  respective  accounts  payable to the Company, an aggregate of $50,000 for
the  fiscal  year  ended  July  31,  1995.

ITEM  14.     EXHIBITS,  FINANCIAL  STATEMENTS,  FINANCIAL  STATEMENT

<TABLE>
<CAPTION>
Schedules  and  Reports  on  Form  8-K

(a)(1)     Financial  Statements.

The  following  are  filed  with  this  report:

<S>     <C>
i)      Independent Auditor's Report.
ii)     Statement of Net Assets (liquidation basis) at July 31, 1997.
iii)    Statement of Changes in Net Assets (liquidation basis) for the period from July 1, 1997
        to July 31, 1997.
iv)     Balance Sheet (going concern basis) at July 31, 1996.
v)      Statements of Operations (going concern basis) for the period from August 1, 1996 to
        June 30, 1997 and for the years ended July 31, 1996 and 1995.
vi)     Statements of  Stockholders'  Equity (going  concern  basis) for the period from
        August 1, 1996 to June 30, 1997 and for the years ended July 31, 1996 and 1995.
vii)    Statements of Cash Flows (going concern basis) for the period from August 1, 1996
        to June 30, 1997 and for the years ended July 31, 1996 and 1995.
viii)   Notes to the Financial Statements.

(a)(2)  Financial Statement Schedules:
</TABLE>

        i)    Schedules  II  -  Valuation  and  Qualifying  Accounts

(a)(3)  Exhibits.

The  following  exhibits  are  filed  as  part  of  this  report:


                                       19
<PAGE>
<TABLE>
<CAPTION>

Exhibit Number                              Exhibit
---------------  --------------------------------------------------------------
<S>              <C>

2                Plan of Liquidation adopted June 27, 1997

3(a)             Certificate of Incorporation of the Registrant, filed
                 July 22, 1976 and Amendments to Certificate of
                 Incorporation (6)

(b)              Registrant's By-laws and Amendments thereto (6)

(c)              Certificate of Correction of Certificate of Amendment
                 of Certificate of Incorporation (7)

(d)              Amendment to By-Laws (13)

4(a)             Common Stock Subscription Agreement (9)

4(b)             Preferred Stock Subscription Agreement (9)

(c)              Old Common Stock Subscription Agreement (4)

(d)              Special Common Stock Subscription Agreement (4)

(e)              Special Common Stock Subscription Agreement
                 Modified as of January 15, 1988 (5)

(f)              Variable Rate Promissory Note Subscription
                 Agreement (4)

(g)              Form of Variable Rate Promissory Note (1)

(h)              Form of Old Common Stock Certificate (3)

(i)              Form of Special Common Stock Certificate (3)

(j)              Special Common Stock Subscription Agreement modified
                 as of June, 1989 (6)

(k)              Form of Common Stock Certificate (8)

(1)              Form of Preferred Stock Certificate (8)

(m)              Revised Common Stock Subscription Agreement (10)

                                       20
<PAGE>
                 (The Registrant will furnish the Securities and Exchange
                 Commission upon request a copy of each instrument defining
                 the rights of the holders of the  Registrant's long term debt)

10(a)            Lease, dated September 13, 1973, between the Registrant
                 and Hartz Mountain Industries, Inc., as amended
                 November 19, 1980 and December 28, 1981 (2)

(b)              Employment Agreement, dated as of December 19, 1985,
                 between the Registrant and Roman Englander (5)

(c)              Pension Plan Restated as of January 1, 1978 (3)

(d)              Profit Sharing Plan (3)

(e)              Amendment, dated as of February 23, 1989, to Accounts
                 Financing Agreement dated March 24, 1980, as amended,
                 between the Registrant and Bankers Trust Company (7)

(f)              Lease, dated December 15, 1989, between the
                 Registrant and Hartz Mountain Industries, Inc. (7)

10(g)            Documents Further Amending Accounts Financing
                 Agreement, dated March 24, 1980, as amended, between
                 Registrant and Bankers Trust Company (10)

(h)              Sublease, dated June 10, 1992 between Hoogovens
                 Aluminum Corporation, Sublessor, and Drug Guild
                 Distributors, Inc., Sublessee, and related documents (11)
(i)              Employment Agreement dated as of October 1, 1993
                 between the Registrant and Roman Englander (12)

(j)              Agreement dated July 6, 1993 between the Registrant
                 and Joseph B. Churchman (12)

(k)              Amended and Restated Drug Guild Distributors, Inc
                 Profit Sharing Plan and Trust effective August 1, 1989
                 and the Amendment thereto dated 9/1/94 (13)

(l)              Amended and Restated Drug Guild Distributors, Inc.
                 Pension Plan effective January 1, 1989 and the
                 Amendment thereto dated 9/1/94 (13)

                                       21
<PAGE>
(m)              Resignation Agreement between the Company and
                 Roman Englander dated December 5, 1996 (13).

(n)              Indemnification Agreement between the Company and
                 Joseph B. Churchman dated June 18, 1996. (13)

(o)              Agreement and Plan of Merger by and among the
                 Company Neuman Distributors, Inc. and Neuman
                 Health Services, Inc. dated as of October 25, 1996. (13)

(p)              Agreement between the Company and Jay Reba dated
                 June 4, 1998.
<FN>


(1)  Incorporated by reference to the specified  exhibit  constituting a part of
     the Company's Notification on Form 1-A (File No. 24 NY-8317)

(2)  Incorporated by reference to the specified  exhibit  constituting a part of
     the Company's Notification on Form 1-A (File No. 24 NY-8303)

(3)  Incorporated by reference to the specified  exhibit  constituting a part of
     the Company's Registration Statement on Form S-18 (File No. 2-85967-NY)

(4)  Incorporated by reference to the specified  exhibit  constituting a part of
     the Company's Registration Statement on Form S-18 (File No. 2-96510-NY)

(5)  Incorporated by reference to the specified exhibit  constituting a part the
     Company's Notification on Form 1-A (File No. 24-NY-8736)

(6)  Filed as the specified exhibit to the Company's  Registration  Statement on
     Form S-4 (File No. 33-35396)

(7)  Filed  as the  specified  exhibit  to  Amendment  No.  1 to  the  Company's
     Registration Statement on Form S-4 (File No. 33-35396).

(8)  Filed as the specified exhibit to the Company's  Registration  Statement on
     Form S-2 (File No. 33-40277).

