<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number 0-16998
----------
A. Full title of the plan:
DRUG EMPORIUM, INC. EMPLOYEES 401(K) PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
Drug Emporium, Inc.
155 Hidden Ravines Drive
Powell, OH 43065
<PAGE> 2
REQUIRED INFORMATION
In lieu of the requirements of Items 1-3 of Form 11-K, the Drug Emporium, Inc.
Employees 401(k) Plan which is subject to the requirements of the Employee
Retirement Income Security Act of 1974, ("ERISA"), is filing herewith the plan
financial statements and schedules in accordance with the financial reporting
requirements of ERISA.
a) Financial Statements
Independent Auditors' Report
Statements of Net Assets Available
for Plan Benefits
Statements of Changes in Net Assets
Available for Plan Benefits
Notes to Financial Statements
Schedules:
Assets Held for Investment Purposes
Reportable Transactions
b) Exhibits
(23.1) Independent Auditors' Consent
Ernst & Young LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this annual report to be signed on its behalf by the undersigned hereunto
duly authorized.
DRUG EMPORIUM, INC. EMPLOYEES 401(K) PLAN
Date: June 29, 1999 /s/ Jane H. Lagusch
--------------- -------------------------------------
Jane H. Lagusch, Vice President
<PAGE> 3
Audited Financial Statements
and Schedules
Drug Emporium, Inc.
Employees 401(k) Plan
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
<PAGE> 4
Drug Emporium, Inc. Employees 401(k) Plan
Audited Financial Statements
and Schedules
Years ended December 31, 1998 and 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors .........................................................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits ........................................................2
Statements of Changes in Net Assets Available for Benefits .............................................6
Notes to Financial Statements .........................................................................10
Supplemental Schedules
Schedule of Assets Held for Investment Purposes........................................................15
Schedule of Reportable Transactions....................................................................16
</TABLE>
<PAGE> 5
Report of Independent Auditors
Administrative Committee of the
Drug Emporium, Inc.
Employees 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
of the Drug Emporium, Inc. Employees 401(k) Plan as of December 31, 1998 and
1997, and the related statements of changes in net assets available for benefits
for the years then ended. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the years then ended, in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998 and reportable transactions
for the year then ended, are presented for purposes of additional analysis and
are not a required part of the financial statements but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. These supplemental schedules are the responsibility of Plan's management.
The supplemental schedules have been subjected to the auditing procedures
applied in our audits of the financial statements and, in our opinion, are
fairly stated in all material respects in relation to the financial statements
taken as a whole.
/s/ ERNST & YOUNG LLP
June 24, 1999
1
<PAGE> 6
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Net Assets Available
for Benefits, with Fund Information
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------------------------------
CASH STABLE PATHWAY PATHWAY
INVESTMENT VALUE INCOME SERIES SERIES
TRUST FUND FUND BALANCED CONSERVATIVE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at fair value
Shares of registered
investment companies $43,518 $1,490,318 $169,469 $2,005,290 $106,636
Equity securities -- -- -- -- --
Participants loans -- -- -- -- --
-------------------------------------------------------------------------------
Total investments 43,518 1,490,318 169,469 2,005,290 106,636
Receivables:
Employer's contributions -- 10,437 4,732 12,803 3,225
Participants' contributions -- 4,868 2,971 7,821 1,579
-------------------------------------------------------------------------------
Total receivables -- 15,305 7,703 20,624 4,804
Net assets available for benefits $43,518 $1,505,623 $177,172 $2,025,914 $111,440
===============================================================================
</TABLE>
See accompanying notes.
2
<PAGE> 7
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
DRUG
EMPORIUM
PATHWAY GROWTH & INC.
