UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
      10-KSB**




[X]
            ANNUAL
              REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
              1934For
              the fiscal year endedDecember
              31, 2006[
                ]
            TRANSITION
              REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
              ACTFor
              the transition period from _________ to ________Commission
              file number000-33165




Assured
                Pharmacy, Inc.(Name
                of small business issuer in its
                charter)




Nevada
            98-0233878(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)17935
                Sky Park Circle Suite F , Irvine, California
            92614(Address
                of principal executive offices)
            (Zip
                Code)Issuer’s
              telephone number:949-222-9971




Securities
                registered under Section 12(b) of the Exchange Act:Title
                of each class
            Name
                of each exchange on which registeredNone
            Not
                ApplicableSecurities
                registered under Section 12(g) of the Exchange Act:Common
                Stock, par value $0.001(Title
                of class)





Check
      whether the Issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act during the past 12 months (or for such
      shorter period that the registrant was required to file such reports), and
      (2)
      has been subject to such filing requirements for the past 90 days. Yes [X]
      No [
      ]





Check
      if
      disclosure of delinquent filers in response to Item 405 of Regulation S-B is
      not
      contained in this form, and no disclosure will be contained, to the best of
      registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB [ ]





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





State
      issuer’s revenue for its most recent fiscal year. $8,021,467





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the average bid and asked price of
      such
      common equity, as of a specified date within the past 60 days.


$14,559,670
      as of March 7, 2007





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date. 54,073,522 Common Shares as of March 7,
      2007





Transitional
      Small Business Disclosure Format (Check One): Yes [ ] No [X]




Table
          of Contents





**TABLE
      OF CONTENTS**





PagePART
                IItem
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            12Item
                3.
            Legal
                Proceedings
            12Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            13PART
                IIItem
                5.
            Market
                for Common Equity and Related Stockholder Matters
            13Item
                6.
            Management’s
                Discussion and Analysis
            17Item
                7.
            Financial
                Statements
            27Item
                8.
            Changes
                In and Disagreements With Accountants on Accounting and
                Financial Disclosure
            28Item
                8A.
            Controls
                and Procedures
            28Item
                8B.
            Other
                Information
            29PART
                IIIItem
                9.
            Directors,
                Executive Officers, Promoters and Control Persons;
                Compliance With Section 16(a) of the Exchange Act
            30Item
                10.
            Executive
                Compensation
            33Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management
                and Related Stockholder Matters
            36Item
                12.
            Certain
                Relationships and Related
                Transactions
            39Item
                13.
            Exhibits
            40Item
                14.
            Principal
                Accountant Fees and Services
            40


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**** **PART
      I**


**Item
      1. Description of Business**





**Overview**





We
      are
      engaged in the business of operating specialty pharmacies that dispense highly
      regulated pain medication. We recently expanded our business beyond pain
      management to service customers that require prescriptions to treat cancer,
      psychiatric, and neurological conditions. We derive our revenue primarily from
      the sale of prescription drugs and do not keep in inventory non-prescription
      drugs or health and beauty related products inventoried at traditional
      pharmacies. The majority of our business is derived from repeat business from
      our customers. “Walk-in” prescriptions from physicians are limited.




We
      currently have six operating pharmacies. Our first pharmacy was opened on
      October 13, 2003 in Santa Ana, California. On June 10, 2004, we opened our
      second pharmacy in Riverside, California. These pharmacies were opened pursuant
      to a joint venture agreement entered into with TPG, LLC where we maintained
      a
      51% ownership interest in these pharmacies.  On December 15, 2006, we
      entered into a Purchase Agreement with TPG and acquired its 49% ownership in
      these pharmacies. As a result of this acquisition, we increased our ownership
      interest in these pharmacies to 100%. We opened our third pharmacy in Kirkland,
      Washington on August 11, 2004. Our fourth pharmacy was opened in Portland,
      Oregon on September 21, 2004. On June 21, 2006, we opened our fifth pharmacy
      also located in Portland, Oregon. The pharmacies located in Kirkland and
      Portland were opened pursuant to a joint venture agreement with TAPG LLC in
      which we have a 94.8% ownership interest in these pharmacies. In January 2007,
      we opened our sixth pharmacy in Gresham, Oregon and our third wholly-owned
      pharmacy.





***Agreement
      with TPG, L.L.C.***





On
      April
      24, 2003, we entered into an agreement with TPG, L.L.C. (“TPG”) for the purpose
      of funding the establishment and operations of pharmacies. Under this agreement,
      TPG held the right to fund on a joint venture basis fifty pharmacies that we
      established. In exchange for contributing financing in the amount of $230,000
      per pharmacy location, TPG acquired a 49% ownership interest in each pharmacy
      established under this agreement and we owned the remaining 51%. Under the
      terms
      of the agreement with TPG, our contribution to establish pharmacies primarily
      consisted of the right to utilize our intellectual property rights and to
      provide sales and marketing services.





Assured
      Pharmacies, Inc. (“API”) was formed to establish and operate the pharmacies that
      would be operated under the agreement with TPG. In accordance with the terms
      of
      the agreement with TPG, we owned 51% of API and TPG owned the remaining 49%.





Under
      this joint venture, we established our first pharmacy in Santa Ana, California
      and our second pharmacy in Riverside, California. On December 15, 2006, we
      entered into a Purchase Agreement with TPG and acquired all of its right, title
      and interest in 49 shares of common stock of API for $460,000 and the issuance
      of 50,000 shares of our common stock. The cash


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component
      of the purchase price is payable as follows:





i.
            $15,000
                was paid on or about December 15,
                2006;





ii.
            Eleven
                (11) consecutive monthly installments of $5,000 payable on or before
                the
                15thof
                each month commencing in January 2007 through November 2007;





iii.
            Fourteen
                (14) consecutive monthly installments of $15,000 payable on or before
                the
                15thof
                each month commencing in December 2007 through January 2009;
                and





iv.
            $180,000
                payable together with interest at the rate of prime plus 2% per annum
                commencing from the date of this Purchase Agreement payable on or
                before
                February 15, 2009. Interest shall accrue as of December 15, 2006,
                the
                effective date of this Agreement.





As
      a
      result of this acquisition, we increased our ownership interest in API to 100%
      making it a wholly-owned subsidiary and consequently resulting in the
      termination of our joint venture with TPG.





***Agreement
      with TAPG, L.L.C.***





In
      February 2004, we entered into an agreement (the “Agreement”) with TAPG, L.L.C.
      ("TAPG"), a Louisiana limited liability company, and formed Safescript
      Northwest, Inc. ("Safescript Northwest"), a Louisiana corporation. Safescript
      Northwest was formed to establish and operate up to five pharmacies.
      Effective August 19, 2004, Safescript Northwest filed amended articles of
      incorporation and changed its name to Assured Pharmacies Northwest, Inc.
      ("APN"). We initially owned 75% of APN, while TAPG owned the remaining 25%.
      In
      accordance with our shareholders agreement with TAPG, TAPG will provide start-up
      costs in the amount of $335,000 per pharmacy location established not to exceed
      five pharmacies. Under the terms of the agreement with TAPG, our contribution
      to
      establish pharmacies primarily consisted of the right to utilize our
      intellectual property rights and to provide sales and marketing
      services.





The
      Agreement provides that TAPG will contribute start-up costs in the amount of
      $335,000 per pharmacy location established not to exceed five pharmacies. Our
      contribution under the Agreement consists of granting the right to utilize
      our
      intellectual property rights and to provide sales and marketing services.
      Between March and October 2004, APN received from TAPG start-up funds in the
      amount of $854,213 as its capital contribution for three pharmacies. This
      capital contribution funded the opening of a pharmacy in Kirkland, Washington
      in
      August 2004 and another pharmacy in Portland, Oregon in September 2004. Included
      in these monies was a partial capital contribution in the amount of $190,000
      for
      the establishment of our second pharmacy location in Portland, Oregon. TAPG
      remains obligated to contribute an additional $145,000 to satisfy their full
      contribution. We and APN requested that TAPG provide the $150,787 balance of
      its
      full capital contribution. TAPG is also obligated to contribute their
      proportionate share of the start-up costs in excess of their initial capital
      contribution of $335,000


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per
      pharmacy. The Agreement defines start-up costs as any costs associated with
      the
      opening of any open pharmacy location that accrue within one hundred eighty
      days
      following the opening of that particular pharmacy.





Following
      the start-up period, we advanced interest-free loans to sustain operations
      at
      the pharmacies operated by APN. On March 6, 2006, these loans were converted
      into APN capital stock. Following the conversion of this debt into equity,
      we
      increased our ownership interest in APN from 75% to 94.8%. TAPG owns the
      remaining 5.2% interest.




***Safescript
      Pharmacies, Inc. (formerly known as RTIN Holdings, Inc.)
      License***





In
      May
      2003, we acquired by assignment the exclusive licensing rights to establish
      and
      operate pharmacies under the name “Safescript Pharmacies” throughout California,
      Oregon, Washington and Alaska (the “License”).





Safescript
      Pharmacies, Inc. (the “Licensor”) failed to provide us with essential services
      as set forth in the license agreement and this has forced us to terminate our
      use of all technology and rights granted by the License. On March 17, 2004,
      we
      filed a lawsuit in Nevada State Court against the Licensor seeking damages,
      declaratory relief, to rescind the License and to recover the consideration
      paid. On March 19, 2004, the Licensor filed for Chapter 11 bankruptcy
      protection. The litigation in Nevada State Court has been stayed by reason
      of
      the Licensor’s filing for bankruptcy. We refiled substantially the same claim as
      an adversary proceeding in the Licensor’s bankruptcy case in the U.S. Bankruptcy
      court located in Tyler, Texas. In July 2004, this case was transferred to the
      U.S. District Court for the Eastern District of Texas located in Tyler,
      Texas.





On
      June
      30, 2005, the United States Bankruptcy Court for the Eastern District of Texas
      located in Tyler, Texas approved a Settlement Agreement and Mutual Release
      (the
“Settlement Agreement”) between the
      Licensor and
      us.





Under
      the
      Terms of the Settlement Agreement, the
      Licensor retained
      100,000 shares of our common stock and returned 4,344,444 shares of common
      stock
      for cancellation. In addition, we issued the
      Licensor 500,000
      additional shares of our common stock and dismissed the lawsuit pending in
      the
      U.S. District Court for the Eastern District of Texas located in Tyler, Texas
      with prejudice. The Agreement contained a mutual release which resulted in the
      Licensor releasing
      us from of any outstanding liability with respect to a note payable due to the
      Licensor in
      the
      amount of approximately $1,013,000.





On
      July
      11, 2005, a creditor of the Licensor filed a motion with the District Court
      for
      reconsideration of its approval of the Settlement Agreement. On October 14,
      2005, the District Court denied the creditor’s motion. The creditor appealed the
      District Court’s approval of the Settlement Agreement. Due to a settlement
      between the Licensor and the creditor, the appeal was withdrawn finalizing
      our
      Settlement Agreement with the Licensor.


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***License
      Agreement with Network Technology, Inc. ("RxNT")***





On
      March
      15, 2004, we entered into a technology license agreement (“Technology License”)
      with Network Technology, Inc. (“RxNT”). The Technology License grants us the
      right to use RxNT’s e-prescribing technology under the brand name “Assured
      Script” and enables us to accept prescriptions electronically transmitted to our
      pharmacies. Pursuant to the Technology License agreement, we paid RxNT a
      licensing fee of $100,000 and are also responsible for paying RxNT a royalty
      equal to twenty five percent (25%) of the gross profit from sales of the
“Assured Script” product, which refers to the licensed products and technology
      set forth in the Technology License and not prescription drug sales. Given
      that
      we are in the business of owning and operating pharmacies, management does
      not
      anticipate that we would make any sales of the “Assured Script” product
      resulting in a royalty payment to RxNT.




On
      March 17, 2007, we renewed this agreement for a
      period of three years and agreed to pay an annual license fee of
      $54,000.




***Market
      for Our Products and Services***





Our
      target market initially was to dispense pharmaceutical products exclusively
      to
      patients who require medication for chronic pain management. We recently
      expanded our business beyond pain management to service customers that require
      prescriptions to treat cancer, psychiatric, and neurological conditions. These
      types of patients are likely to require prescription medications far more
      frequently and for longer periods of time than patients in most other medical
      categories.  In order to access this target market, our current marketing
      campaign is designed to further increase consumer awareness of our pharmacies
      and the services they provide to consumers in the Seattle, Washington and Los
      Angeles, California markets. Our specialty pharmacies maintain an inventory
      of
      highly regulated medication that is specifically tailored to the needs of our
      recurring customers. This practice frequently enables our pharmacies to fill
      customers’ prescriptions from its existing inventory and decreases the wait time
      required to fill these prescriptions. Our focus and familiarity with dispensing
      highly regulated medications better positions our pharmacists to understand
      the
      needs of our customers.





***Principal
      Suppliers***





We
      purchased 99.9% of our inventory of prescription drugs from one wholesale drug
      vendor during the year ended December 2006. Management believes that the
      wholesale pharmaceutical and non-pharmaceutical distribution industry is highly
      competitive because of the consolidation of the pharmacy industry and the
      practice of certain large pharmacy chains to purchase directly from product
      manufacturers. Although management believes we could obtain the majority of
      our
      inventory through other distributors at competitive prices and upon competitive
      payment terms if our relationship with our primary wholesale drug vendor was
      terminated, there can be no assurance that the termination of such a
      relationship would not adversely affect us.





***Customers
      and Third-Party Payors***





In
      fiscal
      2006, nearly all of our pharmacy sales were to customers covered by health
      care
      insurance plans, which typically contract with a third-party payor such as
      an
      insurance company, a prescription benefit management company, a governmental
      agency, workers’ compensation, a private employer, a health maintenance
      organization or other managed care provider that agrees


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to
      pay
      for all or a portion of a customer's eligible prescription purchases.  Any
      significant loss of third-party payor business could have a material adverse
      effect on our business and results of operations.





***Competition***





We
      face
      intense competition with local, regional and national companies, including
      other
      drugstore chains, independently owned drugstores, supermarkets, mass
      merchandisers, discount stores, dollar stores, mail order pharmacies and drug
      importation. Competition in this industry is intense primarily because national
      pharmacies including Walgreens and CVS Pharmacy have expanded significantly
      and
      prescription drugs are now offered at a variety of retail establishments when
      traditionally prescription drugs were only provided at local pharmacies.
      Supermarkets and discount stores now maintain retail pharmacies onsite as a
      part
      of a business plan to provide consumers with all of their retail needs at one
      location. Retail pharmacies such as Walgreens, CVS Pharmacy, and Rite Aid are
      not focused or dedicated to physicians practicing in pain management. These
      retail pharmacies traditionally keep in inventory non-prescription drugs, or
      health and beauty related products such as walking canes, bandages and shampoo.
      Consumers are able to have their prescriptions filled at these retail
      pharmacies, but typical retail pharmacies either do not keep in inventory or
      keep limited amounts of Class 2 drugs in inventory. As a result, the time it
      takes for traditional retail pharmacies to fill a prescription for Class 2
      drug
      is extended. Because of our pain management focus, we maintain an appropriate
      inventory level of Class 2 drugs to meet the needs of physicians that transmit
      prescription to our pharmacies and do not keep in inventory non-prescription
      drugs or health and beauty related products. We do not intend to sell
      over-the-counter medication or fill prescriptions unrelated to chronic pain
      management or other similar recurring conditions at our pharmacies. We will
      fill
      prescriptions that address any side effects experienced by individuals who
      have
      health conditions that require them to be treated for chronic pain.





Our
      management is unaware of any company that operates pharmacies in the United
      States that exclusively dispense pharmaceutical products to patients who require
      medication for chronic pain management or other chronic conditions.





***Patents,
      Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
      Contracts***





On
      March
      15, 2004, we entered into a technology license agreement (“Technology License”)
      with Network Technology, Inc. (“RxNT”). The Technology License grants us the
      right to use RxNT’s e-prescribing technology under the brand name “Assured
      Script.”





On
      November 9, 2004, we received trademark approval (registration number 2901258)
      by the United States Patent and Trademark Office for the “ *eRXSYS* ”
company
      logo. We changed our name to Assured Pharmacy, Inc. in October 2005 and no
      longer utilize the trademarked “ *eRXSYS* ”
logo.


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State
      law
      requires pharmacies to apply to the State Board of Pharmacy to receive a license
      to operate. The application process to operate a pharmacy is substantially
      similar among different states. The application process for a license on average
      takes sixty days in the state of California. In addition, each pharmacy must
      employ a licensed pharmacist to serve as the Pharmacist in Charge (PIC). The
      PIC
      oversees personnel and reports on the operations at a specific pharmacy. State
      law regulates the number of employees and clerks that can work under the
      supervision of one PIC. Currently, we are licensed to operate four
      pharmacies.