(9)  Filed as to specified exhibit  constituting a part of the Registrant's Form
     10-K,  Annual  Report,  pursuant  to Section 13 or 15(D) of the  Securities
     Exchange Act of 1934, for the fiscal year ended July 31, 1991.


                                       22
<PAGE>
(10) Filed as the  Specified  Exhibit to  Post-Effective  Amendment  No.1 to the
     Company's Registration Statement on Form S-2 (File No. 33-40277).

(11) Filed as to specified exhibit  constituting a part of the Registrant's Form
     10-K,  Annual  Report,  pursuant  to Section 13 or 15(D) of the  Securities
     Exchange Act of 1934, for the fiscal year ended July 31, 1992.

(12) Filed as to specified exhibit  constituting a part of the Registrant's Form
     10-K,  Annual  Report,  pursuant  to Section 13 or 15(D) of the  Securities
     Exchange Act of 1934, for the fiscal year ended July 31, 1993.

(13) Filed as to specified exhibit  constituting a part of the Registrant's Form
     10-K,  Annual  Report,  pursuant  to Section 13 or 15(D) of the  Securities
     Exchange Act of 1934, for the fiscal year ended July 31, 1996.

     (b)  Reports on Form 8-K

     (1)  A Form 8-K was  filed  with the  Securities  and  Exchange  Commission
          ("SEC") on August 9, 1996 and thereafter amended by a Form 8-K/A filed
          with the SEC on August 23, 1996

     (2)  A Form 8-K was filed with the SEC on April 3, 1997
</TABLE>


                                       23
<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 City of Secaucus,
State  of  New  Jersey,  on  January  31,  2000.

                              DG LIQUIDATION, INC.

                              By:    /s/  Harold  Blumenkrantz
                              --------------------------------
                              Harold  Blumenkrantz,  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   January 31, 2000
-------------------------------
     Harold Blumenkrantz         Officer and Director

/s/ Jerry Koblin                 Vice President, Treasurer,   January 31, 2000
-------------------------------
     Jerry Koblin                Principal Financial and
Accounting Officer and Director

/s/ Alfred Hertel                Chairman of the Board        January 31, 2000
-------------------------------
     Alfred Hertel               and Director

/s/ Michael Katz                 Vice President and Director  January 31, 2000
-------------------------------
     Michael Katz

/s/ Howard Sternheim             Vice President and Director  January 31, 2000
-------------------------------
     Howard Sternheim

/s/ Paul Emanuel                 Director                     January 31, 2000
-------------------------------
     Paul Emanuel

/s/ Ernest Wyre                  Director                     January 31, 2000
-------------------------------
     Ernest Wyre
</TABLE>


                                       24
<PAGE>
INDEPENDENT  AUDITORS'  REPORT

Board  of  Directors  and  Stockholders
DG  Liquidation,  Inc.
Eatontown,  New  Jersey


We have audited the accompanying balance sheet of DG Liquidation, Inc. (formerly
Drug  Guild  Distributors, Inc.) as of July 31, 1996, and the related statements
of  operations, stockholders' equity and cash flows for each of the years in the
two-year  period  then  ended and for the period from August 1, 1996 to June 30,
1997.  In  addition,  we  have  audited the accompanying statement of net assets
(liquidation  basis) as of July 31, 1997 and the related statement of changes in
net  assets  (liquidation  basis)  for  the period from July 1, 1997 to July 31,
1997.  These  financial  statements  are  the  responsibility  of  the Company's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements  based  on  our  audits.

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

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 enumerated above present fairly, in all
material respects, the financial position of DG Liquidation, Inc. as of July 31,
1996,  the results of its operations and its cash flows for each of the years in
the  two-year  period  then ended and for the period from August 1, 1996 to June
30,  1997,  the net assets in liquidation as of July 31, 1997 and changes in net
assets  in  liquidation  for  the  period from July 1, 1997 to July 31, 1997, in
conformity  with  generally  accepted accounting principles applied on the basis
described  in  the  preceding  paragraph.


/S/  Richard  A.  Eisner  &  Company,  LLP
------------------------------------------
Richard  A.  Eisner  &  Company,  LLP

New  York,  New  York
January  21,  1998

With  respect  to  the  second  paragraph  of  Note  N
February  17,  1998

With  respect  to  Notes  K[2],  K[3]  and  K[6],
October  27,  1998,  July  1,  1998  and  June  4,  1998,  respectively

With  respect  to  Note  L,  December  28,  1998


                                                                             F-1
<PAGE>
DG  LIQUIDATION,  INC.
(formerly  known  as  Drug  Guild  Distributors,  Inc.)

<TABLE>
<CAPTION>
STATEMENT  OF  NET  ASSETS
(liquidation  basis)

JULY  31,  1997
(In  thousands,  except  shares  and  per  share  data)


ASSETS
<S>                                                                                 <C>
Cash                                                                                $   230
United States Treasury bills, at cost which approximates market value                 3,803
Notes receivable, including accrued interest of $68                                  11,484
Insurance claim receivable                                                            1,000
Recoverable insurance premiums and other assets                                         287
Delivery trucks held for sale, at estimated net realizable value                        427
Deferred tax asset                                                                      127
                                                                                    -------

                                                                                     17,358
                                                                                    -------

LIABILITIES
Notes payable                                                                            80
Estimated liquidation expenses                                                        1,924
Accrued expenses and taxes                                                              433
                                                                                    -------

                                                                                      2,437
Redeemable preferred stock; authorized 250,000 shares, $100 par value; issued and
  outstanding 22,620 shares at redemption value                                       2,262
                                                                                    -------

                                                                                      4,699
                                                                                    -------

Commitments and contingencies (Note K)

NET ASSETS IN LIQUIDATION                                                           $12,659
                                                                                    =======

NET ASSETS IN LIQUIDATION PER COMMON SHARE (BASED ON 9,552,000 COMMON SHARES
  OUTSTANDING                                                                       $  1.33
                                                                                    =======
</TABLE>


See  notes  to  financial  statements                                        F-2
<PAGE>
<TABLE>
<CAPTION>
STATEMENT  OF  CHANGES  IN  NET  ASSETS
(liquidation  basis)

FOR  THE  PERIOD  FROM  JULY  1,  1997  AND  TO  JULY  31,  1997
(In  thousands)

<S>                                                                                      <C>
Net assets at June 30, 1997                                                              $11,892
                                                                                         --------