SERIES INCOME INTERNATIONAL DEVELOPMENT COMMON LOAN
GROWTH FUND FUND FUND STOCK FUND TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value
Shares of registered
investment companies $520,525 $5,582,612 $409,851 $571,597 $ -- $ -- $10,899,816
Equity securities -- -- -- -- 635,644 -- 635,644
Participants loans -- -- -- -- -- 336,976 336,976
-------------------------------------------------------------------------------------------
Total investments 520,525 5,582,612 409,851 571,597 635,644 336,976 11,872,436
Receivables:
Employer's contributions 12,880 49,224 9,774 14,446 3,479 -- 121,000
Participants' contributions 8,294 32,663 5,416 8,495 2,416 -- 74,523
-------------------------------------------------------------------------------------------
Total receivables 21,174 81,887 15,190 22,941 5,895 -- 195,523
Net assets available for benefits $541,699 $5,664,499 $425,041 $594,538 $641,539 $336,976 $12,067,959
===========================================================================================
</TABLE>
See accompanying notes.
3
<PAGE> 8
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Net Assets Available
for Benefits, with Fund Information
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------------------------
STABLE PATHWAY PATHWAY PATHWAY
VALUE INCOME SERIES SERIES SERIES
FUND FUND BALANCED CONSERVATIVE GROWTH
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets
Investments, at fair value
Shares of registered
investment companies $ 1,175,056 $ 58,657 $ 1,879,156 $ 30,491 $ 219,312
Equity securities -- -- -- -- --
Participants loans -- -- -- -- --
------------------------------------------------------------------------------
Total investments 1,175,056 58,657 1,879,156 30,491 219,312
Receivables:
Employer's contributions 7,116 3,757 11,165 2,456 11,704
------------------------------------------------------------------------------
Total receivables 7,116 3,757 11,165 2,456 11,704
Net assets available for benefits $ 1,182,172 $ 62,414 $ 1,890,321 $ 32,947 $ 231,016
==============================================================================
</TABLE>
See accompanying notes.
4
<PAGE> 9
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
DRUG
EMPORIUM
GROWTH & INC.
INCOME INTERNATIONAL DEVELOPMENT COMMON LOAN
FUND FUND FUND STOCK FUND TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments, at fair value
Shares of registered
investment companies $5,137,537 $133,651 $276,909 $ -- $ -- $8,910,769
Equity securities -- -- -- 467,011 -- 467,011
Participants loans -- -- -- -- 238,595 238,595
---------------------------------------------------------------------------------------
Total investments 5,137,537 133,651 276,909 467,011 238,595 9,616,375
Receivables:
Employer's contributions 48,007 8,997 13,290 3,575 -- 110,067
---------------------------------------------------------------------------------------
Total receivables 48,007 8,997 13,290 3,575 -- 110,067
Net assets available for benefits $5,185,544 $142,648 $290,199 $470,586 $238,595 $9,726,442
=======================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 10
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Changes in Net Assets Available
for Benefits, with Fund Information
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------------------------------------
CASH STABLE PATHWAY PATHWAY PATHWAY GROWTH &
INVESTMENT VALUE INCOME SERIES SERIES SERIES INCOME
TRUST FUND FUND BALANCED CONSERVATIVE GROWTH FUND
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $ -- $ 146,550 $ 89,942 $ 248,096 $ 52,761 $ 298,675 $ 1,073,609
Employer contributions -- 10,437 4,732 12,803 3,225 12,880 49,224
Interest and dividends 11 80,260 10,773 123,137 5,530 25,775 540,621
Net realized and unrealized
appreciation (depreciation)
in fair value of investments -- -- (3,379) 21,588 (1,541) 16,887 (204,727)
----------------------------------------------------------------------------------------------
Total additions 11 237,247 102,068 405,624 59,975 354,217 1,458,727
DEDUCTIONS
Benefits paid to participants 21,366 107,434 8,555 168,482 1,578 20,856 720,736
Administrative expenses 6 1,138 6 781 38 50 163
----------------------------------------------------------------------------------------------
Total deductions 21,372 108,572 8,561 169,263 1,616 20,906 720,899
Transfers from (to) other funds 64,879 194,776 21,251 (100,768) 20,134 (22,628) (258,873)
Net assets available for
benefits at beginning of year -- 1,182,172 62,414 1,890,321 32,947 231,016 5,185,544
----------------------------------------------------------------------------------------------
Net assets available for
benefits at end of year $43,518 $1,505,623 $ 177,172 $ 2,025,914 $ 111,440 $ 541,699 $ 5,664,499
==============================================================================================
</TABLE>
See accompanying notes.