***Research
      and Development***





We
      did
      not incur any research and development expenditures in either the fiscal year
      ended December 31, 2006 or the fiscal year ended December 31, 2005.





***Existing
      and Probable Governmental Regulation***





Pharmacy
      operations are subject to significant governmental regulation on the federal
      and
      state level. Compliance with governmental regulation is essential to continued
      operations. We are in compliance with each of the laws, rules, and regulations
      set forth below and have not experienced any incidence of
      noncompliance.





*Licensure
      Laws*





Each
      state’s board of pharmacy enforces laws and regulations governing pharmacists
      and pharmacies. Each of our pharmacies applied and received a license. Licensure
      requires strict compliance with state pharmacy standards. Although we believe
      our pharmacies are compliant, changes in pharmacy laws and differing
      interpretations regarding such laws could impact our level of compliance. A
      pharmacy’s failure to comply with applicable law and regulation could result in
      licensure revocation as well as the imposition of fines and
      penalties.





*Drug
      Enforcement Laws*





The
      United States Department of Justice enforces the Drug Enforcement Act through
      the Drug Enforcement Agency (DEA). The DEA strictly enforces regulations
      governing controlled substances. In addition to regulation by the DEA, we are
      subject to significant state regulation regarding controlled substances. Because
      our pharmacies’ operations focus on highly regulated pain medications, failure
      to adhere to DEA and state controlled substance requirements could jeopardize
      our ability to operate. While we believe we are in compliance with current
      DEA
      requirements, such requirements and interpretation of these requirements do
      change over time.





*Federal
      Health Programs*





As
      we
      grow, we believe that a significant amount of our revenues will be derived
      from
      governmental programs such as Medicaid. With the recent passage of the Medicare
      Modernization and Prescription Drug Act of 2003, we also believe that Medicare
      will become a significant source of funding.


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*The
      Federal Health Care Programs Anti-Kickback Act*





Federal
      law prohibits the solicitation or receipt of remuneration in return for
      referrals and the offer or payment of remuneration to induce the referral of
      patients or the purchasing, leasing, ordering or arranging for any good,
      facility, service or item for which payment may be made under a “federal health
      care program” (defined as “any plan or program that provides health benefits,
      whether directly, through insurance, or otherwise, which is funded directly,
      in
      whole or in part, by the United States Government other than the Federal
      Employees Health Benefit Program”).





Because
      our business and operations involve providing health care services, we are
      subject to the Federal Health Care Programs Anti-Kickback Act (the “Act”). The
      Anti-Kickback Statute, codified in 42 U.S.C. § 1320a-7b(b), prohibits
      individuals and entities from knowingly and willfully soliciting, receiving,
      offering or paying any remuneration to other individuals and entities (directly
      or indirectly, overtly or covertly, in cash or in kind):





(i)
            In
                return for referring an individual to a person for the furnishing
                or
                arranging for the furnishing of any item or service for which payment
                may
                be made under a federal or state health care program;
                or





(ii)
            In
                return for purchasing, leasing, ordering or arranging for or recommending
                purchasing, leasing, or ordering any good, facility, service or item
                for
                which payment may be made under a federal or state health care
                program.





There
      are
      both criminal and civil penalties for violating the Federal Statute. Criminal
      sanctions include a fine not to exceed $25,000 or imprisonment up to five years
      or both, for each offense. In addition, monetary penalties for each offense
      may
      be increased to up to $250,000 for individuals and up to $500,000 for
      organizations. Civil penalties include fines of up to $50,000 for each
      violation, monetary damages up to three times the amount paid for referrals
      and/or exclusion from the Medicare program. Courts have broadly construed the
      Anti-Kickback Statute to include virtually anything of value given to an
      individual or entity if one purpose of the remuneration is to influence the
      recipient’s reason or judgment relating to referrals.




The
      Department of Health and Human Service’s Office of Inspector General (“OIG”)
      promulgated safe harbor regulations specifying payment practices that will
      not
      be considered to violate the statute. If a payment practice falls within one
      of
      the safe harbors, it will be immune from criminal prosecution and civil
      exclusion under the Act even if it fails to fall within another potentially
      applicable safe harbor. Significantly, failure to fall within any safe harbor
      does not necessarily mean that the payment arrangement violates the statute.
      Failure to comply with a safe harbor can mean one of three things: (1) the
      arrangement does not fall within the broad scope of the anti-fraud and abuse
      rules so there is no risk of prosecution; (2) the arrangement is a clear
      statutory violation and is subject to prosecution; or (3) the arrangement may
      violate the anti-fraud and abuse rules in a less serious manner, in which case
      there is no way to predict the degree of risk.


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Because
      our pharmacies maintain relationships with referring physicians, our operations
      are subject to scrutiny under the Act. Although we will attempt to structure
      our
      financial relationships with physicians in a manner that qualifies for safe
      harbor protection, we anticipate that our relationships with physicians will
      not
      qualify for safe harbor protection.





If
      our
      operations fail to comply with the Act, we could be criminally sanctioned.
      In
      addition, the right of any of our pharmacies to participate in governmental
      health plans could be terminated.





*Ethics
      in Patient Referrals Act*





The
      Ethics in Patient Referrals Act, 42 U.S.C. §1395nn, commonly referred to as
      Stark II (“Stark II”), prohibits physicians from referring or ordering certain
      Medicare or Medicaid reimbursable “designated health services” from any entity
      with which the physician or any immediate family member of the physician has
      a
      financial relationship. A financial relationship is generally defined as a
      compensation or ownership/investment interest. The purpose of the prohibition
      is
      to assure that physicians base their treatment decisions upon the needs of
      the
      patients and not upon any financial benefit that would inure to the physician
      as
      a result of the referral.





Prescription
      medications are classified as “designated health services” under Stark II.
      Physicians owning stock in our Company are not allowed to refer any Medicare
      or
      Medicaid patient to any of our pharmacies until and unless our Company’s
      capitalization exceeds $75,000,000. A referral made in violation of Stark II
      results in non-payment to the pharmacy and could result in the imposition of
      fines and penalties as well as termination of our participation in Medicare
      and
      Medicaid.





*State
      Fraud and Abuse Laws*





States
      have generally adopted their own laws similar to the Act and Stark II. However,
      in some instances, state laws apply to all health care services, regardless
      of
      whether such services are payable by a government health plan. For example,
      in
      California, physicians and other practitioners are not permitted to own more
      than 10% of any entity that owns a pharmacy.




*HIPAA*





We
      are
      impacted by the Health Insurance Portability and Accountability Act of 1996
      (“HIPAA”), which mandates, among other things, the adoption of standards to
      enhance the efficiency and simplify the administration of the healthcare system.
      HIPAA requires the Department of Health and Human Services to adopt standards
      for electronic transactions and code sets for basic healthcare transactions
      such
      as payment and remittance advice (“transaction standards”); privacy of
      individually identifiable healthcare information (“privacy standards”); security
      and electronic signatures (“security standards”), as well as unique identifiers
      for providers, employers, health plans and individuals; and enforcement. We
      are
      required to comply with these standards and are subject to significant civil
      and
      criminal penalties for failure to do so.


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Management
      believes that we are in material compliance with these standards. However,
      HIPAA's privacy and transaction standards only recently became effective, and
      the security standards are mandatory as of April 21, 2005. Considering HIPAA's
      complexity, there can be no assurance that future changes will not occur.
      Changes in standards as well as changes in the interpretation of those standards
      could require us to incur significant costs to ensure compliance.





Management
      anticipates that federal and state governments will continue to review and
      assess alternate healthcare delivery systems, payment methodologies and
      operational requirements for pharmacies. Given the continuous debate regarding
      the cost of healthcare services, management cannot predict with any degree
      of
      certainty what additional healthcare initiatives, if any, will be implemented
      or
      the effect that any future legislation or regulation may have on
      us.





*OBRA
      1990*





Our
      business is subject to various other federal and state regulations. For example,
      pursuant to the Omnibus Budget Reconciliation Act of 1990 ("OBRA") and
      comparable state regulations, our pharmacists are required to offer counseling,
      without additional charge, to our customers about medication, dosage, delivery
      systems, common side effects and other information deemed significant by the
      pharmacists and may have a duty to warn customers regarding any potential
      adverse effects of a prescription drug if the warning could reduce or negate
      such effect.





California
      Senate Bill #151 was chaptered by the California Secretary of State on September
      17, 2003. This legislation tightens the regulations on prescribing prescription
      medication. The legislation allows for electronic prescribing of all
      prescription medication except Class 2 substances. Generally, Class 2 substances
      are drugs that exhibit a high potential for abuse or diversion. Class 2
      substances are required to be dispensed only against a hard copy prescription.
      This will not pose any operational problem for us because we currently generate
      a hard copy of the electronic prescription for all Class 2 prescriptions issued.
      Management believes that this legislation will create no undue burden or
      competitive disadvantage for us.





*Other
      Laws*





In
      recent
      years, an increasing number of legislative proposals have been introduced or
      proposed in Congress and in some state legislatures that would effect major
      changes in the healthcare system, either nationally or at the state level.
      The
      legislative initiatives include prescription drug benefit proposals for Medicare
      participants. Although we believe we are well positioned to respond to these
      developments, we cannot predict the outcome or effect of legislation resulting
      from these reform efforts.





***Compliance
      with Environmental Laws***





We
      did
      not incur any costs in connection with the compliance with any federal, state,
      or local environmental laws.


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***Employees***





We
      currently have twenty-five employees of which twenty-three are full-time
      employees. We currently retain four consultants. Our employees are not
      represented by labor unions or collective bargaining agreements. The
      classification of our full-time employees and consultant positions are broken
      down as follows:





**Characterization
                of****Employee’s
                Duties**
            **Number
                of Employees**
            **Number
                of Consultants**Corporate
                Management / Officer
            3
            0Sales
                / Business Development
            6
            0Technology
            2
            0Accounting
            0
            4Pharmacist
            6
            0Technicians
                / Pharmacy Support
            8
            0





**Item
      2. Description of Property**





We
      are
      currently leasing our executive offices and pharmacy locations. Our executive
      offices are located at 17935 Sky Park Circle, Suite F, Irvine, California 92614.





We
      currently operate six retail pharmacies at the following locations:





2431
      N.
      Tustin Ave., Unit L, Santa Ana, California, 92705


7000
      Indiana, Ave., Suite 112, Riverside, California, 92506


12071
      124th Avenue NE, Kirkland, Washington, 98034


3822
      S.E.
      Powell Blvd, Portland, Oregon, 97202.


10196
      SW
      Park Way, Portland Oregon, 97225


520
      South
      El Camino Real - Building 4B, Gresham, Oregon, 97030





Future
      store locations, when established, will be selected based on the following
      criteria: 1) proximity to the physician members and medical facilities, 2)
      convenience of location, and 3) fast growing metropolitan areas with a
      population of at least 500,000. Retail pharmacies are approximately 1,500 square
      feet and are leased from various property management companies for approximately
      five years.





**Item
      3. Legal Proceedings**





From
      time
      to time, we may be involved in various claims, lawsuits, and disputes with
      third
      parties, actions involving allegations of discrimination or breach of contract
      actions incidental to the normal operations of the business.





Providing
      pharmacy services entails an inherent risk of medical and professional
      malpractice liability. We may be named as a defendant in such lawsuits and
      thus
      become subject to the attendant risk of substantial damage awards. We believe
      that we have adequate professional and medical malpractice liability insurance
      coverage. There can be no assurance, however, that we


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will
      not
      be sued, that any such lawsuit will not exceed our insurance coverage, or that
      we will be able to maintain such coverage at acceptable costs and on favorable
      terms.




We
      are
      not a party to any pending legal proceeding. We are not aware of any pending
      legal proceeding to which any of our officers, directors, or any beneficial
      holders of 5% or more of our voting securities are adverse to us or have a
      material interest adverse to us.





**Item
      4. Submission of Matters to a Vote of Security
      Holders**





No
      matters have been submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the fourth quarter of the fiscal
      year ended December 31, 2006.





**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





**Market
      Information**





Our
      common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
      sponsored by the NASD. The OTCBB is a network of security dealers who buy and
      sell stock. The dealers are connected by a computer network that provides
      information on current "bids" and "asks", as well as volume information. Our
      shares are quoted on the OTCBB under the symbol “APHY.”





The
      following table sets forth the range of high and low bid quotations for our
      common stock for each of the periods indicated as reported by the OTCBB. These
      quotations reflect inter-dealer prices, without retail mark-up, mark-down or
      commission and may not necessarily represent actual transactions.





Fiscal
                Year Ending December 31, 2006Quarter
                Ended
            
            High
                $
            
            Low
                $March
                31, 2006
            
            0.57
            
            0.24June
                30, 2006
            
            0.491
            
            0.25September
                30, 2006
            
            0.40
            
            0.35December
                31, 2006
            
            0.44
            
            0.35Fiscal
                Year Ended December 31, 2005Quarter
                Ended
            
            High
                $
            
            Low
                $March
                31, 2005
            
            0.50
            
            0.28June
                30, 2005
            
            0.42
            
            0.28September
                30, 2005
            
            0.48
            
            0.33December
                31, 2005
            
            0.48
            
            0.34


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**Penny
      Stock**





The
      SEC
      has adopted rules that regulate broker-dealer practices in connection with
      transactions in penny stocks. Penny stocks are generally equity securities
      with
      a market price of less than $5.00, other than securities registered on certain
      national securities exchanges or quoted on the NASDAQ system, provided that
      current price and volume information with respect to transactions in such
      securities is provided by the exchange or system. The penny stock rules require
      a broker-dealer, prior to a transaction in a penny stock, to deliver a
      standardized risk disclosure document prepared by the SEC, that: (a) contains
      a
      description of the nature and level of risk in the market for penny stocks
      in
      both public offerings and secondary trading; (b) contains a description of
      the
      broker's or dealer's duties to the customer and of the rights and remedies
      available to the customer with respect to a violation of such duties or other
      requirements of the securities laws; (c) contains a brief, clear, narrative
      description of a dealer market, including bid and ask prices for penny stocks
      and the significance of the spread between the bid and ask price; (d) contains
      a
      toll-free telephone number for inquiries on disciplinary actions; (e) defines
      significant terms in the disclosure document or in the conduct of trading in
      penny stocks; and (f) contains such other information and is in such form,
      including language, type size and format, as the SEC shall require by rule
      or
      regulation.





The
      broker-dealer also must provide, prior to effecting any transaction in a penny
      stock, the customer with (a) bid and offer quotations for the penny stock;
      (b)
      the compensation of the broker-dealer and its salesperson in the transaction;
      (c) the number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market for
      such stock; and (d) a monthly account statement showing the market value of
      each
      penny stock held in the customer's account.





In
      addition, the penny stock rules require that prior to a transaction in a penny
      stock not otherwise exempt from those rules, the broker-dealer must make a
      special written determination that the penny stock is a suitable investment
      for
      the purchaser and receive the purchaser's written acknowledgment of the receipt
      of a risk disclosure statement, a written agreement as to transactions involving
      penny stocks, and a signed and dated copy of a written suitability
      statement.





These
      disclosure requirements may have the effect of reducing the trading activity
      for
      our common stock. Therefore, stockholders may have difficulty selling our
      securities.





**Holders
      of Our Common Stock**





As
      of
      March 6, 2007, we had approximately one hundred thirty-four holders of record
      of
      our common stock and several other stockholders hold shares in street
      name.





**Dividends**





There
      are
      no restrictions in our articles of incorporation or bylaws that
      restrict us from
      declaring dividends. The Nevada Revised Statutes, however, do prohibit us from
      declaring dividends where, after giving effect to the distribution of the
      dividend:


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1.
            We
                would not be able to pay our debts as they become due in the usual
                course
                of business; or





2.
            Our
                total assets would be less than the sum of our total liabilities,
                plus the
                amount that would be needed to satisfy the rights of shareholders
                who have
                preferential rights superior to those receiving the
                distribution.





**Recent
      Sales of Unregistered Securities**





The
      information set forth below relates to our issuances of securities without
      registration under the Securities Act of 1933 during the reporting period which
      were not previously included in a Quarterly Report on Form 10-QSB or Current
      Report on Form 8-K.





In
      February 2007, we granted as a performance base bonus to an officer of the
      company options to purchase 750,000 shares of our common stock vesting over
      a
      two year period of time from the date of issuance and exercisable at the
      exercise price of $0.60 per share. These shares and options were issued pursuant
      to Section 4(2) of the Securities Act of 1933, as amended.