Gain on sale of net assets on July 3, 1997                                                 3,683
Estimated costs incurred and to be incurred during period of liquidation                  (2,017)
Insurance claim recovery                                                                   1,000
Interest and other income                                                                    114
Loss on termination of pension plan                                                         (305)
Dividend on preferred stock                                                                  (13)
Other adjustments to net assets                                                               94
                                                                                         --------

Increase in net assets before income taxes                                                 2,556

Provision for income taxes related to change in net assets, including deferred taxes of
 $1,681, principally representing write-off of deferred tax asset                         (1,789)
                                                                                         --------

Increase in estimated liquidation value of assets over liabilities                           767
                                                                                         --------

NET ASSETS IN LIQUIDATION AT JULY 31, 1997                                               $12,659
                                                                                         ========
</TABLE>


See  notes  to  financial  statements                                        F-3
<PAGE>
<TABLE>
<CAPTION>

BALANCE  SHEET
(going  concern  basis)

JULY  31,  1996
(In  thousands,  except  shares  and  per  share  data)

<S>                                                                                                  <C>
ASSETS
Cash and cash equivalents                                                                            $    200
Trade receivables - stockholders                                                                       27,913
Trade receivables - nonstockholders                                                                    39,361
Allowance for doubtful accounts                                                                        (1,203)
Merchandise inventory                                                                                  29,440
Tax refund receivable                                                                                   1,036
Prepaid expenses and other current assets                                                                 805
                                                                                                     ---------

   Total current assets                                                                                97,552
                                                                                                     ---------

Property and equipment, net                                                                             3,331
                                                                                                     ---------

Other assets:
 Trade receivables, noncurrent portion - stockholders                                                   1,593
 Trade receivables, noncurrent portion - nonstockholders                                                2,288
 Allowance for doubtful accounts                                                                         (438)
 Deferred income tax benefit                                                                            1,426
 Other assets                                                                                             222
                                                                                                     ---------

   Total other assets                                                                                   5,091
                                                                                                     ---------

                                                                                                     $105,974
                                                                                                     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Loans payable - bank                                                                                 $ 53,104
Notes and loans payable                                                                                   527
Accounts payable                                                                                       34,590
Accrued expenses and taxes                                                                              1,475
                                                                                                     ---------

   Total current liabilities                                                                           89,696
                                                                                                     ---------

Notes payable                                                                                             237
Deferred rent payable                                                                                     263
Deferred compensation payable                                                                             570
                                                                                                     ---------

   Total long-term liabilities                                                                          1,070
                                                                                                     ---------

   Total liabilities                                                                                   90,766
                                                                                                     ---------

Redeemable preferred stock:
 Authorized 250,000 shares, $100 par value; issued and outstanding - 26,000 shares                      2,589
                                                                                                     ---------

Stockholders' equity:
 Common stock, authorized 25,000,000 shares, $1 par value, issued and outstanding 10,023,000 shares    10,023
 Subscribed and unissued - 412,000 shares                                                                 412
 Additional paid-in capital                                                                             3,628
 Accumulated deficit                                                                                     (805)
                                                                                                     ---------

   Total before subscriptions receivable                                                               13,258
 Less subscriptions receivable                                                                            639
                                                                                                     ---------

   Total stockholders' equity                                                                          12,619
                                                                                                     ---------

                                                                                                     $105,974
                                                                                                     =========
</TABLE>


See  notes  to  financial  statements                                        F-4
<PAGE>
<TABLE>
<CAPTION>

STATEMENTS  OF  OPERATIONS
(going  concern  basis)
(In  thousands,  except  per  share  data)


                                                        PERIOD FROM
                                                       AUGUST 1, 1996
                                                        TO JUNE 30,              YEAR ENDED JULY 31,
                                                                        --------------------------------
                                                            1997                1996             1995
                                                      ----------------  ---------------------  ---------
<S>                                                   <C>               <C>                    <C>
Net sales                                             $       454,572   $            501,383   $493,827
Cost of sales                                                 426,833                468,108    460,150
Estimated loss on defalcation                                                          7,400      5,200
                                                      ----------------  ---------------------  ---------

Gross profit                                                   27,739                 25,875     28,477
                                                      ----------------  ---------------------  ---------

Expenses:
  Warehouse                                                     8,197                  8,886      8,822
  Shipping and delivery                                         5,310                  5,674      5,783
  Selling, general and administrative                          11,478                 10,229      9,682
  Interest expense                                              4,805                  5,494      5,327
  Interest income                                                (500)                  (601)      (546)
  Gain on settlement of claim                                    (596)
                                                      ----------------  ---------------------  ---------

    Net operating expenses                                     28,694                 29,682     29,068
                                                      ----------------  ---------------------  ---------

Loss before income taxes                                         (955)                (3,807)      (591)
                                                      ----------------  ---------------------  ---------

(Benefit) provision for income taxes:
  Current                                                         (68)                (1,151)       (94)
  Deferred                                                       (382)                  (392)         8
                                                      ----------------  ---------------------  ---------

                                                                 (450)                (1,543)       (86)
                                                      ----------------  ---------------------  ---------

NET LOSS                                                         (505)                (2,264)      (505)
Stock dividend on preferred stock                                 145                    191        291
                                                      ----------------  ---------------------  ---------

Net loss attributable to common stockholders          $          (650)  $             (2,455)  $   (796)
                                                      ================  =====================  =========

LOSS PER COMMON SHARE                                 $         (0.07)  $              (0.24)  $  (0.08)
                                                      ================  =====================  =========

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING            9,957                 10,062      9,930
                                                      ================  =====================  =========
</TABLE>


See  notes  to  financial  statements                                        F-5
<PAGE>
<TABLE>
<CAPTION>

STATEMENTS  OF  STOCKHOLDERS'  EQUITY
(going  concern  basis)
(all  amounts  in  thousands)