6
<PAGE> 11
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
DRUG
EMPORIUM
INC.
INTERNATIONAL DEVELOPMENT COMMON LOAN
FUND FUND STOCK FUND TOTAL
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $ 227,384 $ 290,867 $ 72,851 $ -- $ 2,500,735
Employer contributions 9,774 14,446 3,479 -- 121,000
Interest and dividends 43,963 53,147 628 -- 883,845
Net realized and unrealized
appreciation (depreciation)
in fair value of investments (2,952) (2,435) 149,201 -- (27,358)
--------------------------------------------------------------------------
Total additions 278,169 356,025 226,159 -- 3,478,222
DEDUCTIONS
Benefits paid to participants 25,728 35,547 9,969 14,253 1,134,504
Administrative expenses -- -- 19 -- 2,201
--------------------------------------------------------------------------
Total deductions 25,728 35,547 9,988 14,253 1,136,705
Transfers from (to) other funds 29,952 (16,139) (45,218) 112,634 --
Net assets available for
benefits at beginning of year 142,648 290,199 470,586 238,595 9,726,442
--------------------------------------------------------------------------
Net assets available for
benefits at end of year $ 425,041 $ 594,538 $ 641,539 $336,976 $ 12,067,959
==========================================================================
</TABLE>
See accompanying notes.
7
<PAGE> 12
Drug Emporium, Inc. Employees 401(k) Plan
Statements of Changes in Net Assets Available
for Benefits, with Fund Information
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------
STABLE PATHWAY PATHWAY PATHWAY GROWTH &
VALUE INCOME SERIES SERIES SERIES INCOME INTERNATIONAL
FUND FUND BALANCED CONSERVATIVE GROWTH FUND FUND
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $ 189,824 $40,957 $ 294,904 $ 20,527 $ 143,200 $ 896,619 $ 106,916
Employer contributions 7,116 3,757 11,165 2,456 11,704 48,007 8,997
Interest and dividends 48,987 1,847 130,601 1,263 7,523 531,955 14,511
Net realized and unrealized
appreciation (depreciation)
in fair value of investments -- 318 151,258 (687) (8,893) 643,493 (14,011)
------------------------------------------------------------------------------------------
Total additions 245,927 46,879 587,928 23,559 153,534 2,120,074 116,413
DEDUCTIONS
Benefits paid to participants 64,654 3,225 133,533 623 2,667 369,959 6,003
Administrative expenses 38 -- 25 -- -- 19 --
------------------------------------------------------------------------------------------
Total deductions 64,692 3,225 133,558 623 2,667 369,978 6,003
Transfers from (to) other funds 1,000,937 18,760 1,435,951 10,011 80,149 3,435,448 32,238
Net assets available for
benefits at beginning of year -- -- -- -- -- -- --
------------------------------------------------------------------------------------------
Net assets available for
benefits at end of year $1,182,172 $62,414 $1,890,321 $ 32,947 $ 231,016 $5,185,544 $ 142,648
==========================================================================================
</TABLE>
See accompanying notes.