In
      February 2007, we issued 300,000 shares of our common stock to outside members
      of our board of directors in consideration for services rendered as a member
      of
      the board. These shares were valued at $114,000 (estimated to be the fair value
      based on the trading price on the issuance date). These shares were issued
      pursuant to Section 4(2) of the Securities Act of 1933, as amended. We did
      not
      engage in any general solicitation or advertising. The stock certificates issued
      had the appropriate legends affixed to the restricted stock.





In
      February 2007, we issued 100,000 shares of restricted common stock, valued
      at
      $34,000 (estimated to be the fair value based on the trading price on the
      issuance date) granted warrants to purchase 100,000 shares of our common stock,
      exercisable at $0.60 per share until December 31, 2009, and granted warrants
      to
      purchase 100,000 shares of our common stock, exercisable at $0.80 per share
      until December 31, 2009 to a consultant in exchange for services rendered.
      These
      shares and warrants were issued pursuant to Section 4(2) of the Securities
      Act.
      We did not engage in any general solicitation or advertising. We issued the
      stock certificates and affixed the appropriate legends to the restricted
      stock.





In
      January 2007, we issued 75,000 shares of restricted common stock to one
      consultant for services rendered, valued at $28,500 (estimated to be the fair
      value based on the trading price on the issuance date). These shares were issued
      pursuant to Section 4(2) of the Securities Act of 1933. We did not engage in
      any
      general solicitation or advertising. We issued the stock certificates and
      affixed the appropriate legends to the restricted stock.





In
      January 2007, we completed a private offering of one-year unsecured convertible
      debentures (“Debenture”) carrying an interest rate of 18% per annum and raised
      total proceeds of $2,458,500. The Debenture provides that all the interest
      is
      payable solely in the shares of our common stock on the issuance date. The
      number of shares issued as interest was calculated based upon average closing
      price for our common stock on NASD OTCBB for the five (5) consecutive


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trading
      days preceding the issuance date. We issued 1,265,987 restricted shares of
      our
      common stock as interest. The Debenture holders have the right to convert their
      Debenture into fully paid non-assessable shares of our common stock at $0.40
      and
      Common Stock Purchase Warrants to purchase one (1) share of restricted common
      stock at an exercise price of $0.60 exercisable for 12 months after the
      conversion date and to purchase one (1) share of restricted common stock at
      an
      exercise price of $0.80 exercisable for 24 months. The Debenture and the shares
      issued as interest were issued pursuant to Section 4(2) of the Securities Act
      of
      1933. We did not engage in any general solicitation or advertising. We issued
      the stock certificates and affixed the appropriate legends to the restricted
      stock.





During
      the fourth quarter of the fiscal year ended December 31, 2006, we issued 250,000
      shares of restricted common stock to a warrant holder that elected to exercise
      his warrants at the exercise price of $0.60 per share. We received total
      proceeds of $150,000. These shares were issued pursuant to Section 4(2) of
      the
      Securities Act of 1933. We did not engage in any general solicitation or
      advertising. We issued the stock certificates and affixed the appropriate
      legends to the restricted stock.





During
      the fourth quarter of the fiscal year ended December 31, 2006, we issued 50,000
      shares of restricted common stock to TPG, LLC as part of the total consideration
      paid for their 49% ownership interest in Assured Pharmacies, Inc. These shares
      were issued pursuant to Section 4(2) of the Securities Act of 1933. We did
      not
      engage in any general solicitation or advertising. We issued the stock
      certificates and affixed the appropriate legends to the restricted
      stock.





During
      the fourth quarter of the fiscal year ended December 31, 2006, we issued 250,000
      shares of restricted common stock to two consultants for services rendered,
      valued at $77,500 (estimated to be the fair value based on the trading price
      on
      the issuance date). These shares were issued pursuant to Section 4(2) of the
      Securities Act of 1933. We did not engage in any general solicitation or
      advertising. We issued the stock certificates and affixed the appropriate
      legends to the restricted stock.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





The
      following table provides information about our compensation plans under which
      shares of common stock may be issued upon the exercise of options as of December
      31, 2006.


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**Equity
      Compensation Plans as of December 31, 2006**


A
            B
            C**Plan
                Category**
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            **Weighted-average
                exercise price**
              **of
                outstanding options,**
              **warrants
                and right**
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (A))**Equity
                compensation plans
              approved
                by security
              holders
            -
            -
            5,520,613Equity
                compensation plans
              not
                approved by security
              holders
            9,680,000
            $0.60
            9,680,000Total
            9,680,000
            $0.60
            15,200,613





**Item
      6. Management’s Discussion and Analysis**





**Forward-Looking
      Statements**




Certain
      statements, other than purely historical information, including estimates,
      projections, statements relating to our business plans, objectives, and expected
      operating results, and the assumptions upon which those statements are based,
      are “forward-looking statements” within the meaning of the Private Securities
      Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
      and Section 21E of the Securities Exchange Act of 1934. These
      forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
      similar expressions. We
      intend
      such forward-looking statements to be covered by the safe-harbor provisions
      for
      forward-looking statements contained in the Private Securities Litigation Reform
      Act of 1995, and are including this statement for purposes of complying with
      those safe-harbor provisions. Forward-looking
      statements are based on current expectations and assumptions that are subject
      to
      risks and uncertainties which may cause actual results to differ materially
      from
      the forward-looking statements. Our
      ability to predict results or the actual effect of future plans or strategies
      is
      inherently uncertain. Factors which could have a material adverse affect on
      our
      operations and future prospects on a consolidated basis include, but are not
      limited to: changes in economic conditions, legislative/regulatory changes,
      availability of capital, interest rates, competition, and generally accepted
      accounting principles. These risks and uncertainties should also be considered
      in evaluating forward-looking statements and undue reliance should not be placed
      on such statements. We
      undertake no obligation to update or revise publicly any forward-looking
      statements, whether as a result of new information, future events or otherwise. Further
      information concerning our business, including additional


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factors
      that could materially affect our financial results, is included herein and
      in
      our other filings with the SEC.





**Overview**





We
      currently have six operating pharmacies. As a result of the growth in our
      business and improvement in our operations, our management is seeking to expand
      our business by establishing additional pharmacies which are wholly-owned.
      Our
      management is seeking to open five additional wholly-owned pharmacies during
      2007 financed through internal cash flow. We are currently considering locations
      within or in close proximity to medical facilities located in major metropolitan
      areas within Southern California and Las Vegas, Nevada for our next location
      and
      are considering locations in Arizona, California, Nevada, Oregon, Texas, and
      Washington for future locations.





Our
      pharmacies have principally specialized in dispensing highly regulated pain
      medication for acute chronic pain management. We recently expanded the reach
      of
      our business beyond pain management to service customers that require
      prescriptions to treat cancer, psychiatric, and neurological conditions. Our
      management attributes the recent growth in our business in part to us being
      able
      to fill prescriptions that can accommodate a broader range of customers.





Typical
      retail pharmacies either do not keep in inventory or maintain limited amounts
      of
      highly regulated medications. As a result, the time it takes for a traditional
      retail pharmacy to fill these prescriptions is prolonged. Our specialty
      pharmacies maintain an inventory of highly regulated medication that is
      specifically tailored to the needs of our recurring customers. This practice
      frequently enables our pharmacies to fill customers’ prescriptions from its
      existing inventory and decreases the wait time required to fill these
      prescriptions. Our focus and familiarity with dispensing highly regulated
      medications better positions our pharmacists to understand the needs of our
      customers.





In
      an
      attempt to further expand our business and improve our marketing plan, we
      retained the marketing firm of Rainmaker & Sun Integrated Marketing, Inc.
      (“Rainmaker”). With the assistance of Rainmaker, we revised our marketing plan
      and launched a new marketing campaign in July 2006. Our new marketing strategy
      shifted the target of our marketing efforts from physicians to also include
      the
      patient. This marketing campaign was initially targeted to consumers in the
      Seattle, Washington and Los Angeles, California test markets. Our marketing
      efforts are designed to further increase consumer awareness of our pharmacies
      and the services they provide. Initially, our marketing campaign consisted
      primarily of print advertisements which appeared in newspaper inserts, on
      billboards, bus shelter displays and in direct mailings. These marketing efforts
      have not reached the level of success anticipated by management. As a result,
      we
      are in the process of revising our marketing strategy to increase consumer
      awareness of our pharmacies by sponsoring community events and support groups
      that are intended to benefit our target market. We are also expanding the target
      of our marketing efforts to include all areas surrounding our pharmacies.


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Also
      in
      an attempt to expand our business, we increased our sales force from 2 to 4
      persons during 2006. Our management attributes the increases in our business
      to
      the efforts of additional sales personnel added during the reporting period.
      Based on the positive results achieved by retaining additional sales personnel,
      our management intends to further increase our sales force to as many as 8
      persons during the fiscal year ended December 31, 2007. Our management
      anticipates that further expanding our sales force will have a positive material
      impact on our operations.





The
      table
      set forth below summarizes the number of prescriptions filled by our five
      operating pharmacies during the year ended December 31, 2006 and 2005. Our
      second pharmacy established in Portland, Oregon began filling prescriptions
      during the three months ended September 30, 2006 and the total number of
      prescriptions filled at this location had no material impact on our total
      prescriptions filled because it only recently commenced operations.





Year
                endedDecember
                31, 2006
            Year
                endedDecember
                31, 2005Total
                Number of Prescriptions
            54,891
            29,783Average
                Prescriptions Per Week
            1,056
            573





Excluding
      the prescriptions filled at our second pharmacy established in Portland, Oregon,
      the total number of prescriptions filled at our pharmacies for the year ended
      December 31, 2006 increased to 52,655 which is approximately 77% from the 29,815
      total prescriptions filled at the same four pharmacies in the prior year ended
      December 31, 2005. Our management primarily credits the increases in our
      business to the efforts of additional sales personnel added during the reporting
      period and the expanded reach of our business beyond pain
      management.





We
      have
      also developed a monthly call program where our pharmacies are now contacting
      each recurring patient directly on a monthly basis to ensure that the patient
      has experienced no complications with the prescribed medication and to inquire
      into whether the patient needs the prescription refilled. At the time of each
      monthly call, our pharmacies are also inquiring into whether other members
      of
      the household also need a prescription refilled. Our management anticipates
      that
      the monthly call program will enhance consumer loyalty and continue to increase
      the total number of prescriptions filled at our pharmacies.




On
      an
      ongoing basis, our management is evaluating our operations and seeking
      additional opportunities to expand our business. During the fiscal quarter
      ended
      March 31, 2006, we established a working relationship with a specialty
      compounding pharmacy, which will enable physicians to prescribe custom
      compounded drugs and have those prescriptions filled at our pharmacies. Since
      this time, we have established relationships with other compound drug providers
      to increase our available inventory of compounded drugs. Pharmaceutical
      compounding is the combining, mixing, or altering of ingredients to create
      a
      customized medication for an individual patient in response to a licensed
      physician’s prescription. Physicians often prescribe compounded medications for
      reasons that include situations where there is not presently a commercially
      available drug to treat the unique health condition of an individual patient
      or
      to combine several medications the patient is taking to increase compliance.
      Custom compounded drugs can offer additional means of treating chronic pain.
      We
      anticipate that our


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ability
      to fill prescriptions for custom compounded drugs will expand our business
      and
      enable us to better service patients who require treatment for chronic pain
      management. During the year ended December 31, 2006, we filled 226 prescriptions
      for custom compounded drugs which generated $47,060 in revenue. The gross profit
      margin on these prescriptions was 45%.





As
      a
      result of our consumers’ favorable response to this product offering and the
      high gross profit margins on custom compounded drugs, our management is
      committed to expanding this area of our business. Our management has been
      successful in increasing our sales of custom compounded drugs. During the three
      months ended September 30, 2006, we generated our first compounded drug sales
      and filled 72 prescriptions for custom compounded drugs. The total number of
      prescriptions filled for compounded drugs during the three months ended December
      31, 2006 was 154 which is an increase of approximately 113% from the prior
      three
      months ended September 30, 2006.




Our
      management also determined that we could expand our business through developing
      arrangements with third party health plan providers to accept traditional
      co-payments and fill prescriptions for their members who rely upon overnight
      courier for delivery of their prescription. Our management believes that such
      arrangements will broaden our consumer base and enable us to access a particular
      niche of consumer that receives their prescriptions exclusively via courier
      as
      opposed to patronizing traditional retail pharmacy locations.





On
      January 3, 2006, we incorporated Assured Pharmacy Plus, Corp. (“Plus Corp.”) as
      a wholly-owned subsidiary to develop this opportunity. We entered into an
      arrangement with Affiliated Healthcare Administrators (“AHA”), a third party
      health plan administrator, to provide prescription service to their members.
      Under the arrangement with AHA, our pharmacies will provide prescription service
      to AHA members upon receipt of a traditional co-payment. Thereafter, we will
      process the prescription claim with AHA and receive the remaining balances
      due
      for their member’s prescription purchases. Plus Corp. will process claims
      relating to the prescription filled at our pharmacies for AHA members in
      exchange for an administration fee. During the year ended December 31, 2006,
      we
      generated $8,759 in revenue from providing prescription to AHA members. Our
      management is contemplating expanding the operations of Plus Corp. by licensing
      the entity as a pharmacy that exclusively focuses on servicing the niche of
      consumers that are members of third party health plan administrators and receive
      their prescriptions exclusively via courier.





Also
      on
      January 3, 2006, we incorporated Assured Pharmacy DME, Corp. (“DME”) as a
      wholly-owned subsidiary for the purpose of facilitating and making available
      specialized medical equipment to our consumers. We established a relationship
      with a provider of specialized medical equipment to make these products
      available to our consumers. In July 2006, we began notifying our consumers
      of
      the availability of these products by disseminating a notification with each
      prescription filled at our pharmacies. We accept and process orders for
      specialized medical equipment. We will not maintain any inventory of specialized
      medical equipment at any of our pharmacies. All orders will be shipped directly
      to the consumer from a product wholesaler. During the year ended December 31,
      2006, we generated $6,376 in revenue from sales of specialized medical
      equipment, but generated no sales in the three months ended December 31, 2006.
      The gross profit margin on these orders for specialized medical equipment was


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approximately
      63%. Our management is encouraged by our consumers’ early response to our
      offering of specialized medical equipment, but has not committed any significant
      resources to expanding this area because it is presently allocating our
      resources towards developing future locations and increasing our sales of custom
      compounded drugs. Our management believes that our business can expand
      significantly by providing specialized medical equipment to our consumers and
      anticipates committing additional resources in the second and third quarter
      of
      2007 to expand this area of our business.





**Results
      of Operations for the Years Ended December 31, 2006 and
      2005**





*Revenues*





Our
      total
      revenue reported for the year ended December 31, 2006 was $7,897,118, a 106%
      increase from $3,836,737 for the year ended December 31, 2005. Our revenue
      for
      the year ended December 31, 2006 and 2005 was generated almost exclusively
      from
      the sale of prescription drugs. The average revenue generated per prescription
      during the year ended December 31, 2006 was $146. We generated more revenue
      in
      the year ended December 31, 2006 than in any other annual period since our
      inception.





The
      table
      set forth below shows our total reported gross revenue generated for each
      quarterly period during fiscal 2005 and 2006:





2005
            
            2006Quarterly
                Period Ended March 31
            $
            648,402
            
            $
            1,515,645Quarterly
                Period Ended June 30
            $
            789,404
            
            $
            1,894,976Quarterly
                Period Ended September 30
            $
            980,181
            
            $
            2,310,248Quarterly
                Period Ended December 31
            $
            1,418,749
            
            $
            2,176,249





Our
      management attributes the significant increase in our revenue from the prior
      fiscal year to our successful marketing efforts and an expansion of our business
      beyond the pain management sector to service customers that require
      prescriptions to treat cancer, psychiatric, and neurological conditions. Our
      management anticipates that our revenues generated will continue to increase
      based upon the efforts of additional sales personnel retained during the
      reporting period and the establishment of additional pharmacies in the current
      year. After approximately a two year period without opening any additional
      pharmacy locations, we opened our fifth pharmacy located in Portland, Oregon
      on
      June 21, 2006 and our sixth pharmacy located in Gresham, Oregon on January
      26,
      2007. Although the operations at these new locations had no material impact
      on
      our results of operations, we anticipate the establishment of these pharmacies
      and additional locations will increase our revenues for the fiscal year ended
      December 31, 2007.