                                                                COMMON STOCK $1 PAR VALUE
                                                -------------------------------------------------------
                                                         ISSUED AND                 SUBSCRIBED AND
                                                         OUTSTANDING                   UNISSUED             ADDITIONAL
                                                ------------------------------  -----------------------      PAID-IN
                                                   SHARES          AMOUNT         SHARES       AMOUNT        CAPITAL
                                                ------------  ----------------  -----------  ----------  ---------------
<S>                                             <C>           <C>               <C>          <C>         <C>
BALANCE - JULY 31, 1994                               9,883   $         9,883          670   $     670   $        3,927
Transactions for the year ended July 31, 1995:
 Net loss
 Common stock redeemed or cancellations                 (19)              (19)         (64)        (64)              (5)
 Common stock to offset accounts receivable            (111)             (111)                                      (64)
 Collections on subscriptions                           247               247         (247)       (247)
 Stock dividend on preferred stock
 Common stock subscription adjustments                                                  66          66              (66)
                                                ------------  ----------------  -----------  ----------  ---------------

BALANCE - JULY 31, 1995                              10,000            10,000          425         425            3,792

Transactions for the year ended July 31, 1996:
 Net loss
 Common stock redeemed or cancellations                                                 (1)         (1)             (18)
 Common stock to offset accounts receivable             (98)              (98)                                      (37)
 Collections on subscriptions                           121               121         (121)       (121)
 Stock dividend on preferred stock
 Common stock subscription adjustments                                                 109         109             (109)
                                                ------------  ----------------  -----------  ----------  ---------------

BALANCE - JULY 31, 1996                              10,023            10,023          412         412            3,628

Transactions for the period from August 1,
 1996 to June 30, 1997:
   Net loss
   Common stock redeemed or cancellations               (56)              (56)        (601)       (601)              33
   Common stock to offset accounts receivable          (100)             (100)                                       76
   Collections on subscriptions                          25                25          (38)        (38)              13
   Stock dividend on preferred stock
   Stock forfeited in settlement of claim              (340)             (340)                                      272
   Common stock subscription adjustments                                               227         227             (227)
                                                ------------  ----------------  -----------  ----------  ---------------

BALANCE - JUNE 30, 1997                               9,552   $         9,552            0   $       0   $        3,795
                                                ============  ================  ===========  ==========  ===============



                                                 (ACCUMULATED         TOTAL
                                                   DEFICIT)          BEFORE           LESS       TOTAL
                                                   RETAINED       SUBSCRIPTIONS  SUBSCRIPTIONS STOCKHOLDERS'
                                                   EARNINGS        RECEIVABLE      RECEIVABLE    EQUITY
                                                ---------------  ---------------  ------------  --------
<S>                                             <C>              <C>              <C>           <C>
BALANCE - JULY 31, 1994                         $        2,446   $       16,926   $     1,504   $15,422
Transactions for the year ended July 31, 1995:
 Net loss                                                 (505)            (505)                   (505)
 Common stock redeemed or cancellations                                     (88)          (63)      (25)
 Common stock to offset accounts receivable                                (175)                   (175)
 Collections on subscriptions                                                 0          (541)      541
 Stock dividend on preferred stock                        (291)            (291)                   (291)
 Common stock subscription adjustments                                        0                       0
                                                ---------------  ---------------  ------------  --------

BALANCE - JULY 31, 1995                                  1,650           15,867           900    14,967

Transactions for the year ended July 31, 1996:
 Net loss                                               (2,264)          (2,264)                 (2,264)
 Common stock redeemed or cancellations                                     (19)          (21)        2
 Common stock to offset accounts receivable                                (135)                   (135)
 Collections on subscriptions                                                 0          (240)      240
 Stock dividend on preferred stock                        (191)            (191)                   (191)
 Common stock subscription adjustments                                        0                       0
                                                ---------------  ---------------  ------------  --------

BALANCE - JULY 31, 1996                                   (805)          13,258           639    12,619

Transactions for the period from August 1,
 1996 to June 30, 1997:
   Net loss                                               (505)            (505)                   (505)
   Common stock redeemed or cancellations                                  (624)         (601)      (23)
   Common stock to offset accounts receivable                               (24)                    (24)
   Collections on subscriptions                                               0           (38)       38
   Stock dividend on preferred stock                      (145)            (145)                   (145)
   Stock forfeited in settlement of claim                                   (68)                    (68)
   Common stock subscription adjustments                                      0                       0
                                                ---------------  ---------------  ------------  --------

BALANCE - JUNE 30, 1997                         $       (1,455)  $       11,892   $         0   $11,892
                                                ===============  ===============  ============  ========
</TABLE>


See  notes  to  financial  statements                                        F-6
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS  OF  CASH  FLOWS
(going  concern  basis)
(In  thousands)


                                                                             PERIOD FROM
                                                                            AUGUST 1, 1996         YEAR ENDED JULY 31,
                                                                             TO JUNE 30,     --------------------------------
                                                                                 1997                1996             1995
                                                                           ----------------  ---------------------  ---------
<S>                                                                        <C>               <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                                                  $          (505)  $             (2,264)  $   (505)
 Adjustments to reconcile net loss to net cash provided by (used in)
   operating activities:
     Depreciation and amortization                                                     998                    891      1,031
     Noncash gain on settlement of claim                                              (596)
     Deferred compensation payable                                                     (42)                   (53)       (49)
     Deferred income taxes                                                            (382)                  (392)         8
     Changes in:
       Trade receivables, net                                                        2,031                 (2,908)    (6,318)
       Merchandise inventory                                                        (4,252)                 9,456     (4,033)
       Tax refund receivable                                                         1,036                 (1,036)
       Prepaid expenses and other current assets                                       175                    (14)       446
       Accounts payable                                                              5,189                 (2,873)    (4,515)
       Deferred rent payable                                                            99                    263
       Accrued expenses and taxes                                                       78                   (339)       677
                                                                           ----------------  ---------------------  ---------
         Net cash provided by (used in) operating activities                         3,829                    731    (13,258)
                                                                           ----------------  ---------------------  ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment                                                  (767)                  (880)    (1,405)
 (Increase) decrease in other assets                                                   170                    218       (217)
                                                                           ----------------  ---------------------  ---------
         Net cash used in investing activities                                        (597)                  (662)    (1,622)
                                                                           ----------------  ---------------------  ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Repayment of notes payable                                                           (396)                  (528)      (627)
 Net increase (decrease) in short-term bank debt                                    (2,166)                   (71)    15,858
 Collections on common stock                                                            38                    242        541
 Common stock redeemed                                                                 (23)                              (24)
 Preferred stock redeemed                                                             (485)                (1,535)      (804)
                                                                           ----------------  ---------------------  ---------
         Net cash (used in) provided by financing activities                        (3,032)                (1,892)    14,944
                                                                           ----------------  ---------------------  ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   200                 (1,823)        64
Cash and cash equivalents - beginning of period                                        200                  2,023      1,959
                                                                           ----------------  ---------------------  ---------