8
<PAGE> 13
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
CASH RETIREMENT INCOME AND GROWTH
DEVELOPMENT MANAGEMENT PRESERVATION GROWTH OPPORTUNITIES
FUND FUND TRUST FUND FUND
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ADDITIONS
Employee contributions $ 167,363 $ -- $ 72,764 $ 169,899 $ 326,623
Employer contributions 13,290 -- -- -- --
Interest and dividends 25,283 208 13,238 12,511 355
Net realized and unrealized
appreciation (depreciation)
in fair value of investments (19,458) -- -- 57,053 131,717
------------------------------------------------------------------------------------
Total additions 186,478 208 86,002 239,463 458,695
DEDUCTIONS
Benefits paid to participants 5,243 -- 25,293 59,147 116,177
Administrative expenses -- -- -- -- --
------------------------------------------------------------------------------------
Total deductions 5,243 -- 25,293 59,147 116,177
Transfers from (to) other funds 108,964 (3,430) (998,309) (1,676,267) (3,327,172)
Net assets available for
benefits at beginning of year -- 3,222 937,600 1,495,951 2,984,654
------------------------------------------------------------------------------------
Net assets available for
benefits at end of year $ 290,199 $ -- $ -- $ -- $ --
====================================================================================
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
DRUG
EMPORIUM
INC.
COMMON LOAN
STOCK FUND TOTAL
------------------------------------------
<S> <C> <C> <C>
ADDITIONS
Employee contributions $ 98,784 $ -- $2,528,380
Employer contributions 3,575 -- 110,067
Interest and dividends -- -- 788,282
Net realized and unrealized
appreciation (depreciation)
in fair value of investments 140,126 -- 1,080,916
------------------------------------------
Total additions 242,485 -- 4,507,645
DEDUCTIONS
Benefits paid to participants 62,759 12,200 861,483
Administrative expenses -- -- 82
------------------------------------------
Total deductions 62,759 12,200 861,565
Transfers from (to) other funds (262,730) 145,450 --
Net assets available for
benefits at beginning of year 553,590 105,345 6,080,362
------------------------------------------
Net assets available for
benefits at end of year $ 470,586 $238,595 $9,726,442
==========================================
</TABLE>
See accompanying notes.
9
<PAGE> 14
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements
December 31, 1998
1. DESCRIPTION OF THE PLAN
The following description of the Drug Emporium, Inc. Employees 401(k) Plan
(Plan) provides only general information. Participants should refer to the
Summary Plan Description for a more complete description of the Plan's
provisions.
GENERAL
The Plan is a defined contribution plan covering substantially all employees of
Drug Emporium, Inc. and its subsidiaries (the Company) who have at least one
year of service, are age twenty-one or older and have worked 1,000 hours or
more. The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA).
CONTRIBUTIONS
Participants may contribute up to 15% of annual compensation limited to the
maximum permitted by the Internal Revenue Code. The Company may make
discretionary matching contributions, as approved by the Company's Board of
Directors.
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions and
allocations of the Company's discretionary contributions and Plan earnings.
Allocations are based on participant earnings or account balances, as defined.
Forfeited balances of terminated participants' nonvested accounts are used to
reduce future company contributions. The benefit to which a participant is
entitled is the benefit that can be provided from the participant's account.
VESTING
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company's discretionary contribution portion of their
accounts plus actual earnings thereon is based on years of vesting service. A
participant is 100 percent vested after four years of credited service.
10
<PAGE> 15
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
INVESTMENT OPTIONS
The Plan's investments are held by Scudder Trust Company. Upon enrollment, a
participant may direct employee and employer contributions to any of the Plan's
fund options.
Scudder Stable Value Fund -- A collective investment trust which invests
primarily in high-quality instrument, including guaranteed investment contracts,
bank investment contracts, money market instruments, and synthetic contracts.
These synthetic contracts are composed of triple-A-rated securities and
high-quality bond portfolios wrapped by insurance companies or banks rated AA or
higher.
Scudder Income Fund -- A mutual fund that invests primarily in high-grade
corporate bonds and government securities.
Scudder Pathway Series - Conservative -- A mutual fund that invests in a mix of
other Scudder mutual funds. The portfolio is typically invested 40%-80% in bond
funds, 20%-50% in stock funds, and 0%-15% in stable value funds.
Scudder Pathway Series - Balanced -- A mutual fund that invests in a mix of
other Scudder mutual funds. The portfolio is typically invested 40%-70% stock
funds, 25%-60% in bond funds, and 0%-10% in stable value funds.