*Cost
      of Sales*





The
      total
      cost of sales for the year ended December 31, 2006 was $6,222,267, a 99%
      increased from $3,120,958 for the year ended December 31, 2005. The cost of
      sales consists primarily of the pharmaceuticals. The increase in cost of sales
      is primarily attributable to increased sales in the reporting period. Our sales
      increased in the year ended December 31, 2006 by 106%.




21
 Table
            of Contents





During
      the fiscal year ended December 31, 2005, we negotiated cost reductions and
      more
      favorable credit terms with our primary drug supplier. As a result, we incurred
      lower costs of sales on a per unit basis during the year ended December 31,
      2006.





*Gross
      Profit*





Gross
      profit increased to $1,674,851, or approximately 21% of sales, for the year
      ended December 31, 2006. This is an increase from a gross profit of $715,779,
      or
      approximately 18% of sales for the year ended December 31, 2005.





The
      increase in the gross profit percentage for the year ended December 31,
      2006 when compared to the prior fiscal year is attributable to increased sales
      of generic type drugs which have lower costs and higher gross margins. In
      addition, we negotiated cost reductions and more favorable credit terms from
      our
      primary pharmaceutical supplier during the year ended December 31, 2005.





*Operating
      Expenses*





Operating
      expenses for the year ended December 31, 2006 was $5,871,564, a 11% decrease
      from $6,633,595 for the year ended December 31, 2005. Our operating expenses
      for
      the year ended December 31, 2006 consisted of salaries and related expenses
      of
      $2,193,682, consulting and other compensation of $1,555,354, and selling,
      general and administrative expenses of $2,122,528. Our operating expenses for
      the year ended December 31, 2005 consisted of salaries and related expenses
      of
      $3,574,137, consulting and other compensation of $1,579,524, selling, general
      and administrative expenses of $1,286,053 and restructuring charges of $193,881.





Salaries
      and related expenses were significantly higher in the year ended December 31,
      2005 when compared to the current fiscal year primarily as a result of out
      of
      the money options valued at $1,950,000 and common stock valued at $70,000
      granted to our executive officers in 2005. The increase in consulting and other
      compensation is primarily attributable to the amortization resulting from the
      issuance of shares of restricted common stock to consultants over the life
      of
      the consulting agreements. The increase in selling, general and administrative
      expenses is primarily attributable to the expenses associated to launch our
      new
      marketing plan.




*Other
      Income and Expense*





During
      the year ended December 31, 2006, we reported other expenses in the amount
      of
      $363,882, compared to reporting other income in the amount of $844,889 for
      the
      prior year. The
      other
      income reported during the year ended December 31, 2005 was
      primarily attributable to the forgiveness of a note payable in
      the amount of approximately $1,013,000.


22
 Table
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We
      incurred interest expense of $201,735 during the year ended December 31, 2006
      and $131,539 during the year ended December 31, 2005. Interest expense for
      the
      year ended December 31, 2006 was incurred on financing from related parties
      and
      on convertible debentures issued during the reporting period.





*Net
      Loss*





Net
      loss
      for the year ended December 31, 2006 was $4,501,839, compared to net loss of
      $4,797,092 for the year ended December 31, 2005. The decrease in our net loss
      was primarily attributable to increased gross profit and lower operating
      expenses during the reporting period.





Our
      loss
      per common share for the year ended December 31, 2006 was $0.09, compared to
      a
      loss per common share of $0.12 for the year ended December 31, 2005.




**Liquidity
      and Capital Resources**





As
      of
      December 31, 2006, we had $466,404 in cash which primarily resulted from funds
      raised in the private offering of common stock. As of December 31, 2006, we
      had
      current assets in the amount of $2,133,874 and had current liabilities in the
      amount of $3,091,787 resulting in a working capital deficit of $957,913.





We
      had
      access to an available line of credit enabling us to draw a maximum of
      $1,000,000 to purchase inventory, but have been able to finance our own
      inventory purchases since April 15, 2006 without the need to draw down funds
      from this line of credit. As a result, this line of credit was terminated on
      May
      1, 2006.





Operating
      activities used $3,726,838 in cash for the year ended December 31, 2006. Our
      net
      loss of $4,501,839, less a non-cash expense of $1,184,248 for the
      amortization of deferred consulting fees, was the primary reason for our
      negative operating cash flow. Investing activities during the year ended
      December 31, 2006 used $205,473 for the purchase of property and equipment
      and
      the acquisition of the 49% interest in Assured Pharmacies, Inc. from TPG, LLC.
      Net cash flows provided by financing activities during the year ended December
      31, 2006 was $4,042,073. We received $1,958,500 as proceeds from the issuance
      of
      debentures and $1,775,292 as proceeds from the issuance of common stock for
      cash
      during year ended December 31, 2006.





In
      order
      for us to finance operations and continue our growth plan, additional funding
      will be required from external sources. We intend to fund operations through
      increased sales and debt and/or equity financing arrangements, which may be
      insufficient to fund our capital expenditures, working capital, or other cash
      requirements for the next twelve months. Our management anticipates that its
      financing efforts will result in sufficient funds to finance our operations
      beyond the next twelve months, but there can be no assurance that such
      additional financing will be available to us on acceptable terms, or at all.


23
 Table
          of Contents


**Off
      Balance Sheet Arrangements**





As
      of
      December 31, 2006, there were no off balance sheet arrangements.





**Going
      Concern**




The
      accompanying condensed consolidated financial statements have been prepared
      assuming that we will continue as a going concern, which contemplates, among
      other things, the realization of assets and satisfaction of liabilities in
      the
      ordinary course of business. As of December 31, 2006, we had an accumulated
      deficit of $19,735,377,
      recurring losses from operations of and negative cash flow from operating
      activities of $4,026,116 for the year ended December 31, 2006. We also had
      a
      negative working capital of $957,913 as of December 31,
      2006.





We
      intend
      to fund operations through increased sales and debt and/or equity financing
      arrangements, which may be insufficient to fund capital expenditures, working
      capital or other cash requirements for the year ending December 31, 2007. We
      intend to seek additional funds to finance our long-term operations. The
      successful outcome of future financing activities cannot be determined at this
      time and there is no assurance that if achieved, we will have sufficient funds
      to execute our intended business plan or generate positive operating results.





These
      factors, among others, raise substantial doubt about our ability to continue
      as
      a going concern. The accompanying condensed consolidated financial statements
      do
      not include any adjustments related to recoverability and classification of
      asset carrying amounts or the amount or classification of liabilities that
      might
      result should we be unable to continue as a going concern.





In
      response to these problems, management has taken the following actions:





·
            We
                are expanding our revenue base beyond the pain management sector
                to
                service customers that require prescriptions to treat cancer, psychiatric,
                and neurological conditions.


·
            We
                are aggressively signing up new physicians, which will result in
                new
                patients.


·
            We
                are seeking investment capital.


·
            We
                implemented a new marketing strategy and retained additional sales
                personnel to attract business.





**Critical
      Accounting Policies**





In
      December 2001, the SEC requested that all registrants list their three to five
      most “critical accounting polices” in the Management Discussion and Analysis.
      The SEC indicated that a “critical accounting policy” is one which is both
      important to the portrayal of a company’s financial condition and results, and
      requires management’s most difficult, subjective or complex judgments, often as
      a result of the need to make estimates about the effect of matters that are
      inherently uncertain. We believe that the following accounting policies fit
      this
      definition.


24
 Table
          of Contents


**Inventories**





Inventories
      are stated at the lower of cost (first-in, first-out) or estimated market,
      and
      consist primarily of pharmaceutical drugs. Market is determined by comparison
      with recent sales or net realizable value. Net realizable value is based on
      management’s forecast for sales of our products or services in the ensuing years
      and/or consideration and analysis of changes in customer base, product mix,
      payor mix, third party insurance reimbursement levels or other issues that
      may
      impact the estimated net realizable value. Management regularly reviews
      inventory quantities on hand and records a reserve for shrinkage and
      slow-moving, damaged and expired inventory, which is measured as the difference
      between the inventory cost and the estimated market value based on management’s
      assumptions about market conditions and future demand for its products. 
No
      reservations were provided at December 31, 2006 and 2005, respectively, as
      the
      reserves were insignificant to the accompanying financial statements.Should the demand for our products prove to be less than anticipated,
      the
      ultimate net realizable value of its inventories could be substantially less
      than reflected in the accompanying consolidated balance sheet.





Inventories
      are comprised of brand and generic pharmaceutical drugs. Brand drugs are
      purchased primarily from one wholesale vendor and generic drugs are purchased
      primarily from another wholesale vendor. Our pharmacies maintain a wide variety
      of different drug classes, known as Schedule II, Schedule III, and Schedule
      IV
      drugs, which vary in degrees of addictiveness.




Schedule
      II drugs, considered narcotics by the DEA are the most addictive; hence, they
      are highly regulated by the DEA and are required to be segregated and secured
      in
      a separate cabinet. Schedule III and Schedule IV drugs are less addictive and
      are not regulated. Because our business model focuses on servicing pain
      management doctors and chronic pain patients, we carry in inventory a larger
      amount of Schedule II drugs than most other pharmacies. The cost in acquiring
      Schedule II drugs is higher than Schedule III and IV drugs.





**Long-Lived
      Assets**





We
        adopted Statement of Financial Accounting Standard ( *“* SFAS”)
        No. 144, “ *Accounting
        for the Impairment or Disposal of Long-Lived Assets”,* which
        addresses financial accounting and reporting for the impairment or disposal
        of
        long-lived assets. SFAS
        No.
        144 requires that long-lived assets be reviewed for impairment whenever events
        or changes in circumstances indicate that their carrying amount may not be
        recoverable. If the cost basis of a long-lived asset is greater than the
        projected future undiscounted net cash flows from such asset, an impairment
        loss
        is recognized. Impairment losses are calculated as the difference between
        the
        cost basis of an asset and its estimated fair value. SFAS No. 144 also requires
        companies to separately report discontinued operations, and extends that
        reporting to a component of an entity that either has been disposed of (by
        sale,
        abandonment or in a distribution to owners) or is classified as held for
        sale.
        Assets to be disposed of are reported at the lower of the carrying amount
        or the
        estimated fair value less costs to sell.


25
 Table
          of Contents


Our
      long-lived assets consist of computers, software, office furniture and
      equipment, store fixtures, and leasehold improvements on pharmacy build-outs
      which are depreciated with useful lives varying from 3 to 10 years. Leasehold
      improvements are depreciated over the shorter of the useful life or the
      remaining lease term, typically 5 years. We assess the impairment of these
      long-lived assets at least annually and make adjustment accordingly.  There
      were no impairments for 2006 or 2005.





**Intangible
      Assets**





Statement
      of Financial Accounting standard (“SFAS”) No. 142, *"Goodwill
      and Other Intangible Assets",* which
      is
      effective for fiscal years beginning after December 15, 2001, addresses how
      intangible assets that are acquired individually or with a group of other assets
      should be accounted for upon their acquisition and after they have been
      initially recognized in the financial statements. SFAS No. 142 requires that
      goodwill and identifiable intangible assets that have indefinite lives not
      be
      amortized but rather be tested at least annually for impairment, and intangible
      assets that have finite useful lives be amortized over their estimated useful
      lives.





SFAS
      No.
      142 provides specific guidance for testing goodwill and intangible assets that
      will not be amortized for impairment. In addition, SFAS No. 142 expands the
      disclosure requirements about intangible assets in the years subsequent to
      their
      acquisition. Impairment losses for goodwill and indefinite-life intangible
      assets that arise due to the initial application of SFAS No. 142 are to be
      reported as a change in accounting principle.





**Revenue
      Recognition**





We
      recognize revenue on an accrual basis when the product is delivered to the
      customer. Payments are received directly from the customer at the point of
      sale,
      or the customers’ insurance provider. Authorization which assures payment is
      obtained from the customers’ insurance provider before the medication is
      dispensed to the customer. Authorization is obtained for the vast majority
      of
      these sales electronically and a corresponding authorization number is issued
      by
      the customers’ insurance provider.




**Recently
      Issued Accounting Pronouncements Not Yet Effective**


In
        December 2004, the FASB issued SFAS No. 123-R, "Share-Based Payment," which
        requires that the compensation cost relating to share-based payment transactions
        (including the cost of all employee stock options) be recognized in the
        financial statements. That cost will be measured based on the estimated fair
        value of the equity or liability instruments issued. SFAS No. 123-R covers
        a
        wide range of share-based compensation arrangements including share options,
        restricted share plans, performance-based awards, share appreciation rights,
        and
        employee share purchase plans. SFAS No.123-R replaces SFAS No. 123, and
        supersedes APB Opinion No. 25. Small Business Issuers are required to apply
        SFAS
        No. 123-R in the first reporting period or fiscal years that begin after
        December 15, 2005. Thus, our consolidated financial statements will reflect
        an
        expense for (a) all share-based compensation arrangements granted after December
        31, 2005 and for any such arrangements that are modified, cancelled, or
        repurchased after that date, and (b) the portion of previous share-based
        awards
        for which the requisite service has not been rendered as of that date, based
        on
        the grant-date estimated fair value.
 
 26
 Table
            of Contents
 
 In
        May
        2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections,"
        which replaces APB Opinion No. 20 and FASB Statement No. 3. This pronouncement
        applies to all voluntary changes in accounting principle, and revises the
        requirements for accounting for and reporting a change in accounting principle.
        SFAS No. 154 requires retrospective application to prior periods' financial
        statements of a voluntary change in accounting principle, unless it is
        impracticable to do so. This pronouncement also requires that a change in
        the
        method of depreciation, amortization, or depletion for long-lived, non-financial
        assets be accounted for as a change in accounting estimate that is affected
        by a
        change in accounting principle. SFAS No. 154 retains many provisions of APB
        Opinion 20 without change, including those related to reporting a change
        in
        accounting estimate, a change in the reporting entity, and correction of
        an
        error. The pronouncement also carries forward the provisions of SFAS No.
        3 which
        govern reporting accounting changes in interim financial statements. SFAS
        No.
        154 is effective for accounting changes and corrections of errors made in
        fiscal
        years beginning after December 15, 2005. The Statement does not change the
        transition provisions of any existing accounting pronouncements, including
        those
        that are in a transition phase as of the effective date of SFAS No.
        154.
  FASB
        Staff Position (FSP) NO. FAS 123(R)-2, *Practical
        Accommodation to the Application of Grant Date as Defined in FASB Statement
        No.
        123(R)* .
        Posted
        October 18, 2005, the guidance in this FSP should be applied upon initial
        adoption of Statement 123(R). An entity that adopted Statement 123(R) prior
        to
        the issuance of this FSP and did not apply the provisions of this FSP shall
        apply the guidance in this FSP to the first reporting period after October
        18,
        2005, for which financial statements or interim reports have not been
        issued.
  FASB
        Staff Position (FSP) No. FAS 123(R)-4, *Classification
        of Options and Similar Instruments Issued as Employee Compensation That Allow
        for Cash Settlement upon the Occurrence of a Contingent Event,* was
        posted on February 3, 2006. Statement 123(R) is amended to clearly incorporate
        the concept that a cash settlement feature that can be exercised only upon
        the
        occurrence of a contingent event that is outside the employee’s control should
        be accounted for as if cash settlement is not permissible until it becomes
        probable that the contingent event will occur. The guidance in this FSP shall
        be
        applied upon initial adoption of Statement 123(R).
  FASB
        Staff Position (FSP) No. FAS 123(R)-5, *Amendment
        of FASB Staff Position FAS 123(R)-1, Classification of Options and Similar
        Instruments Issued as Employee Compensation That Allow for Cash Settlement
        upon
        the Occurrence of a Contingent Event,* was
        posted on October 10, 2006. This FASB Staff Position (FSP) addresses whether
        a
        modification of an instrument in connection with an equity restructuring
        should
        be considered a modification for purposes of applying FSP FAS 123(R)-1. This
        FSP
        states that a freestanding financial instrument issued to an employee in
        exchange for past or future employee services that is subject to Statement
        123(R) or was subject to Statement 123(R) upon initial adoption of that
        Statement shall continue to be subject to the recognition and measurement
        provisions of Statement 123(R) throughout the life of the instrument, unless
        its
        terms are modified when the holder is no longer an employee. The guidance
        in
        this should be applied upon initial adoption of Statement 123(R).
  FASB
        Staff Position (FSP) No. FAS 123(R)-6, *Technical
        Corrections of FASB Statement No. 123(R),* was
        posted on October 10, 2006. This FASB Staff Position (FSP) (a) exempts nonpublic
        entities from disclosing the aggregate intrinsic value of outstanding fully
        vested share options (or share units) and share options expected to vest,
        (b)
        revises the computation of the minimum compensation cost that must be recognized
        to clarify that at the date that for awards that are no longer probable of
        vesting, any previously recognized compensation cost should have be reversed.
  Statement
        of Financial Accounting Standards No. 155, *Accounting
        for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133
        and 140* ,
        was
        issued in February 2006 and is effective for all financial instruments acquired
        or issued after the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. Certain parts of this Statement may be applied prior
        to the
        adoption of this Statement. Earlier adoption is permitted as of the beginning
        of
        an entity’s fiscal year, provided the entity has not yet issued financial
        statements, including financial statements for any interim period for that
        fiscal year. Provisions of this Statement may be applied to instruments that
        an
        entity holds at the date of adoption on an instrument-by-instrument basis.
 