CASH AND CASH EQUIVALENTS - END OF PERIOD                                  $           400   $                200   $  2,023
                                                                           ================  =====================  =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Interest paid                                                             $         4,805   $              5,353   $  5,327
 Income taxes - paid                                                                         $                101   $      1
 Income taxes - refunded                                                   $         1,036   $                377   $    477
 Summary of noncash transactions:
   Reduction of accrued expenses in exchange for issuance of notes
     payable                                                                                 $                 19   $     24
   Cancellation of common shares and liability for deferred compensation
     in connection with settlement of claim                                $           596
   Accounts receivable reduced for redemptions of:
     Common stock                                                          $            24   $                135   $    177
     Preferred stock                                                                                                $    777
   Stock dividends on preferred stock                                      $           145   $                191   $    291
   Common stock subscriptions, net of cancellations                                                                 $    (64)
</TABLE>


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

NOTES  TO  FINANCIAL  STATEMENTS



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 provides 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  to the holders of preferred stock the amount of $100
per  share  in  full, prior to any amount 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 on 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 adjustable  value note bears
interest  at  a  rate (6.69% at July 31, 1997) 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.  In addition, the Company received an option
in  favor of the Company's stockholders to purchase under certain conditions, at
85%  of the per share offering price, an aggregate of 10% of Neuman shares to be
made  available  in  a  public offering in the event Neuman files a registration
statement  with  the  Securities  Exchange  Commission  prior to July 3, 2001 in
connection  with an initial public offering.  The $1,000,000 promissory note has
been  recorded  at  its present value of approximately $766,000 using an imputed
interest  rate  of  6.69%.  No  value has been ascribed to the option due to its
contingent  nature.  The  purchase  price  is subject to adjustment based upon a
final  valuation  of the assets and liabilities sold.  In addition, the terms of
sale provide that Neuman has one year from the date of purchase to return to the
Company  any accounts receivable balances which have not then been collected and
reduce  the amount of the adjustable note by such uncollected balances (see Note
K[3]).  The  gain  recognized  on  the sale was approximately $3,683,000.  As of
January  21,  1998,  final  adjustment  of  the  purchase  price  had  not  been
determined.  Any  adjustment  will  be  recognized  in  the  period in which the
adjustment  is  determined.

[3]     BASIS  OF  PRESENTATION:

For  all  periods  through  June  30,  1997,  the financial statements have been
prepared  on a going concern basis. Subsequent to June 30, 1997, the Company has
adopted the liquidation basis of accounting.  Accordingly, the net assets of the
Company  at  July  31,  1997  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.


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

NOTES  TO  FINANCIAL  STATEMENTS


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

[3]     BASIS  OF  PRESENTATION:  (CONTINUED)

The  valuation  of  assets  and  liabilities  necessarily requires estimates and
assumptions.  The actual value of any liquidating distributions will depend upon
a  variety  of  factors including, among others, the amount of any adjustment to
the  adjustable  value  note,  the outcome of litigation and other contingencies
described  in  Note  K,  the market prices of investments, the proceeds from the
sale  of  any  of the Company's remaining unsold assets and the actual timing of
distributions.  The  valuations  presented  in the accompanying statement of net
assets  in  liquidation  represent  estimates,  based  on  present  facts  and
circumstances,  of the estimated realizable values of assets, net of liabilities
and estimated costs associated with carrying out the provisions of the Plan. The
actual  values  and  costs  could  be higher or lower than the amounts recorded.


NOTE  B  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

[1]     CASH  EQUIVALENTS:

For the purpose of the statement of cash flows, the Company considers all highly
liquid  money  market instruments with original maturity of three months or less
to  be  cash  equivalents.  At July 31, 1996, cash equivalents were deposited in
financial  institutions  and  consisted  of immediately available fund balances.

[2]     MERCHANDISE  INVENTORY:

The inventory, which consists entirely of finished goods, is stated at the lower
of  cost  (last-in,  first-out)  or  market.  Inventory  valued  on  a first-in,
first-out  method would have been greater by approximately $4,763,000 as at July
31,  1996.

A  liquidation  of  LIFO  inventory  layers,  which  were carried at lower costs
compared  to  current costs, had the effect of reducing loss before income taxes
by  $679,000  for  the  year  ended  July  31,  1996.

[3]     PROPERTY  AND  EQUIPMENT:

Property  and  equipment  at  July 31, 1996 are stated at cost.  Depreciation is
computed  on  straight-line  and  accelerated  methods over the estimated useful
lives  as  follows:

<TABLE>
<CAPTION>
<S>                            <C>
Leasehold improvements         10 - 18 years
Warehouse equipment                  5 years
Data processing equipment      5 -   7 years
Trucks and delivery equipment        5 years
</TABLE>

[4]     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.


                                                                             F-9
<PAGE>
NOTE  B  -  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

[5]     USE  OF  ESTIMATES:

The  preparation  of  financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of  assets  and  liabilities  and  disclosure of
contingent  assets  and  liabilities at the date of the financial statements and
the  reported  amounts  of  revenues  and  expenses during the reporting period.
Actual  results  could  differ  from  those  estimates.

[6]     LONG-LIVED  ASSETS:

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company records impairment losses on long-lived assets used
in  operations,  including  intangible  assets,  when  events  and circumstances
indicate  that  the  assets  might  be  impaired and the undiscounted cash flows
estimated  to be generated by those assets are less than the carrying amounts of
those  assets.  No  such  losses  have  been  recorded.

[7]     FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS:

The carrying amount reported in the balance sheet for cash and cash equivalents,
accounts  receivable, accounts payable and accrued liabilities approximated fair
value  because  of  the  immediate  or  short-term  maturity  of  the  financial
instruments.

The carrying amount reported for outstanding bank indebtedness approximates fair
value  because  the  debt  is  at a variable rate that reprices frequently.  The
carrying  amount reported for outstanding nonbank indebtedness approximated fair
value based on current yields for debt instruments of similar quality and terms.

[8]     CONCENTRATION  OF  CREDIT  RISK:

Financial  instruments  that  potentially  subject  the  Company  to credit risk
consist  of  trade  receivables.  The  Company markets its products primarily to
retail  drug  and  health  and beauty aid stores.  The risk associated with this
concentration  is  believed by the Company to be limited due to the large number
of  stores  and  the  performance  of  credit  evaluation  procedures.