Scudder Pathway Series - Growth -- A mutual fund that invests in a mix of other
Scudder mutual funds. The portfolio is typically invested 60%-90% in stock
funds, 10%-40% in bond funds, and 0%-5% in stable value funds.
Scudder Growth and Income Fund --A mutual fund that primarily invests in common
and preferred stocks and convertible securities of established companies.
Scudder International Fund -- A mutual fund that primarily invests in foreign
stocks of established companies.
Scudder Development Fund -- A mutual fund that typically invests in small,
emerging, or developing companies.
Drug Emporium, Inc. Common Stock - Funds are invested in shares of Drug
Emporium, Inc., Common Stock through an investment company.
11
<PAGE> 16
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT LOANS RECEIVABLE
Participants may borrow from their accounts a minimum of $1,000 up to a maximum
of the lesser of $50,000 or 50% of their vested account balance. Loan
transactions are treated as transfers between the investment funds and the loan
fund. Loan terms range from 1-5 years or up to 15 years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at the prime rate determined monthly. Principal and
interest is paid ratably, through bi-weekly payroll deductions.
DISTRIBUTION OF BENEFITS
Participants, or their beneficiaries, are entitled to receive 100% of their
vested value of his or her account upon termination, normal retirement (age 65),
early retirement (age 59 1/2), death, or total and permanent disability.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right to
discontinue and terminate the Plan subject to the provisions of ERISA. In the
event of a termination or partial termination of the Plan, the right of each
participant to benefits accrued to the date of such termination or partial
termination shall be nonforfeitable.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF ACCOUNTING AND PRESENTATION
The accounting records of the Plan are maintained on an accrual basis. The Plan
includes participants who are employees of Drug Emporium, Inc. and its
subsidiaries.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
ADMINISTRATIVE EXPENSES
Substantially all administrative expenses of the Plan are paid by the Company.
12
<PAGE> 17
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at fair value. The shares of mutual funds are
valued at quoted market prices which represent the net asset values of shares
held by the Plan at year-end. The participant loans are valued at cost which
approximates fair value. Purchases and sales of investments are recorded on a
trade-date basis. Interest income is recorded on the accrual basis. Dividends
are recorded on the ex-dividend date.
3. INCOME TAX STATUS
With the change in the Plan Trustee effective April 1, 1997, the Company
established a new Plan agreement consisting of a Scudder Prototype 401(k) Plan.
The provisions of the new Plan are similar to the provisions of the prior Plan.
The Internal Revenue Service ruled on January 18, 1995 that the Plan in effect
prior to April 1, 1997 qualified under Section 401(a) of the Internal Revenue
Code (IRC) and, therefore, the related trust was not subject to tax under
present income tax law.
The Plan intends to apply for a determination letter from the Internal Revenue
Service stating that the Scudder Prototype 401(k) Plan adopted effective April
1, 1997 is qualified under Section 401(a) of the IRC. However, the Company
represents that the Plan is qualified and, therefore, is exempt from taxation.
Once qualified, the Plan is required to operate in conformity with the IRC and
ERISA to maintain its tax-exempt status. The Company is not aware of any course
of action or series of events that have occurred that might adversely affect the
Plan's qualified status.
4. TRANSACTIONS WITH PARTIES-IN-INTEREST
At December 31, 1998 and 1997, the Plan owned 124,027 and 118,598 shares of the
Company's common stock, respectively. The Plan purchased 41,376 and 28,102
shares in 1998 and 1997 for $172,486 and $128,426, respectively. The Plan sold
35,947 and 35,680 shares in 1998 and 1997 for $147,789 and $165,198,
respectively. The market value of the Company's common stock at December 31,
1998 and 1997 was based on quoted market values. At December 31, 1998, the
market value of Drug Emporium, Inc. Common Stock was approximately $5.13 per
share. There were no cash dividends received during the years ended December 31,
1998 and 1997 from the Company.