 Management
        does not believe that SFAS 154 and No. 155 will have an impact on our
        consolidated financial statements.
 
 Other
        recent accounting pronouncements issued by the FASB (including its Emerging
        Issues Task Force), the American Institute of Certified Public Accountants,
        and
        the SEC did not or are not believed by management to have a material impact
        on
        our present or future consolidated financial statements included
        elsewhere herein.
  27
 Table
              of Contents
 **Item
        7. Financial Statements**





Index
      to
      Financial Statements:




**Audited
                Financial Statements:**F-1
            Report
                of Independent Registered Public Accounting
                Firm-2006F-2
            Report
              of Independent Registered Public Accounting
              Firm-2005F-3
            Consolidated
                Balance Sheet as of December 31, 2006 and
                2005F-4
            Consolidated
                Statements of Operations - Years Ended December
                31, 2006 and December 31, 2005F-5
            Consolidated
                Statement of Stockholders’ Equity (Deficit) and
                Comprehensive Loss for the Years Ended December 31, 2006 and December
                31,
                2005F-6
            Consolidated
                Statements of Cash Flows for the Years Ended
                December 31, 2006 and December 31, 2005F-7
            Notes
                to Consolidated Financial
                Statements





28
 Table
            of Contents


REPORTOF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM
 
 
 To
        the
        Board of Directors and Stockholders
 Assured
        Pharmacy, Inc.
  We
        have
        audited the consolidated statements of operations, stockholders’ deficit and
        cash flows of Assured Pharmacy, Inc. And Subsidiaries (collectively the
“Company”), for the year ended December 31, 2006. 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 audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the results of operations and cash flows of Company
        for the year ended December 31, 2006 in conformity with accounting principles
        generally accepted in the United States.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. The Company had negative cash
        flow
        from operations of approximately $3.7 million in 2006, an accumulated deficit
        of
        approximately $19.7 million at December 31, 2006, and recurring losses from
        operations. These factors, among others, raise substantial doubt about the
        Company’s ability to continue as a going concern. Management’s plans regarding
        these matters are also described in Note 1. The accompanying consolidated
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty.
 
  /s/
        Miller, Ellin & Company, LLP
 New
        York,
        New York
 April
        2,
        2007


Page
          F-1
 Table
          of Contents


**REPORT
            OF INDEPENDENT REGISTRERED PUBLIC ACCOUNTING
            FIRM**
 
 
 
 To
            the
            Board of Directors and Stockholders
 Assured
            Pharmacy, Inc.
 
 We
            have
            audited the consolidated statements of operations, stockholders’ deficit and
            cash flows of Assured Pharmacy, Inc. and Subsidiaries (collectively the
            “Company”), for the year ended December 31, 2005. 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 audit.
 
 We
            conducted our audit in accordance with the standards of the Public Company
            Accounting Oversight Board (United States). Those standards require that
            we plan
            and perform the audit to obtain reasonable assurance about whether the
            financial
            statements are free of material misstatement. An audit includes examining,
            on a
            test basis, evidence supporting the amounts and disclosures in the financial
            statements. An audit also includes assessing the accounting principles
            used and
            significant estimates made by management, as well as evaluating the overall
            financial statement presentation. We believe that our audit provides
            a
            reasonable basis for our opinion.
 
 In
            our
            opinion, the consolidated financial statements referred to above present
            fairly,
            in all material respects, the results of operations and cash flows of
            Company
            for the year ended December 31, 2005 in conformity with accounting principles
            generally accepted in the United States.
 
 The
            accompanying consolidated financial statements have been prepared assuming
            that
            the Company will continue as a going concern. The Company had negative
            cash flow
            from operations of approximately $2.7 million in 2005, an accumulated
            deficit of
            approximately $15.2 million at December 31, 2005 and recurring losses
            from
            operations. These factors, among others, raise substantial doubt about
            the
            Company’s ability to continue as a going concern. Management’s plans regarding
            these matters are also described in Note 1. The accompanying consolidated
            financial statements do not include any adjustments that might result
            from the
            outcome of this uncertainty.
 
 
 /s/
            Squar, Milner, Peterson, Miranda & Williamson, LLP
 
 Newport
            Beach, California
 March
            20,
            2006
  Page
              F-2
 
 **ASSURED
        PHARMACY, INC. AND SUBSIDIARIES (formerly known as eRxsys,
        Inc.)**
 **CONSOLIDATED
        BALANCE SHEETS**
 **December
        31, 2006 and December 31, 2005**
 **2006**
                
                **2005****ASSETS****Current
                  Assets**Cash
                $
                466,404
                
                $
                356,641Accounts
                    receivable, net
                
                884,026
                
                
                530,730Inventories
                
                414,914
                
                
                261,770Prepaid
                    expenses and other assets
                
                368,530
                
                
                31,2452,133,874
                
                
                1,180,386**Long
                  Term Assets**Accounts
                    receivable - non-current, net
                
                92,313
                
                
                -**Property
                    and Equipment, net**
                
                442,939
                
                
                440,970**Goodwill**
                
                607,816
                
                
                -$
                3,276,942
                
                $
                1,621,356**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT****Current
                    Liabilities**Accounts
                    payable and accrued liabilities
                $
                1,051,260
                
                $
                1,067,299Line
                    of credit from a related party
                
                -
                
                
                200,000Notes
                    payable
                
                62,027
                
                
                425,000Unsecured
                    convertible notes payable
                
                1,958,500
                
                
                -Notes
                    payable to related parties and stockholders
                
                20,000
                
                
                230,0003,091,787
                
                
                1,922,299**Notes
                    Payable to Related Party and Stockholders, net of current
                    portion**
                
                904,967
                
                
                -**Minority
                    Interest**
                
                658,160
                
                
                492,418**Commitments
                    and Contingencies****Stockholders'
                    Deficit**Preferred
                        shares; par value $0.001 per share;
                      authorized
                        5,000,000 shares; no preferred shares issued or
                        outstanding
                
                -
                
                
                -Common
                        shares; par value $0.001 per share;
                      150,000,000
                        and 70,000,000 shares authorized, respectively; 64,226,502
                        and
                        55,199,398
                      common
                        shares issued and outstanding at December 31, 2006 and 2005,
                        respectively
                
                64,226
                
                
                55,199Treasury
                    stock
                
                (10,858)
                
                
                (10,858)Additional
                    paid-in capital, net
                
                18,615,493
                
                
                14,949,423Deferred
                    compensation
                
                (311,456)
                
                
                (553,587)Accumulated
                    deficit
                
                (19,735,377)
                
                
                (15,233,538)Stockholders'
                    deficit
                
                (1,377,972)
                
                
                (793,361)$
                3,276,942
                
                $
                1,621,356


Page
            F-3 The
            accompanying notes are an integral part of the consolidated financial
            statements.
 Table
            of Contents


**ASSURED
        PHARMACY, INC. AND SUBSIDIARIES (formerly known as eRxsys,
        Inc.)**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **December
        31, 2006 and December 31, 2005**


**2006**
              
              **2005****GROSS
                  SALES**
              $
              7,897,118
              
              $
              3,836,737**COST
                  OF SALES**
              
              (6,222,267)
              
              
              (3,120,958)**GROSS
                  PROFIT**
              
              1,674,851
              
              
              715,779**OPERATING
                  EXPENSES**Salaries
                  and related expenses
              
              2,193,682
              
              
              3,574,137Consulting
                  and other compensation
              
              1,555,354
              
              
              1,579,524Selling,
                  general and administrative
              
              2,122,528
              
              
              1,286,053Restructuring
                  charges
              
              -
              
              
              193,881**TOTAL
                  OPERATING EXPENSES**
              
              5,871,564
              
              
              6,633,595**LOSS
                  FROM OPERATIONS**
              
              (4,196,713)
              
              
              (5,917,816)**OTHER
                  (EXPENSE) INCOME**Interest
                  expense
              
              (201,735)
              
              
              (131,539)Other
                  expense
              
              (162,147)
              
              
              (35,094)Gain
                  on forgiveness of debt
              
              -
              
              
              1,011,522**TOTAL
                  OTHER INCOME (EXPENSE)**
              
              (363,882)
              
              
              844,889**LOSS
                  BEFORE MINORITY INTEREST**
              
              (4,560,595)
              
              
              (5,072,927)**MINORITY
                  INTEREST**
              
              58,756
              
              
              275,835**NET
                  LOSS**
              $
              (4,501,839)
              
              $
              (4,797,092)**Basic
                  and diluted loss per common share**
              $
              (0.09)
              
              $
              (0.12)**Basic
                  and diluted weighted average number of common** **shares
                  outstanding**
              
              51,376,193
              
              
              40,961,989


Page
              F-4                                                                                                                            The
              accompanying notes are an integral part of the consolidated financial
              statements.
 Table
              of Contents
 **ASSURED
              PHARMACY, INC. AND SUBSIDIARIES (formerly known as eRxsys,
              Inc.)**
 **CONSOLIDATED
              STATEMENTS OF STOCKHOLDERS' EQUITY
              (DEFICIT)**
 **December
              31, 2006 and December 31, 2005** 
 **Common
                            Stock**
                        
                        **Treasury
                            Stock**
                        
                        **Additional**
                        
                        
                        
                        
                        
                        **Stockholders'****Shares**
                        
                        **Amount**
                        
                        **Shares**
                        
                        **Amount**
                        
                        **Paid
                              In**
                            **Capital**
                        
                        **Deferred**
                          **Compensation**
                        
                        **(Accumulated)**
                          **(Deficit)**
                        
                        **(Deficit)**
                          **Equity****Balance
                            December 31, 2004 (As Restated)**
                        
                        44,977,899
                        
                        
                        44,978
                        
                        
                        -
                        
                        
                        -
                        
                        
                        8,778,024
                        
                        
                        (217,200)
                        
                        
                        (10,436,446)
                        
                        
                        (1,830,644)Issuance
                            of common stock in connection with a private placement
                        
                        3,820,000
                        
                        
                        3,820
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,507,964
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,511,784Issuance
                            of common stock for services rendered
                        
                        2,907,499
                        
                        
                        2,907
                        
                        
                        -
                        
                        
                        -
                        
                        
                        883,955
                        
                        
                        (449,498)
                        
                        
                        -
                        
                        
                        437,364Fair
                            value of warrants and options for deferred compensation
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        530,000
                        
                        
                        (530,000)
                        
                        
                        -
                        
                        
                        -Issuance
                            of common stock for debt conversion
                        
                        2,500,000
                        
                        
                        2,500
                        
                        
                        -
                        
                        
                        -
                        
                        
                        697,500
                        
                        
                        -
                        
                        
                        -
                        
                        
                        700,000Issuance
                            of stock to former CEO for debt settlement
                        
                        494,000
                        
                        
                        494
                        
                        
                        -
                        
                        
                        -
                        
                        
                        118,466
                        
                        
                        -
                        
                        
                        -
                        
                        
                        118,960Issuance
                            of warrants to former CEO for debt settlement
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        329,000
                        
                        
                        -
                        
                        
                        -
                        
                        
                        329,000Issuance
                            of common stock options to CEO for services
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,950,000
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,950,000Issuance
                            of common stock to RTIN in connection with debt settlement
                        
                        500,000
                        
                        
                        500
                        
                        
                        -
                        
                        
                        -
                        
                        
                        148,000
                        
                        
                        -
                        
                        
                        -
                        
                        
                        148,500Stock
                            returned to the Company by RTIN and former officer and
                            directors
                        
                        -
                        
                        
                        -
                        
                        
                        (10,858,658)
                        
                        
                        (10,858)
                        
                        
                        6,514
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (4,344)Amortization
                            of deferred consulting fees
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        643,111
                        
                        
                        -
                        
                        
                        643,111Net
                            loss
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (4,797,092)
                        
                        
                        (4,797,092)**Balance
                            December 31, 2005**
                        
                        55,199,398
                        
                        $
                        55,199
                        
                        
                        (10,858,658)
                        
                        $
                        (10,858)
                        
                        $
                        14,949,423
                        
                        $
                        (553,587)
                        
                        $
                        (15,233,538)
                        
                        
                        (793,361)Issuance
                            of common stock in connection with a private placement
                        
                        4,438,231
                        
                        
                        4,438
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,770,854
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,775,292Issuance
                            of common stock in connection with debenture interest
                        
                        1,011,373
                        
                        
                        1,011
                        
                        
                        
                        
                        
                        
                        
                        
                        351,519
                        
                        
                        -
                        
                        
                        -
                        
                        
                        352,530Issuance
                            of common stock for services rendered
                        
                        2,215,000
                        
                        
                        2,215
                        
                        
                        
                        
                        
                        
                        
                        
                        939,935
                        
                        
                        (942,150)
                        
                        
                        
                        
                        
                        -Issuance
                            of common stock for debt conversion
                        
                        1,062,500
                        
                        
                        1,063
                        
                        
                        
                        
                        
                        
                        
                        
                        423,938
                        
                        
                        
                        
                        
                        
                        
                        
                        425,000Issuance
                            of common stock for warrant exercised
                        
                        250,000
                        
                        
                        250
                        
                        
                        
                        
                        
                        
                        
                        
                        149,750
                        
                        
                        
                        
                        
                        
                        
                        
                        150,000Issuance
                            of common stock for acquisition of minority interest
                            in Assured
                            Pharmacies, Inc.
                        
                        50,000
                        
                        
                        50
                        
                        
                        
                        
                        
                        
                        
                        
                        19,450
                        
                        
                        
                        
                        
                        
                        
                        
                        19,500Amortization
                            of deferred consulting fees
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        1,184,281
                        
                        
                        
                        
                        
                        1,184,281Net
                            loss
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        
                        (4,501,839)
                        
                        
                        (4,501,839)**Balance
                            December 31, 2006**
                        
                        64,226,502
                        
                        $
                        64,226
                        
                        
                        (10,858,658)
                        
                        $
                        (10,858)
                        
                        $
                        18,604,868
                        
                        $
                        (311,456)
                        
                        $
                        (19,735,377)
                        
                        $
                        (1,388,598)
 Page
                        F-5                                                                                                                              The
                        accompanying notes are an integral part of the consolidated
                        financial
                        statements.
 Table
                        of Contents
 **ASSURED
                  PHARMACY, INC. AND SUBSIDIARIES (formerly known as eRxsys,
                  Inc.)**
 **CONSOLIDATED
                  STATEMENTS OF CASH FLOWS**
 **December
                  31, 2006 and December 31, 2005**
 **Years
                            Ended****2006**
                        
                        **2005**CASH
                            FLOWS FROM OPERATING ACTIVITIES:Net
                            loss
                        $
                        (4,501,839)
                        
                        $
                        (4,797,092)Adjustments
                            to reconcile net loss to net cash used
                            in operating activities:Depreciation
                            and amortization of property and equipment
                        
                        133,504
                        
                        
                        108,136Amortization
                            of debt discount
                        
                        10,625
                        
                        
                        -Impairment
                            of property and equipment related to restructuring
                        
                        -
                        
                        
                        193,881Amortization
                            of deferred consulting fees
                        
                        1,184,281
                        
                        
                        643,111Loss
                            on settlement of debt
                        
                        9,350
                        
                        
                        87,960Gain
                            on forgiveness of debt
                        
                        -
                        
                        
                        (1,011,522)Issuance
                            of common stock in lieu of interest
                        
                        67,406
                        
                        
                        -Issuance
                            of common stock for services
                        
                        7,000Impairment
                            of intangible asset
                        
                        -
                        
                        
                        -Minority
                            interest in net loss of joint venture
                        
                        (58,756)
                        
                        
                        (275,835)Issuance
                            of common stock and options for services to CEO
                        
                        -
                        
                        
                        2,387,364Provision
                            for doubtful accounts
                        
                        177,597Changes
                            in operating assets and liabilities:Accounts
                            receivable
                        
                        (623,206)
                        
                        
                        (348,303)Inventories
                        
                        (153,144)
                        