[9]     (LOSS)  PER  COMMON  SHARE:

For  the  eleven  month period ended June 30, 1997 and years ended July 31, 1996
and  1995,  loss per common share was computed by dividing net loss as increased
by  preferred  dividend  requirements,  by the weighted average number of common
shares  outstanding  during  the  periods.


                                                                            F-10
<PAGE>
NOTE  C  -  TRADE  RECEIVABLES

Trade  receivables  include  notes  due  from  customers,  as  follows:

<TABLE>
<CAPTION>
                            JULY 31,
                              1996
                           ----------
<S>                        <C>
Maturing within one year:
  Stockholder              $2,478,000
  Nonstockholder            2,384,000
                           ----------

                            4,862,000
                           ----------

Due after one year:
  Stockholder               1,764,000
  Nonstockholder            2,338,000
                           ----------

                            4,102,000
                           ----------

                           $8,964,000
                           ==========
</TABLE>

It  was the policy of the Company to obtain either personal guarantees or a lien
on  the  customer's  assets as collateral for most notes and certain other trade
receivables.


NOTE  D  -  LOANS  PAYABLE  -  BANK

Under an accounts receivable and inventory financing agreement, which allows for
borrowings  of  up  to $80 million, a bank makes secured demand loans based on a
percentage  of  eligible  trade  receivables and inventory, which are pledged as
collateral.  Interest  was  at 1.25% above the prime rate.  As of July 31, 1996,
total loan advances available under the revolving loan agreement was $3,935,000.
The  agreement contains restrictions, which limit cash dividends and redemptions
of  stock.

For  the  year  ended July 31, 1996, a waiver was obtained from the bank for the
redemptions  of  preferred  stock  during  the  year  and for the period through
November  1996  in  the  amount  not  exceeding  $413,000.


                                                                            F-11
<PAGE>
NOTE  E  -  NOTES  AND  LOANS  PAYABLE

Short-term  and  long-term  portion  of  notes and loans payable are as follows:

<TABLE>
<CAPTION>
                                                              JULY 31,
                                                                1996
                                                              ---------
<S>                                                           <C>
Notes and loans due to stockholders, officers, employees
  and members of their families are payable on demand
  and 13 months after demand.  Interest is at rates
  ranging from prime to 1.25% over prime, except that
  $472,000 of such notes require minimum interest of 10%      $ 571,000
Notes due in installments of principal and interest at 9% -
  11.5 % to November 1999 are collateralized by specific
  equipment                                                     193,000
                                                              ---------

                                                                764,000
Due on demand or within one year                                527,000
                                                              ---------

Long-term portion                                             $ 237,000
                                                              =========
</TABLE>

As  of  July  31,  1996,  future  annual  maturities  were  as  follows:

<TABLE>
<CAPTION>
YEAR ENDING
JULY 31,
---------
<S>                                     <C>
  1997                                  $541,000
  1998                                   195,000
  1999                                    38,000
  2000                                    13,000
                                        ---------

    Total annual maturities              787,000
    Less amounts representing interest   (23,000)
                                        ---------

    Present value at annual maturities  $764,000
                                        =========
</TABLE>


                                                                            F-12
<PAGE>
NOTE  F  -  PROPERTY  AND  EQUIPMENT

Property  and  equipment  consists  of  the  following:

<TABLE>
<CAPTION>
                                                  JULY 31,
                                                    1996
                                                -------------
<S>                                             <C>
Leasehold improvements                          $  2,303,000
Warehouse equipment                                2,539,000
Data processing equipment                          7,409,000
Trucks and delivery equipment                      1,747,000
Furniture and fixtures                               289,000
                                                -------------

                                                  14,287,000
Less accumulated depreciation and amortization   (10,956,000)
                                                -------------

                                                $  3,331,000
                                                =============
</TABLE>

NOTE  G  -  SETTLEMENT  OF  CLAIM

During  the year ended July 31, 1996, an independent investigatory firm retained
by  the  Company uncovered certain payments which may have been unauthorized and
may  have  benefited the Company's former president and chief executive officer.
The  Company  asserted various claims against this individual who has denied the
allegations.  In  June  1997,  the  parties  entered into a settlement agreement
whereby 339,851 shares of the Company's common stock owned by the former officer
and  his  wife were forfeited.  In addition, he surrendered his right to receive
unpaid  deferred  compensation  consisting of monthly payments of $8,333 through
February  2004.  The  Company  had  previously provided for the present value of
these  payments.  The  Company  has recorded a gain of $596,000 on settlement of
the  claim  during  the  period  ended  June  30,  1997.


NOTE  H  -  RETIREMENT  PLANS

The  Company  maintained  a noncontributory defined benefit pension plan for its
eligible  nonunion  employees  which  was  frozen  June  28, 1996.  Accordingly,
employee service subsequent to such date is excluded from benefit accruals under
the  plan.  The  benefits under this plan were based on the participants' length
of service and compensation.  The funding policy for this plan was to contribute
amounts actuarially determined as necessary to provide sufficient assets to meet
the benefit requirements of the plan retirees. The plan was terminated in August
1997.  In connection therewith, a loss of $305,000 on termination of the pension
plan  has  been  reflected  as  a  decrease  in  net  assets  in  July  1997.


                                                                            F-13
<PAGE>
NOTE  H  -  RETIREMENT  PLANS  (CONTINUED)

The  following  table sets forth the Plan's funded status and amounts recognized
in  the  Company's  balance  sheet  as  of  July  31,  1996:

<TABLE>
<CAPTION>
<S>                                                                               <C>
Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including vested benefits of $1,172,000         $(1,175,000)
                                                                                  ============

Projected benefit obligation for service rendered to date                         $(1,671,000)
Plan assets at fair value, primarily consisting of U.S. Government
  guaranteed securities and bank certificates of deposit                            1,518,000
                                                                                  ------------

Plan assets (less than) projected benefit obligation                                 (153,000)
Unrecognized net loss from past experience different from that
  assumed and effects of changes in assumptions                                       448,000
Unrecognized net obligations as of August 1, 1987, net of amortization                 16,000
Adjustment to prior service cost not yet recognized in net periodic pension cost       (8,000)
                                                                                  ------------

Deferred pension cost                                                             $   303,000
                                                                                  ============
</TABLE>