13
<PAGE> 18
Drug Emporium, Inc. Employees 401(k) Plan
Notes to Financial Statements (continued)
5. YEAR 2000 (UNAUDITED)
The Company has determined that it will be necessary to take certain steps in
order to ensure that the Plan's information systems are prepared to handle year
2000 dates. The Company is taking a two phase approach. The first phase
addresses internal systems that must be modified or replaced to function
properly. Both internal and external resources are being utilized to replace or
modify existing software applications, and test the software and equipment for
the year 2000 modifications. The Company anticipates substantially completing
this phase of the project by September of 1999. Costs associated with modifying
software and equipment are not estimated to be significant and will be paid by
the Company.
For the second phase of the project, Plan management established formal
communications with its third party service providers to determine that they
have developed plans to address their own year 2000 problems as they relate to
the Plan's operations. All third party service providers have indicated that
they will be year 2000 compliant by the third quarter of 1999. If modification
of data processing systems of either the Plan, Plan Sponsor, or its service
providers are not completed timely, the year 2000 problem could have a material
impact on the operations of the Plan. Plan management has not developed a
contingency plan, because they are confident that all systems will be year 2000
ready.
14
<PAGE> 19
Drug Emporium, Inc. Employees 401(K) Plan
EIN: 31-1064888 Plan: 001
Schedule of Assets Held for Investment Purposes
December 31, 1998
<TABLE>
<CAPTION>
Identity of Issue, Borrower, DESCRIPTION CURRENT
Lessor or Similar Party OF ASSET COST VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Scudder Trust Company:
Cash Investment Trust 43,518 shares $ 43,518 $ 43,518
Stable Value Fund 1,490,318 shares 1,490,318 1,490,318
Income Fund 12,800 shares 172,604 169,469
Pathway Series Balanced 153,544 shares 1,885,627 2,005,290
Pathway Series Conservative 8,377 shares 108,879 106,636
Pathway Series Growth 37,529 shares 513,385 520,525
Growth and Income Fund 212,186 shares 5,388,435 5,582,612
International Fund 8,416 shares 431,671 409,851
Development Fund 15,178 shares 590,520 571,597
Drug Emporium, Inc. Common Stock 124,027 shares 562,531 635,644
Participant Loans 5% - 6% par -- 336,976
---------------------------------------
$11,187,488 $11,872,436
=======================================
</TABLE>
15
<PAGE> 20
Drug Emporium, Inc. Employees 401(K) Plan
Schedule of Reportable Transactions
Year ended December 31, 1998
<TABLE>
<CAPTION>
CURRENT
VALUE
OF ASSET ON NET
Identity of Party DESCRIPTION PURCHASE SELLING COST OF TRANSACTION GAIN
Involved OF ASSET PRICE PRICE ASSET DATE (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Category (iii) - Series of transactions in a securities issue aggregating in excess of 5% of plan assets.
Scudder Trust Company Stable Value Fund
116 sales, 289,659 shares -- 289,659 289,659 289,659 --
161 purchases, 604,920 shares 604,920 -- 604,920 604,920 --
Scudder Trust Company Pathway Series-Balanced
124 sales, 21,142 shares -- 297,875 272,389 297,875 25,486
82 purchases, 30,421 shares 402,420 -- 402,420 402,420 --
Scudder Trust Company Growth and Income Fund
143 sales, 42,768 shares -- 1,200,606 1,053,411 1,200,606 147,195
120 purchases, 62,126 shares 1,850,995 -- 1,850,995 1,850,995 --
</TABLE>
There were no Category (i), (ii) or (iv) reportable transactions.
16
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-25768) pertaining to the Drug Emporium, Inc. Employees 401(k) Plan of
our report dated June 24, 1999, with respect to the financial statements and
schedules of Drug Emporium, Inc. Employees 401(k) Plan included in this Annual
Report (Form 11-K) for the year ended December 31, 1998.
/s/ Ernst & Young LLP
Columbus, Ohio
June 24, 1999