                        
                        (103,761)Prepaid
                            expenses and other current assets
                        
                        (2,161)
                        
                        
                        3,567Accounts
                            payable and accrued liabilities
                        
                        22,505
                        
                        
                        378,817Net
                            cash used in operating activities
                        
                        (3,726,838)
                        
                        
                        (2,733,677)CASH
                            FLOWS FROM INVESTING ACTIVITIES:Purchases
                            of property and equipment
                        
                        (135,473)
                        
                        
                        (2,791)Advance
                            on purchase of company
                        
                        (50,000)Purchase
                            of minority interest
                        
                        (20,000)
                        
                        
                        -Net
                            cash used in investing activities
                        
                        (205,473)
                        
                        
                        (2,791)CASH
                            FLOWS FROM FINANCING ACTIVITIES:Proceeds
                            from line of credit
                        
                        -
                        
                        
                        2,035,365Proceeds
                            from the issuance of notes payable to related parties
                            and
                            shareholders
                        
                        600,000
                        
                        
                        305,000Proceeds
                            from the issuance of short term loans
                        
                        -
                        
                        
                        425,000Principal
                            repayments on line of credit
                        
                        (200,000)
                        
                        
                        (1,135,365)Principal
                            repayments on notes payable
                        
                        (156,812)
                        
                        
                        -Principal
                            repayments on notes payable to related parties and
                            shareholders
                        
                        (96,907)
                        
                        
                        (135,000)Proceeds
                            from issuance of common stock
                        
                        1,775,292
                        
                        
                        1,511,784Proceeds
                            from issuance of convertible debentures
                        
                        1,958,500
                        
                        
                        -Proceeds
                            from issuance of common stock due to warrants exercised
                        
                        150,000
                        
                        
                        -Proceeds
                            towards minority investment
                        
                        12,000
                        
                        
                        -Net
                            cash provided by financing activities
                        
                        4,042,073
                        
                        
                        3,006,784Net
                            increase in cash
                        
                        109,763
                        
                        
                        270,316Cash
                            at beginning of year
                        
                        356,641
                        
                        
                        86,325Cash
                            at end of year
                        $
                        466,404
                        
                        $
                        356,641Supplemental
                            disclosure of cash flow information-Cash
                            paid during the year for:Interest
                        $
                        131,252
                        
                        $
                        131,539Income
                            taxes
                        $
                        2,262
                        
                        $
                        4,912NON-CASH
                            INVESTING AND FINANCING ACTIVITIESConversion
                            of accrued interest to principal
                        $
                        8,163Notes
                            issued to acquire minority interest
                        $
                        567,998Issuance
                            of common stock to acquire minority interst
                        $
                        19,500Issuance
                            of common stock for debt converstion
                        $
                        425,000Issuance
                            of common stock for services rendered
                        $
                        942,152Issuance
                            of common stock in lieu of debenture note interest
                        $
                        352,530See
                          the accompanying notes for disclosures about
                          non-cash investing and financing activities.
 Page
                    F-6                                                                                                                          The
                    accompanying notes are an integral part of the consolidated financial
                    statements.
 Table
                    of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
  **1.
                    ORGANIZATION AND BASIS OF PRESENTATION**
 
 Assured
                    Pharmacy, Inc. (“Assured Pharmacy” or the “Company”) was organized as a Nevada
                    corporation on October 22, 1999 under the name Surforama.com,
                    Inc. and
                    previously operated under the name eRXSYS, Inc. The
                    Company is engaged i n
                    the
                    business of operating specialty pharmacies that dispense highly
                    regulated pain
                    medication. The Company has recently expanded its business beyond
                    pain
                    management to service customers that require prescriptions to
                    treat cancer, psychiatric,
                    and neurological conditions .
                    The
                    Company offers physicians the ability to electronically transmit
                    prescriptions
                    to its pharmacies. The Company derives its revenue primarily
                    from the sale of
                    prescription drugs and does not keep in inventory non-prescription
                    drugs or
                    health and beauty related products inventoried at traditional
                    pharmacies. The
                    majority of the Company’s business is derived from repeat business from its
                    customers. “Walk-in” prescriptions from physicians are limited.
 
 In
                    April
                    2003, Assured Pharmacy entered into a joint venture agreement
                    (“Joint Venture”)
                    with TPG Partners, L.L.C. (“TPG”) to establish and operate pharmacies. In June
                    2003, Safescript of California, Inc. (“Safescript”) was incorporated to own and
                    operate pharmacies that the parties may jointly establish under
                    the Joint
                    Venture. Assured Pharmacy owned 51% of the Joint Venture and
                    TPG owned the
                    remaining 49%. Effective September 8, 2004, Safescript filed
                    amended articles of
                    incorporation and changed its name to Assured Pharmacies, Inc.
                    (“API”).
 
 Pursuant
                    to the terms of the Joint Venture, TPG was obligated to contribute
                    start-up
                    costs of $230,000 per pharmacy location to establish up to fifty
                    pharmacies. TPG
                    was also obligated to contribute their proportionate share of
                    the start-up costs
                    in excess of their initial capital contribution of $230,000 per
                    pharmacy. The
                    Joint Venture defined start-up costs as any costs associated
                    with the opening of
                    any open pharmacy location that accrue within the ninety-day
                    period following
                    the opening of that particular pharmacy.
 
 On
                    December 15, 2006, the Company acquired TPG’s 49% interest of API. The Company
                    agreed to pay the following consideration:
 
 1.
                        50,000
                            restricted shares (“Shares”) of common stock. 
 2.
                        Initial
                            down payment of $15,000 which was paid by December 15,
                            2006; 
 3.
                        Eleven
                            (11) consecutive monthly installments of $5,000 commencing
                            in January 2007
                            through November 2007;  Page
                        F-7
 Table
                        of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **1.
                          ORGANIZATION AND BASIS OF PRESENTATION** (continued)
 
 4.
                              Fourteen
                                  (14) consecutive monthly installments of $15,000
                                  commencing in December
                                  2007 through January 2009; 
 5.
                              $180,000
                                  payable together with interest at the rate of prime
                                  plus 2% per annum
                                  commencing from the date of this Purchase Agreement
                                  payable on or before
                                  February 15, 2009. 
 As
                          a
                          result of this acquisition, the Company increased its ownership
                          interest in API
                          to 100% making it a wholly-owned subsidiary and consequently
                          resulting in the
                          termination of its joint venture with TPG.
 
 In
                          February 2004, Assured Pharmacy entered into an agreement
                          (the “Agreement”) with
                          TAPG, L.L.C. ("TAPG"), a Louisiana limited liability company,
                          and formed
                          Safescript Northwest, Inc., a Louisiana corporation, to
                          establish and operate
                          pharmacies. Effective August 19, 2004, Safescript Northwest,
                          Inc. changed its
                          name to Assured Pharmacies Northwest, Inc. ("APN").
 
 The
                          Agreement provides that TAPG will contribute start-up costs
                          in the amount of
                          $335,000 per pharmacy location established not to exceed
                          five pharmacies. The
                          Company’s contribution under the Agreement consists of granting
                          the right to
                          utilize its intellectual property rights and to provide
                          sales and marketing
                          services. Between March and October 2004, APN received
                          from TAPG start-up funds
                          in the amount of $854,213 as its capital contribution for
                          three pharmacies. This
                          capital contribution funded the opening of two pharmacies
                          in Kirkland,
                          Washington in August 2004 and Portland, Oregon in September
                          2004. Included in
                          these monies was a partial capital contribution in the
                          amount of $190,000 for
                          the establishment of another pharmacy located in Portland,
                          Oregon. TAPG remained
                          obligated to contribute an additional $145,000 to satisfy
                          their full
                          contribution. The Company and APN requested that TAPG provide
                          the $150,787
                          balance of its full capital contribution. TAPG was also
                          obligated to contribute
                          their proportionate share of the start-up costs in excess
                          of their initial
                          capital contribution of $335,000 per pharmacy. The Agreement
                          defines start-up
                          costs as any costs associated with the opening of any open
                          pharmacy location
                          that accrue within one hundred eighty days following the
                          opening of that
                          particular pharmacy.
 Page
                          F-8
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **1.
                        ORGANIZATION AND BASIS OF PRESENTATION** (continued)
 
 Following
                        the start-up period, the Company advanced interest-free loans
                        to sustain
                        operations at both pharmacies operated by APN. On March 6,
                        2006, these loans
                        were converted into 378 shares of APN capital stock. Following
                        the conversion of
                        this debt into equity, Assured Pharmacy increased their ownership
                        interest in
                        APN from 75% to 94.8%. TAPG owns the remaining 5.2% interest.
 
 The
                        Company’s common stock is quoted on the Over-the-Counter Bulletin
                        Board (the
“OTCBB”) under the symbol “APHY.”
 
 The
                        Company's management determined that its business could be
                        expanded through
                        developing arrangements with third party health plan providers
                        to accept
                        traditional co-payments and fill prescriptions for their
                        members who rely upon
                        overnight courier for delivery of their prescription. The
                        Company's management
                        believes that such arrangements will broaden its consumer
                        base and enable it to
                        access a particular niche of consumer that receives their
                        prescriptions
                        exclusively via courier as opposed to patronizing traditional
                        retail pharmacy
                        locations.  On January 3, 2006, the Company incorporated Assured Pharmacy
                        Plus, Corp. (“Plus Corp.”) as a wholly-owned subsidiary to develop this
                        opportunity.
  Also
                        on
                        January 3, 2006, the Company incorporated Assured Pharmacy
                        DME, Corp. (“DME”) as
                        a wholly-owned subsidiary for the purpose of facilitating
                        and making available
                        specialized medical equipment to its consumers. The Company's
                        consumers who
                        require treatment for chronic pain commonly require specialized
                        medical
                        equipment and/or rehabilitative equipment.
 
 During
                        the third quarter, the Company incorporated three wholly-owned
                        subsidiaries for
                        the purpose of operating additional pharmacies. On July 21,
                        2006, the Company
                        incorporated Assured Pharmacy Gresham, Inc. (“Gresham”). On August 11, 2006, the
                        Company incorporated Assured Pharmacy Irvine, Inc. (“Irvine”), and on September
                        25, 2006, the Company incorporated Assured Pharmacy Los Angeles
                        1, Inc. (“L.A.
                        1”). ******
  Page
                            F-9
 Table
                            of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **1.
                        ORGANIZATION AND BASIS OF PRESENTATION** (continued)
 
 ***Going
                        Concern Considerations***
 
 The
                        accompanying consolidated financial statements have been
                        prepared assuming the
                        Company will continue as a going concern, which contemplates,
                        among other
                        things, the realization of assets and satisfaction of liabilities
                        in the
                        ordinary course of business. As of December 31, 2006, the
                        Company had an
                        accumulated deficit of $19,735,377, recurring losses from
                        operations and
                        negative cash flow from operating activities of $3,726,838
                        for the year then
                        ended. The Company also had a negative working capital of
                        $957,913 as of
                        December 31, 2006.
 
 The
                        Company intends to fund operations through increased sales
                        and debt and/or
                        equity financing arrangements, which may be insufficient
                        to fund its capital
                        expenditures, working capital or other cash requirements
                        for the year ending
                        December 31, 2007. The Company is seeking additional funds
                        to finance its
                        immediate and long-term operations. The successful outcome
                        of future financing
                        activities cannot be determined at this
                        time
                        and there is no assurance that if achieved, the Company will
                        have sufficient
                        funds to execute its intended business plan or generate positive
                        operating
                        results.
 
 These
                        factors, among others, raise substantial doubt about the
                        Company’s ability to
                        continue as a going concern. The accompanying condensed consolidated
                        financial
                        statements do not include any adjustments related to recoverability
                        and
                        classification of asset carrying amounts or the amount and
                        classification of
                        liabilities that might result should the Company be unable
                        to continue as a
                        going concern.
 
 In
                        response to these problems, management has taken the following
                        actions:
 
 ·
                            The
                                Company is expanding itsrevenue base beyond the pain management sector to
                                service customers that
                                require prescriptions to treat cancer, psychiatric,
                                and neurological
                                conditions.  ·
                            The
                                Company is aggressively signing up new physicians,
                                which will result in
                                new patients  ·
                            The
                                Company is seeking investment capital.  ·
                            The
                                Companyimplemented
                                a new marketing strategy and retained additional
                                sales personnel to
                                attract business.
 Page
                        F-10
 Table
                        of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **2.
                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 The
                      summary of significant accounting policies presented below
                      is designed to assist
                      in understanding the Company's consolidated financial statements.
                      Such financial
                      statements and accompanying notes are the representations of
                      the Company’s
                      management, who is responsible for their integrity and objectivity.
                      These
                      accounting policies conform to accounting principles generally
                      accepted in the
                      United States of America (“GAAP") in all material respects, and have been
                      consistently applied in preparing the accompanying consolidated
                      financial
                      statements.
 
 ***Principles
                      of Consolidation***
 
 The
                      consolidated financial statements for the year ended December
                      31, 2006 include
                      the accounts of Assured Pharmacy, Inc., the Company’s 94.8% ownership interest
                      in APN. The statement of operations also, includes 51% ownership
                      interest in
                      API, till December 15, 2006. In accordance with the joint venture
                      agreement, the
                      minority partner, does not have participation rights that allow
                      them to block
                      decisions proposed by the Company. The minority joint venture
                      has given the
                      Company the ability to control all daily operations and management
                      of the joint
                      venture; therefore, the Company has consolidated the joint
                      venture in its
                      financial statements. All significant inter-company accounts
                      and transactions
                      have been eliminated in consolidation.
 
 ***Use
                      of Estimates***
 
 The
                      preparation of financial statements in conformity with GAAP
                      requires management
                      to make estimates and assumptions that affect the reported
                      amounts of assets and
                      liabilities and the 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. Significant estimates made by
                      management include
                      revenue recognition, the allowance for doubtful accounts, the
                      deferred tax asset
                      valuation allowance, and the realization of inventories and
                      long-lived assets.
                      Actual results could materially differ from these estimates.
 
 ***Risks
                      and Uncertainties***
 
 The
                      Company operates in a highly competitive industry that is subject
                      to intense
                      competition. The Company has a limited operating history since
                      it has finished
                      only its fourth year of operations. The Company faces risks
                      and uncertainties
                      relating to its ability to successfully implement its business
                      strategy. Among
                      other things, these risks include the ability to develop and
                      sustain revenue
                      growth; managing and expanding operations; competition; attracting,
                      retaining
                      and motivating qualified personnel; maintaining and
 Page
                          F-11
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005 
 **2.**  **SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES (continued)**
 
 ***Risks
                        and Uncertainties (continued)***
 
 developing
                        new strategic relationships; and the ability to anticipate
                        and adapt to the
                        changing markets and any changes in government regulations.
 
 Therefore,
                        the Company may be subject to the risks of delays in obtaining
                        (or failing to
                        obtain) regulatory clearance and other uncertainties, including
                        financial,
                        operational, technological, regulatory and other risks associated
                        with an
                        emerging business, including the risk of business failure.
 
 The
                        Company’s leased pharmacies are subject to licensing and regulation
                        by the
                        health, sanitation, safety, building and fire agencies in
                        the state or
                        municipality where located. Difficulties or failures in obtaining
                        or maintaining
                        the required licensing and/or approvals could prevent the
                        continued operation of
                        such pharmacies. Management believes that the Company is
                        operating in compliance
                        with all applicable laws and regulations.
 
 The
                        Company purchased 99% of its inventory of its prescription
                        drugs from one
                        wholesale vendor during the year ended December 31, 2006.
                        Management believes
                        that the wholesale pharmaceutical and non-pharmaceutical
                        distribution industry
                        is highly competitive because of consolidation in the industry
                        and the practice
                        of certain large pharmacy chains to purchase directly from
                        product
                        manufacturers. Although management believes it could obtain
                        the majority of our
                        inventory from other distributors at competitive prices and
                        upon competitive
                        payment terms if our relationship with our primary wholesale
                        drug vendor was
                        terminated, there can be no assurance that the termination
                        of such relationship
                        would not adversely affect us.
 
 ***Governmental
                        Regulations***
 
 The
                        pharmacy business is subject to extensive and often changing
                        federal, state and
                        local regulations, and our pharmacies are required to be
                        licensed in the states
                        in which they are located or do business. While management
                        continuously monitors
                        the effects of regulatory activity on the Company’s operations and it currently
                        has a pharmacy license for each pharmacy the Company operates,
                        the failure to
                        obtain or renew any regulatory approvals or licenses could
                        adversely affect the
                        continued operations of the Company’s business.
 