Net  pension  cost  included  the  following  components:

<TABLE>
<CAPTION>
                                                    PERIOD FROM
                                                   AUGUST 1, 1996
                                                    TO JUNE 30,
                                                        1997           1996        1995
                                                  ----------------
<S>                                               <C>               <C>         <C>
Service cost - benefits earned during the period                    $ 101,000   $ 106,000
Interest cost on projected benefit obligation     $        82,000     157,000     166,000
Actual return on plan assets                              (48,000)   (112,000)   (122,000)
Net amortization and deferral                               8,000      (3,000)     17,000
                                                  ----------------  ----------  ----------

Net periodic cost                                 $        42,000   $ 143,000   $ 167,000
                                                  ================  ==========  ==========
</TABLE>

The  weighted  average discount rate and rate of increase in future compensation
levels  used in determining the actuarial present value of the projected benefit
obligation  were  6.5%  and  0%,  respectively,  for  1997  and  7.0%  and 4.0%,
respectively,  for  1996.  The  expected  long-term rate of return on assets was
6.5%  for  1997,  7.0%  for  1996  and  6.5%  in  1995.

The  Company  made  contributions  along  with  other  employers  to  a  union
multi-employer  plan,  Local  815,  International Brotherhood of Teamsters.  The
expense  for  such plan was $337,000, $351,000 and $349,000 for the eleven month
period  ended  June  30,  1997  and  the  years  ended  July  31, 1996 and 1995,
respectively.  The Employee Retirement Income Securities Act of 1974, as amended
by  the  Multi-Employers  Pension  Plan  Amendment  Act of 1980, imposes certain
liabilities  upon  employers who are contributors to multi-employer plans in the
event  of  such  employers' withdrawal from such a plan or upon a termination of
such  a plan.  In connection with the sale of the Company's assets the purchaser
assumed  the  Company's  obligation  under  the  multi-employer  plan.


                                                                            F-14
<PAGE>
NOTE  H  -  RETIREMENT  PLANS  (CONTINUED)

The  Company  also  had  a  profit-sharing  plan  and  a 401(k) savings plan for
eligible  nonunion  employees.  The  401(k)  plan  is  solely funded by employee
contributions.  The  profit-sharing  plan  requires  no  fixed  or  minimum
contribution.  There was no profit-sharing expense for the period from August 1,
1996  through  June  30,  1997  or  for  the years ended July 31, 1996 and 1995.


NOTE  I  -  INCOME  TAXES

A reconciliation of the income tax benefit with the amounts computed by applying
the  maximum  Federal  income  tax  rate  to  the  pre-tax  loss  follows:

<TABLE>
<CAPTION>
                                   PERIOD FROM
                                  AUGUST 1, 1996
                                    TO JUNE 30,               YEAR ENDED JULY 31,
                                ------------------  ----------------------------------------
                                  1997        %        1996         %       1995         %
                                ----------  ------  ------------  ------  ----------  ------
<S>                             <C>         <C>     <C>           <C>     <C>         <C>
Computed tax (benefit) at
  maximum rate                  $(325,000)  (34.0)  $(1,294,000)  (34.0)  $(201,000)  (34.0)
State tax (benefit) provision,
  net of Federal income tax
  effect                          (57,000)   (6.0)     (231,000)   (6.0)     66,000    11.2
Alternative minimum tax credit                         (156,000)   (4.1)
Other adjustments                 (68,000)   (7.1)      138,000     3.6      49,000     8.2
                                ----------  ------  ------------  ------  ----------  ------

                                $(450,000)  (47.1)  $(1,543,000)  (40.5)  $ (86,000)  (14.6)
                                ==========  ======  ============  ======  ==========  ======
</TABLE>

Deferred  taxes  relate  to  tax  loss carryforwards and differences between the
financial  reporting  and  tax  bases  of  assets and liabilities.  The tax gain
($624,000)  on  sale  of  the  net  assets  to Neuman is being recognized on the
installment basis for tax purposes; accordingly, the tax basis of the adjustable
value  note is reduced by the unrecognized gain and a deferred tax liability has
been  recorded  for  the  difference  between  the  amount  at which the note is
reflected  in  the  accompanying  balance  sheet  and  its  tax  basis.


The  net  deferred  tax  asset  at  July  31,  1997  relates  to  the following:

<TABLE>
<CAPTION>
<S>                                                           <C>
Estimated liquidation expenses                                $ 654,000
Difference between financial reporting and tax basis of note
  receivable                                                   (168,000)
Insurance claim receivable                                     (340,000)
Other                                                           (19,000)
                                                              ----------

                                                              $ 127,000
                                                              ==========
</TABLE>


                                                                            F-15
<PAGE>
NOTE  I  -  INCOME  TAXES  (CONTINUED)

Net  deferred  tax  assets  at  July  31,  1996  are comprised of the following:

<TABLE>
<CAPTION>
<S>                              <C>
Deferred compensation            $  228,000
Depreciation                        (83,000)
Deferred pension cost              (121,000)
Allowance for doubtful accounts     657,000
Inventory overhead                   95,000
Federal NOL carryforward            237,000
AMT credit                          156,000
State Income tax benefit            257,000
                                 -----------

  Total deferred tax asset       $1,426,000
                                 ===========
</TABLE>

In  connection  with  the  sale of the Company's net assets to Neuman on July 3,
1997, the balance in the deferred tax asset account at such date was written off
as  a  reduction  of  net  assets.


NOTE  J  -  OFFICER'S  LIFE  INSURANCE

At July 31, 1997 the Company was the owner and beneficiary of insurance policies
of  $1,600,000, on the life of its former president.  At July 31, 1997, the cash
surrender  value  of  these  policies  was  $202,000.  The  Company  borrowed an
aggregate of $150,000 in two loans against the cash surrender value at an annual
interest  rate  of 7.94% and 7.42%.  The cash surrender value, net of borrowings
is  included  in  other  assets.


NOTE  K  -  COMMITMENT  AND  CONTINGENCIES

[1]     In  March  1995,  the Company renewed two lease agreements extending the
terms  to  expire  in  May  2005, for real estate in Secaucus, New Jersey.  Both
leases contained termination clauses whereby the Company may terminate the lease
between  December  1,  1997  and  November 30, 1998 by paying a fee equal to six
months  of rent.  In addition, the Company was obligated under another lease for
warehouse  space  expiring  March  1997.

     Future  minimum  annual  lease  payments  at July 31, 1996 were as follows:

<TABLE>
<CAPTION>
YEAR ENDING
JULY 31,
--------------------------------------
<S>                                     <C>
  1997                                  $1,021,000
  1998                                     912,000
  1999                                     912,000
  2000                                     946,000
  2001                                   1,056,000
  Thereafter                             4,048,000
                                        ----------

    Present value at annual maturities  $8,895,000
                                        ==========
</TABLE>

In  connection  with  the  sale  of  the  Company's  assets in July 3, 1997, the
purchaser  assumed  the  Company's  obligation under the leases and the landlord
released  the  Company  from  liability  for  future  lease  payments.


                                                                            F-16
<PAGE>
NOTE  K  -  COMMITMENT  AND  CONTINGENCIES  (CONTINUED)

[1]     (CONTINUED)

Total rent expense, including real estate taxes, were $1,109,000, $1,291,000 and
$1,016,000  for the eleven month period ended June 30, 1997, and the years ended
July  31,  1996  and  1995,  respectively.

Deferred  rent payable at July 31, 1996, represents the excess of rental expense
determined  on a straight-line basis over the amounts currently payable pursuant
to  the  leases.

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.

[2]     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 (see Note N).
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.

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  parties  are  engaged  in extensive discovery activities and a trial is not
expected to take place  until sometime in 2000. Although the Company believes it
will  prevail  in  its  case  against the Anchin Firm, it is unable to predict a
likely  outcome  at  this  time.

[3]     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.  It also
incurred  legal fees and interest in seeking to collect both the pre-closing and
post-closing  accounts  receivables, with the result than Neuman asserts that it
has  made  a  post-closing  extension  of credit to the four customers totalling
approximately  $2,336,000.  Neuman  has  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.


                                                                            F-17
<PAGE>
NOTE  K  -  COMMITMENT  AND  CONTINGENCIES  (CONTINUED)

[3]     (CONTINUED)

The  Company has 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  has 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 is
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.

The  Company  believes  it likely that its differences with Neuman regarding the
proposed  reassignment  of the accounts receivable of the four customers will be
resolved  by  arbitration  pursuant  to  the  provisions  of  the asset purchase
agreement.  If  Neuman  prevails,  the accounts receivable of the four customers
would  be  reassigned  to  the  Company  without  security  with which they were
assigned  to  Neuman,  the  principal amount of the note would be reduced by the
$1,486,000  balance of those accounts receivable and there could be no assurance
that  the  Company  would  be  able to obtain payment of the reassigned accounts
receivable.  If  the  Company  prevails  in  its  dispute with Neuman and Neuman
reassigns  those  accounts receivable, the Company would be paid the full amount
of  the  accounts  receivable  by  the major pharmaceutical retailer indebted to
Neuman  and  the  principal  amount of the note would be reduced in an identical
amount.  There  can  be  no  assurance  as  to the likely outcome of the current
dispute,  whether  by  negotiation  or  arbitration.

[4]     In  October  1996,  the Company received a letter from an attorney for a
former  director  and  stockholder  of the Company alleging mismanagement of the
Company  and  requesting  additional  information.  In  June 1997, the attorney,
acting  on behalf of the former director and other stockholders who appear to be
related  to  the  former  director,  asked for copies of the Company's financial
statements  over  the  past  three  years, which the Company supplied.  No other
action  has  been  taken with regard to the claims in the October 1996 letter by
either  the  former  director  or  his  attorney.

[5]     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  has  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  tortious  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 are 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, have made motions for summary judgment
seeking dismissal of all of the plaintiff's claims, which are pending before the
court.  The  Company  has  also  asked for summary judgment on its counterclaim.
The  court  is  not  expected to decide the motions until sometime in 2000.  The
Company  believes  that  it  will  prevail  in  this  case.


                                                                            F-18
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NOTE  K  -  COMMITMENT  AND  CONTINGENCIES  (CONTINUED)

[6]     The  Company  entered  into consulting agreements with its President 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 agreement with the former Vice President - Finance commenced
on  June  4,  1998  and  provides  for  a monthly consulting fee of $11,400 plus
expenses,  and  a  severance  payment  of  $34,000.


NOTE  L  -  REDEEMABLE  PREFERRED  STOCK

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.
Cumulative  dividends  earned  in  periods  subsequent  to July 31, 1997 will be
reflected  as  a reduction of net assets during the period in which they accrue.
Through  December  28,  1998,  all  outstanding  shares  of preferred stock were
redeemed  for  $2,262,000.


NOTE  M  -  STOCKHOLDERS'  EQUITY

The  stockholders  were  a  substantial portion of the Company's customers.  The
transfer of shares is restricted by agreement, and any stockholder who wishes to
sell his shares must first offer them to the Company at cost (as defined) or par
value  with  respect  to  shares  issued  as  a  stock  dividend.

The  common  shares  to be issued on subscriptions received are not determinable
until  subscriptions  are  collected.  However, at each year end such subscribed
shares are included in the accompanying financial statements assuming a purchase
price  estimated  based  on  the  FIFO  book  value at year end.  The difference
between  the  par  value  and the purchase price of subscribed common shares has
been  credited  to  additional  paid-in  capital.  Additional  paid-in  capital
includes  $227,000  on  such  uncollected  subscriptions  as  of  July 31, 1996.


NOTE  N  -  INVENTORY  DEFALCATION

During 1996, an inventory defalcation was discovered.  Management estimates that
results for the year ended July 31, 1996 were negatively impacted by $7,400,000.
The Company determined that certain entries in its perpetual inventory and units
sold  were improper.  Management extrapolated the effects of these entries based
on  unit  costs,  units  sold and sales dollars. Management also determined that
similar  inventory  defalcations had occurred during prior years and amounted to
$5,200,000  for the year ended July 31, 1995.  The amounts for each of the years
are  included  as a separate component of cost of sales.  The Company's reported
inventory  values on its balance sheets were based on results of physical counts
and, accordingly, the Company believes that its reported net loss for such years
is  fairly  presented.

On  February  17,  1998, the Company received $1,000,000 from insurance coverage
related  to the defalcation.  Such amount has been reflected in the accompanying
statement  of  net  assets  at  July  31, 1997 and changes in net assets for the
period  from  July  1,  1997  to  July  31,  1997.


                                                                            F-19
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