 The
                        Company is also subject to federal and state laws that prohibit
                        certain types of
                        direct and indirect payments between healthcare providers.
                        These laws, commonly
                        known as the fraud and abuse laws, prohibit payments intended
                        to induce or
                        encourage the referral of patients to, or the recommendation
                        of, a particular
                        provider of products and/or services. Violation of these
                        laws can result in a
                        loss of licensure, civil and criminal
 Page
                          F-12
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
  **2.**  **SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES** (continued)
 
 ***Governmental
                        Regulations*** **(continued)**
 
 penalties
                        and exclusion from various federal and state healthcare programs.
                        The Company
                        expends considerable resources in connection with compliance
                        efforts. Management
                        believes that the Company is in compliance with federal and
                        state regulations
                        applicable to its business.
 
 The
                        Company is also impacted by the Health Insurance Portability
                        and Accountability
                        Act of 1996 ("HIPAA"), which mandates, among other things,
                        the adoption of
                        standards to enhance the efficiency and simplify the administration
                        of the
                        healthcare system. HIPAA requires the Department of Health
                        and Human Services to
                        adopt standards for electronic transactions and code sets
                        for basic healthcare
                        transactions such as payment and remittance advice ("transaction
                        standards");
                        privacy of individually identifiable healthcare information
                        ("privacy
                        standards"); security and electronic signatures ("security
                        standards"), as wells
                        as unique identifiers for providers, employers, health plans
                        and individuals;
                        and enforcement. The Company is required to comply with these
                        standards and is
                        subject to significant civil and criminal penalties for failure
                        to do so.
                        Management believes the Company is in compliance with these
                        standards. There can
                        be no assurance, however, that future changes will not occur
                        which the Company
                        may not be, or may have to incur significant costs to be,
                        in compliance with new
                        standards or regulations. Management anticipates that federal
                        and state
                        governments will continue to review and assess alternate
                        healthcare delivery
                        systems, payment methodologies and operational requirements
                        for pharmacies.
                        Given the continuous debate regarding the cost of healthcare
                        services,
                        management cannot predict with any degree of certainty what
                        additional
                        healthcare initiatives, if any, will be implemented or the
                        effect any future
                        legislation or regulation will have on the Company.
 
 ***Cash
                        and Cash Equivalents***
 
 The
                        Company considers all highly liquid investments with an original
                        maturity of
                        three months or less, when purchased, to be cash equivalents.
 
 The
                        financial instrument that potentially exposes the Company
                        to a concentration of
                        credit risk principally consists of cash. The Company deposits
                        its cash with
                        high credit financial institutions, and at times the balances
                        may exceed the
                        insurance limit of the Federal Deposit Insurance Corp. Management
                        believes that
                        there is little risk of loss due to this policy.
 Page
                          F-13
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **2.**  **SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES** (continued)
 
 ***Accounts
                        Receivable, non-current***
 
 The
                        Company carries $183,741 of receivables which are over 180
                        days. These
                        receivables are primarily from Workmen’s Compensation Board of State of
                        California (“CA Board”). These receivables are due to disputes between the
                        claimant and the employer, with the CA Board, known as “Green Liens”. The
                        settlement period for such Green Lien cases takes anywhere
                        from 1 year to 5
                        years. The Management classified such receivables as non-current
                        long term
                        assets. The Management also, provided 50% allowance for doubtful
                        receivables
                        against such receivables.
 
 ***Allowance
                        for Doubtful Accounts Receivable***
 
 The
                        Company’s receivables are from reputable insurance companies. However,
                        management periodically reviews the collectability of accounts
                        receivable and
                        provides an allowance for doubtful accounts receivable as
                        management deems
                        necessary. For the year ended December 31, 2006, Management
                        provided
                        approximately $177,000 towards such allowance. This provision
                        also, includes 50%
                        provision towards Green Lien claims. Management concluded
                        there was no need for
                        such an allowance as of December 31, 2005.
  ***Inventories***
 
 Inventories
                        are stated at the lower of cost (first-in, first-out) or
                        estimated market, and
                        consist primarily of pharmaceutical drugs. Market is determined
                        by comparison
                        with recent sales or net realizable value. Net realizable
                        value is based on
                        management’s forecast for sales of its products or services in the ensuing
                        years
                        and/or consideration and analysis of changes in customer
                        base, product mix,
                        payor mix, third party insurance reimbursement levels or
                        other issues that may
                        impact the estimated net realizable value. Management regularly
                        reviews
                        inventory quantities on hand and records a reserve for shrinkage
                        and
                        slow-moving, damaged and expired inventory, which is measured
                        as the difference
                        between the inventory cost and the estimated market value
                        based on management’s
                        assumptions about market conditions and future demand for
                        its products. No
                        reservations were provided at December 31, 2006 and 2005,
                        respectively, as the
                        reserves were insignificant to the accompanying financial
                        statements. Should the
                        demand for the Company's products prove to be less than anticipated,
                        the
                        ultimate net realizable value of its inventories could be
                        substantially less
                        than reflected in the accompanying consolidated balance sheet.
  Page
                            F-14
 Table
                            of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **2.**  **SUMMARY
                          OF SIGNIFICANT ACCOUNTING POLICIES** (continued)
 
 ***Inventories
                          (continued)***
 
 Inventories
                          are comprised of brand and generic pharmaceutical drugs.
                          Brand drugs are
                          purchased primarily from one wholesale vendor and generic
                          drugs are purchased
                          primarily from multiple wholesale vendors. The Company's
                          pharmacies maintain a
                          wide variety of different drug classes, known as Schedule
                          II, Schedule III, and
                          Schedule IV drugs, which vary in degrees of addictiveness.
  Schedule
                          II drugs, considered narcotics by the DEA are the most
                          addictive; hence, they
                          are highly regulated by the DEA and are required to be
                          segregated and secured in
                          a separate cabinet. Schedule III and Schedule IV drugs
                          are less addictive and
                          are not regulated. Because the Company's business model
                          focuses on servicing
                          pain management doctors and chronic pain patients, the
                          Company carries in
                          inventory a larger amount of Schedule II drugs than most
                          other pharmacies. The
                          cost in acquiring Schedule II drugs is higher than Schedule
                          III and IV
                          drugs.
 
 ***Long
                          Lived Assets:***
 
 The
                          Company adopted Statement of Financial Accounting Standard
                          ( *“* SFAS”)
                          No. 144, “ *Accounting
                          for the Impairment or Disposal of Long-Lived Assets”,* which
                          addresses financial accounting and reporting for the impairment
                          or disposal of
                          long-lived assets. SFAS No. 144 requires that long-lived
                          assets be reviewed for
                          impairment whenever events or changes in circumstances
                          indicate that their
                          carrying amount may not be recoverable. If the cost basis
                          of a long-lived asset
                          is greater than the projected future undiscounted net cash
                          flows from such
                          asset, an impairment loss is recognized. Impairment losses
                          are calculated as the
                          difference between the cost basis of an asset and its estimated
                          fair value. SFAS
                          No. 144 also requires companies to separately report discontinued
                          operations,
                          and extends that reporting to a component of an entity
                          that either has been
                          disposed of (by sale, abandonment or in a distribution
                          to owners) or is
                          classified as held for sale. Assets to be disposed of are
                          reported at the lower
                          of the carrying amount or the estimated fair value less
                          costs to
                          sell.
 
 The
                          Company's long-lived assets consist of computers, software,
                          office furniture and
                          equipment, store fixtures and leasehold improvements on
                          pharmacy build-outs
                          which are depreciated with useful lives varying from 3
                          to 10 years. Leasehold
                          improvements are depreciated over the shorter of the useful
                          life or the
                          remaining lease term, typically 5 years. The Company assesses
                          the impairment of
                          these long-lived assets at least annually and makes adjustment
                          accordingly.
                          There were no impairments for 2006 or 2005.
 Page
                        F-15
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **2.**  **SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES** (continued)
 
 ***Property
                        and Equipment***
 
 Property
                        and equipment are stated at cost, and are being depreciated
                        using the
                        straight-line method over the estimated useful lives of the
                        related assets,
                        which generally range between three and ten years. Leasehold
                        improvements are
                        amortized on a straight-line basis over the shorter of the
                        estimated useful
                        lives of the assets or the remaining lease terms. Maintenance
                        and repairs are
                        charged to expense as incurred. Significant renewals and
                        betterments are
                        capitalized. At the time of retirement, other disposition
                        of property and
                        equipment or termination of a lease, the cost and accumulated
                        depreciation or
                        amortization are removed from the accounts and any resulting
                        gain or loss is
                        reflected in results of operations.
  ***Intangible
                        Assets***
 
 The
                        Company follows SFAS No. 142, *"Goodwill
                        and Other Intangible Assets",* which ,
                        addresses how intangible assets that are acquired individually or with a group
                        of other assets should be accounted for upon their acquisition
                        and after they
                        have been initially recognized in the financial statements.
                        SFAS No. 142
                        requires that goodwill and identifiable intangible assets
                        that have indefinite
                        lives not be amortized but rather be tested at least annually
                        for impairment,
                        and intangible assets that have finite useful lives be amortized
                        over their
                        estimated useful lives.
 
 SFAS
                        No.
                        142 provides specific guidance for testing goodwill and intangible
                        assets for
                        impairment. In addition, SFAS No. 142 expands the disclosure
                        requirements about
                        intangible assets in the years subsequent to their acquisition.
 
 ***Advertising***
 
 The
                        Company expenses the cost of advertising, including marketing
                        and promotions,
                        when incurred. Advertising costs for the years ended December
                        31, 2006 and
                        December 31, 2005 $478,523 and $25,673, respectively. They
                        are included in
                        selling, general and administrative expenses in the accompanying
                        consolidated
                        statements of operations.
 Page
                        F-16
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005 
 **2.**  **SUMMARY
                          OF SIGNIFICANT ACCOUNTING POLICIES** (continued)
 
 ***Revenue
                          Recognition***
 
 The
                          Company recognizes revenue on an accrual basis when the
                          product is delivered to
                          the customer. Payments are received directly from the customer
                          at the point of
                          sale, or the customers’ insurance provider is billed. Authorization which
                          assures payment is obtained from the customers’ insurance provider before the
                          medication is dispensed to the customer. Authorization
                          is obtained for the vast
                          majority of these sales electronically and a corresponding
                          authorization number
                          is issued by the customers’ insurance provider.
 
 The
                          Company accounts for shipping and handling fees and costs
                          in accordance with
                          EITF 00-10 “ *Accounting
                          for Shipping and Handling Fees and Costs.”* Such
                          fees and costs are immaterial to the Company's operations.
 
 ***Stock-based
                          Employee Compensation***
 
 Effective
                          January 1, 2006, the Company adopted the provisions of
                          statement of Financial
                          Standards No. 123 (revised 2004), Share-Based Payment (“SFAS No. 123 (R)”),
                          which is a revision of SFAS No. 123. SFAS No. 123 (R) supersedes
                          APB Opinion No.
                          25, Accounting for Stock Issued to Employees, and amends
                          FASB Statement No. 95,
                          Statement of Cash Flows. Generally, the approach to accounting
                          for share-based
                          payments in SFAS No. 123 (R) is similar to the approach
                          described in SFAS No.
                          123.
 
 However,
                          SFAS 123 (R) requires all new share-based payments to employees,
                          including
                          grants of employee stock options, to be recognized in the
                          financial statements
                          based on their fair values. Pro forma disclosure of the
                          fair value of new
                          share-based payments is no longer an alternative to financial
                          statement
                          recognition.
 
 Prior
                          to
                          2006, the Company accounted for its employee stock option
                          plans under the
                          intrinsic value method, in accordance with the provisions
                          of Accounting
                          Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
                          Employees,” and related interpretations. Compensation expense related
                          to the
                          granting of employee stock options is recorded over the
                          vesting period only, if,
                          on the date of grant, the fair value of
 the
                          underlying stock exceeds the option’s exercise price. The Company had adopted
                          the disclosure-only requirements of SFAS No. 123, “Accounting for Stock-Based
                          Compensation,” which allowed entities to continue to apply the provisions
                          of APB
                          No. 25 for the transactions with employees and provide
                          pro forma net income and
                          pro forma income per share disclosures for employee stock
                          grants made as if the
                          fair value based method of accounting in SFAS No. 123 had
                          been applied to these
                          transactions.
 Page
                          F-17
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **2.** **SUMMARY
                      OF SIGNIFICANT ACCOUNTING POLICIES** **** (continued)
 
 ***Stock-based
                      Employee Compensation (continued)***
 
 In
                      the
                      event the Company determined compensation expense of the employee
                      stock options
                      issued prior to January 1, 2006, based on the estimated fair
                      value of the stock
                      options at the grant date and consistent with guidelines of
                      SFAS 123, its net
                      loss and loss per share would have been as follows:
  **2006**
                            
                            **2005**Net
                                loss applicable to common stockholders:As
                                reported
                            $
                            (4,501,839)
                            
                            $
                            (4,797,092)Deduct:
                                Total stock-based employee compensation
                              expense
                                determined under fair value based method for all
                                awards
                            
                            -
                            
                            
                            (2,600)Pro
                                forma
                            $
                            (4,501,839)
                            
                            $
                            (4,799,692)Basic
                                and diluted (loss) per common share:As
                                reported
                            $
                            (0.09)
                            
                            $
                            (0.12)Pro
                                forma
                            $
                            (0.09)
                            
                            $
                            (0.12)
 
 The
                      above
                      pro-forma effects of applying SFAS 123 are not necessarily
                      representative of the
                      impact on the results of operations for future years.
 Page
                        F-18
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **2.** **SUMMARY
                        OF SIGNIFICANT ACCOUNTING POLICIES** **** (continued)
 
 ***Basic
                        and Diluted Loss per Common Share***
 
 The
                        Company computes loss per common share using SFAS No. 128
“ *Earnings
                        Per Share* ”.
                        Basic
                        loss per share is computed by dividing net loss applicable
                        to common
                        shareholders by the weighted average number of common shares
                        outstanding for the
                        reporting period. Diluted loss per share reflects the potential
                        dilution that
                        could occur if securities or other contracts, such as stock
                        options and warrants
                        to issue common stock, were exercised or converted into common
                        stock. Because
                        the Company has incurred net losses and there are no dilutive
                        potential common
                        shares, basic and diluted loss per common share are the same.
                        There were
                        16,658,875 and 14,780,875 warrants and options convertible
                        into one share of the
                        Company’s common stock issued and outstanding as of December 31,
                        2006 and 2005,
                        respectively.
 
 ***Income
                        Taxes***
 
 The
                        Company accounts for income taxes under the provisions of
                        SFAS No. 109,
                        " *Accounting
                        for Income Taxes"* . 
                        SFAS No. 109 requires recognition of deferred tax liabilities
                        and assets for the
                        expected future tax consequences of events that have been
                        included in the
                        financial statements or income tax returns.  Under this method deferred tax
                        liabilities and assets are determined based on the difference
                        between the
                        financial statement and tax bases of assets and liabilities
                        using enacted tax
                        rates for the year in which the differences are expected
                        to reverse (See Note
                        10).
 
 ***Fair
                        Values of Financial Instruments***
  SFAS
                        No.
                        107 “ *Disclosures
                        About Fair Value of Financial Instruments* ”
                        requires disclosure of fair value information about financial
                        instruments when
                        it is practicable to estimate that value. Management believes
                        that the carrying
                        amounts of the Company’s financial instruments, consisting primarily of cash,
                        accounts receivable, and accounts payable and accrued liabilities
                        approximated
                        their fair values at December 31, 2006 and 2005, due to their
                        short-term nature.
 
 Management
                        also believes that
                        the
                        December 31, 2006 and 2005 interest rate associated with
                        the note payable
                        approximates the market interest rate for this type of debt
                        instrument and as
                        such, the carrying amount of the notes payable approximates
                        its fair
                        value.
 
 The
                        fair
                        values of related party transactions are not determinable
                        due to their related
                        party nature.
  Page
                              F-19
 Table
                              of Contents
 ASSURED
                        PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                        KNOWN AS eRXSYS, INC.
 NOTES
                        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                        31, 2006 and December 31, 2005
  **3.
                      PROPERTY AND EQUIPMENT**
 
 Property
                      and equipment consisted of the following at December 31, 2006
                      and
                      2005:
 
 **2006**
                            
                            **2005**Furniture
                                and equipment
                            $
                            29,681
                            
                            $
                            17,212Computer
                                equipment and information systems
                            
                            403,278
                            
                            
                            341,611Leasehold
                                improvements
                            
                            296,695
                            
                            
                            242,833729,654
                            
                            
                            601,656Less:
                                accumulated depreciation and amortization
                            
                            (286,715)
                            
                            
                            (160,686)$
                            442,939
                            
                            $
                            440,970
 
 Depreciation
                          and amortization for the years ended December 31, 2006
                          and 2005 was $133,500 and
                          $108,135, respectively.
 
 **4.
                          LINE OF CREDIT FROM A RELATED PARTY**
 
 In
                          February 2005, the Company entered into an accounts receivable
                          servicing
                          agreement and a line of credit agreement with Mosaic Financial
                          Services, Inc.
                          (the “Lender” or “Mosaic”). This agreement provided the Company financing for
                          inventory purchases over an extended period of time. Under
                          the terms of the line
                          of credit agreement, the Company was able to draw a maximum
                          of $500,000 to
                          purchase inventory. On July 1, 2005, the line of credit
                          limit was increased to
                          $700,000. These agreements were for a one-year term with
                          a provision to
                          automatically renew unless either party provided notice
                          of termination within
                          180 days prior to the end of the term. The line of credit
                          had a monthly interest
                          rate of 1.25% of the then line of credit limit. The line
                          of credit was secured
                          by substantially all of the Company's existing and future
                          assets.
 
 Pursuant
                          to the above agreement, the Lender had a continuing right
                          during the term to
                          convert all or a portion of the outstanding obligations
                          into a number of shares
                          of the Company’s common stock determined at a conversion price equal to
                          80% of
                          the volume weighted average price of the Company’s common stock as quoted by
                          Bloomberg, LP for the seven trading day weighted average
                          closing bid price for
                          the common stock on the OTCBB (or such other equivalent
                          market on which the
                          common stock is then quoted) calculated as of the trading
                          day immediately
                          preceding the date the conversion right is exercised. The
                          conversion price per
                          share shall not be less than $0.25 or more than $0.75.
                          The Lender is only
                          entitled to piggyback registration rights upon exercise
                          of this conversion
                          right, and the Company is not contractually liable for
                          any registration rights
                          penalties.
 Page
                        F-20
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **4.
                        LINE OF CREDIT FROM A RELATED PARTY (Continued)**
 
 On
                        October 24, 2005, the Company authorized the issuance of
                        2,500,000 restricted
                        common shares at $0.28 per share to Mosaic in order to convert
                        their entire
                        outstanding balance of $700,000 into common stock in accordance
                        with the
                        conversion right in the line of credit agreement. The issuance
                        of these shares
                        to Mosaic satisfied in full the Company’s obligations under such agreement.
                        These shares were issued pursuant to Section 4(2) of the
                        Securities Act of 1933,
                        as amended (the “Securities Act”).
 
 On
                        October 31, 2005, the Company entered into Line of Credit
                        Agreement (“LOC”) with
                        Mosaic Financial Services, Inc. (“Mosaic”) for $1,000,000 to purchase inventory.
                        This LOC has a one time commitment fee equal to three percent
                        (3%) of the
                        initial amount of the LOC. The LOC has a monthly finance charge of 1.5% of
                        the then LOC limit. These finance charges are deducted prior
                        to any advances.
                        Under the terms of the LOC, Mosaic has a conversion right
                        to convert all or a
                        portion of the outstanding advances into shares of our common
                        stock where the
                        conversion price is based on the weighted average closing
                        bid price for the
                        common stock on the over-the-counter bulletin board (or such
                        other equivalent
                        market on which our common stock is quoted) for the seven
                        trading days
                        immediately preceding the date the conversion right is exercised.
                        The conversion
                        price shall not be less than $0.40 or more than $0.80. This
                        LOC is secured
                        by substantially all of our assets. On May 1, 2006, the Company repaid
                        $200,000, which was drawn down in October, 2005. Since April
                        15 2006, the
                        Company has been able to finance its inventory purchases
                        without the need to
                        draw down funds from the LOC.
 
 A
                        member
                        of the Company’s board of directors since September 2005 and its Chief Financial
                        Officer was previously the group financial officer for Mosaic
                        Capital Advisors,
                        LLC, which is the parent company of Mosaic. This LOC agreement
                        was terminated on
                        May 1, 2006.
  Page
                          F-21
 Table
                          of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                        KNOWN AS eRXSYS, INC.
 NOTES
                        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                        31, 2006 and December 31, 2005
 
 **5.
                    NOTES PAYABLE TO RELATED PARTIES AND STOCKHOLDERS**
 
 ***Licensor
                    Note***
 
 In
                    May
                    2003, the Company assumed a note payable from Safescript Pharmacies,
                    Inc. (the
“Licensor”) of approximately $3,177,000 in connection with acquisition
                    of a
                    License (see Note 4), of which $2,000,000 was converted into
                    4,444,444 shares of
                    the Company’s restricted common stock at $0.45 per share. The remaining balance
                    of approximately $1,177,000 was payable in monthly installments
                    of $25,000
                    including interest at 5% per annum with a balloon payment of
                    approximately
                    $802,000 due in December 2004. This note was secured by the License.
 
 Due
                    to
                    the Company’s dispute with the Licensor (see Note 12), the Company ceased
                    making
                    monthly installment payments. The outstanding balance of the
                    note was
                    approximately $1,013,000 as of December 31, 2004. On
                    June
                    30, 2005, the United States Bankruptcy Court for the Eastern
                    District of Texas
                    approved a Settlement Agreement and Mutual Release (the “Settlement Agreement”)
                    between the Company and the Licensor. Under the terms of the
                    Settlement
                    Agreement, the Licensor retained 100,000 shares of the Company’s common stock
                    and returned the remaining 4,344,444 shares of common stock for
                    cancellation. In
                    addition, the Company issued the Licensor 500,000 additional
                    shares of Company
                    common stock and agreed to dismiss the lawsuit then pending in
                    the U.S. District
                    Court for the Eastern District of Texas with prejudice.
 
 The
                    Settlement Agreement contained a mutual release which resulted
                    in the Licensor
                    releasing the Company from any liability with respect to the
                    note payable due to
                    the Licensor in the amount of approximately $1,013,000. For financial
                    reporting
                    purposes, the Company has treated the 500,000 shares to the Licensor
                    as
                    constructively issued as of June 30, 2005. Accordingly,
                    the Company recorded for the quarter ended June 30, 2005, a credit
                    to common
                    stock for $500; a credit to additional paid in capital for $148,000
                    (the
                    estimated fair value of the stock based on the trading price
                    on the settlement
                    date); and a gain on settlement of debt of approximately $1,012,000
                    in the
                    accompanying consolidated statements of operations. Based on
                    FASB No. 145 and
                    APB No. 30, management concluded that such gain is not considered
                    extraordinary
                    and is presented as a component of loss from continuing operations.
 Page
                        F-22
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **5.
                          NOTES PAYABLE TO RELATED PARTIES AND STOCKHOLDERS** (continued)
 
 *Note
                          to Former CEO*
 
 In
                          December 2003, the Company entered into a note payable
                          with its former Chief
                          Executive Officer (“former CEO”) for $370,000 in connection with the acquisition
                          of a License. This note accrued interest at a fixed rate
                          of 5% per annum. The
                          note was secured by the License and was to mature in December
                          31, 2007.
 
 In
                          February 2005, the Company entered into a termination and
                          settlement agreement
                          with the former CEO, whereby he agreed to accept $10,000
                          cash, 494,000 shares of
                          restricted common stock and warrants (fully vested and
                          immediately exercisable,
                          at a price range of $0.75 to $1.25 per share, over a five
                          year period) to
                          purchase 1,300,000 shares of the Company’s common stock and forever discharge
                          the Company from all liability associated with this debt.
                          During the quarter
                          ended September 30, 2005, the Company paid the $10,000
                          on this settlement. In
                          addition, the Company recorded a credit to subscribed stock
                          for $494; a credit
                          to additional paid in capital for $118,066 (the estimated
                          fair value of the
                          stock based on the trading price on the settlement date);
                          and recorded a credit
                          to additional paid in capital for $329,400 (estimated fair
                          value of the warrants
                          based on the Black-Scholes pricing model on the settlement
                          date) and a loss on
                          settlement of debt of $87,960, thereby extinguishing this
                          liability.
 
 *TAPG
                          Note*
 
 In
                          January 2005, the Company entered into an agreement with
                          TAPG where TAPG was to
                          advance $270,000 in connection with establishing pharmacies
                          in the Pacific
                          Northwest of the United States (see Note 1). The note was
                          to be funded by TAPG
                          LLC in monthly instalments of $45,000 up to a maximum of
                          $270,000. The note
                          accrued interest at a fixed rate of 7% per annum. The note
                          is secured by the
                          assets of API’s pharmacies, in which the Company holds a controlling
                          interest.
                          However, the Company received only $40,000 during 2005.
                          The note matured in
                          January 2006 and was not extended. As of December 31, 2006,
                          the Company paid
                          $20,000 payment on this note. The
                          Company intends to retire the remaining balance due of
                          $20,000.
 
 *Convertible
                          Loans*
 
 On
                          October 25, 2005, the Company entered into a loan agreement
                          with Malaton
                          Investment Corporation S.A. (“Malaton”). Under the terms of the agreement, the
                          Company received $250,000 for a two month term which can
                          be extended for an
                          additional twelve (12) month period by mutual consent.
                          On the date of funding,
                          the Company paid the lender a one time commitment fee equal
                          to 3% of the initial
                          amount of the loan. The loan has an interest rate of 15%
                          per annum to be paid in
                          monthly installments.
 Page
                          F-23
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005 
 **5.
                        NOTES PAYABLE TO RELATED PARTIES AND STOCKHOLDERS** (continued)
 
 *Convertible
                        Loans (continued)*
 
 Pursuant
                        to the terms of this agreement, Malaton had a continuing
                        conversion right during
                        the term to convert all or a portion of the then outstanding
                        amount of the
                        obligations into a number of shares of the Company’s common stock determined at
                        a conversion price equal to the rolling seven (7) trading
                        day weighted average
                        closing bid price for the Common Stock on the OTC:BB (or
                        such other equivalent
                        market on which the Common Stock is quoted) calculated as
                        of the trading day
                        immediately preceding the date the Conversion Right is exercised.
                        The conversion
                        price per share was not to be less than $0.40 or more than
                        $0.80. On March 1,
                        2006, Malaton elected to convert the loan into 625,000 shares
                        of the Company’s
                        restricted common stock. The shares issued upon conversion
                        are entitled to
                        piggyback registration rights.
 
 On
                        December 21, 2005, the Company entered into a loan agreement
                        with Kenido
                        Holdings, Inc. (“Kenido”). Under the terms of the agreement, the Company
                        received
 $175,000
                        for a twelve (12) month term which can be extended for an
                        additional twelve
 (12)
                        month period by mutual consent. On the date of funding, the
                        Company paid the
                        lender a one time commitment fee equal of 3% of the initial
                        amount of the loan.
                        The loan had an interest rate of 15% per annum payable in
                        monthly
                        installments.
 
 Pursuant
                        to the terms of this agreement, the Kenido had a continuing
                        conversion right
                        during the term to convert all or a portion of the then outstanding
                        amount of
                        the
 obligations
                        into a number of shares of the Company’s common stock determined at a conversion
                        price equal to the rolling seven (7) trading day weighted
                        average closing bid
                        price for the Common Stock on the OTC:BB (or such other equivalent
                        market on
                        which the Common Stock is quoted) calculated as of the trading
                        day immediately
                        preceding the date the Conversion Right is exercised. The
                        conversion price per
                        share was not to be less than $0.40 or more than $0.80. On
                        March 1, 2006, Kenido
                        elected to convert the loan into 437,500 shares of the Company’s restricted
                        common stock. The shares issued upon conversion are entitled
                        to piggyback
                        registration rights.
 
 The
                        conversion price on both the notes to, Kenido and Malaton,
                        was $0.40. The
                        weighted average price of the shares of the Company’s common stock was
                        calculated at $0.41. Due to this, the Company recognized
                        a beneficial conversion
                        of $10,625 as an expense.
 Page
                          F-24
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
  **5.
                    NOTES PAYABLE TO RELATED PARTIES AND STOCKHOLDERS** (continued)
 
 *Convertible
                    Loans (continued)*
 
 During
                    first quarter of 2005, the Company entered into ninety-day note
                    payable to VVPH
                    Inc. for $50,000. During first quarter of 2006, the Company extended
                    this
                    agreement to January 31, 2007. VVPH also, agreed to convert accrued
                    interest of
                    $1,907 to principal.
 
 On
                    January 21, 2006, the Company entered additional two (2) loan
                    agreements with
                    VVPH Inc. Under the terms of the agreements, the Company received
                    $600,000 for a
                    twelve (12) month term which can be extended for an additional
                    twelve (12) month
                    period by mutual consent. The loan has an interest rate of 15%
                    per annum to be
                    paid in monthly installments.
 
 Pursuant
                    to the terms of this agreement, the VVPH has a continuing conversion
                    right
                    during the term to convert all or a portion of the then outstanding
                    amount of
                    the obligations into a number of shares of the Company’s common stock determined
                    at a conversion price equal to the rolling seven (7) trading
                    day weighted
                    average closing bid price for the Common Stock on the OTC:BB
                    (or such other
                    equivalent market on which the Common Stock is quoted) calculated
                    as of the
                    trading day immediately preceding the date the Conversion Right
                    is exercised.
                    The Conversion Price shall not be less than $0.40 or more than
                    $0.80. VVPH Inc
                    shall be entitled to piggyback registration rights upon exercise
                    of this
                    conversion right. During the year ended December 31, 2006, the
                    Company paid
                    $75,000 towards the principal of this loan, along with interest
                    of $64,315. As
                    of December 31, 2006, the Company owes $575,988 along with the
                    interest, towards
                    these notes.
 
 In
                    March
                    2007, the Company extended these agreements until January, 2008.
 
 During
                    the first quarter of 2005, the Company entered into three
                    ninety-day notes payable to three stockholders totaling $190,000.
                    These notes
                    are unsecured and have various fixed interest rate ranging from
                    3% to 7.50% per
                    annum. On August 15, 2005, the Company repaid one note bearing
                    3% interest rate,
                    of the $50,000 note together with accrued interest of $1,350.
                    Also, during the
                    quarter ended September 30, 2005, the Company extended the maturity
                    date of the
                    remaining two notes payable to January 31, 2006.
 
 The
                    Company was able to further extend the maturity date of these
                    three notes from
                    January 31, 2006 to January 31, 2007. Company also converted
                    accrued interest of
                    $6,256 to notes payable. During the year ended December 31, 2006,
                    the Company
                    repaid 2 notes of $146,256. along with the interest of $6,125.
  Page
                          F-25
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
  **6.
                        EQUITY TRANSACTIONS**
 
 ***Common
                        Stock***
 
 On
                        July
                        17, 2006, the Company amended its Articles of Incorporation
                        to increase the
                        number of authorized shares of common stock available for
                        issuance from
                        70,000,000 to 150,000,000, par value of $0.001 per share.
 
 In
                        March
                        2005, the Company issued 124,997 shares of restricted common
                        stock to four
                        consultants in connection with services rendered valued at
                        $33,249 (estimated to
                        be the fair value based on the trading price on the issuance
                        date). These
                        securities were issued pursuant to Section
                        4(2) of the Securities Act.
 
 During
                        the quarter ended March 31, 2005, the Company issued 100,000
                        shares of its
                        common stock to directors of the Company in consideration
                        for their services
                        rendered during the March 31, 2005 quarter. Such shares were
                        valued at $38,000
                        (estimated to be the fair value based on the trading price
                        on the issuance
                        date). These securities were issued pursuant to Section 4(2)
                        of the Securities
                        Act.
 
 In
                        a
                        termination and settlement agreement entered into with the
                        Company’s former CEO
                        on February 1, 2005, the Company agreed to issue the former
                        CEO 494,000 shares
                        of restricted common stock (see Note 5). The former CEO also
                        agreed to return
                        5,400,000 shares of the Company’s common stock to treasury. In termination and
                        settlement agreements with two other officers, they agreed
                        to return 1,114,214
                        shares of the Company’s common stock to treasury.
 
 During
                        the quarter ended June 30, 2005, the Company commenced a
                        private equity offering
                        to accredited investors and sold 910,000 units at $0.80 per
                        unit, for an
                        aggregate of approximately $712,000 in net proceeds. Each
                        unit is priced at
                        $0.80 and consists of two shares of restricted common stock
                        and one warrant to
                        purchase one share of restricted common stock at an exercise
                        price of $0.60
                        exercisable for thirty-six months after the close of the
                        offering. These
                        securities were issued pursuant to Rule 506 of Regulation
                        D.
 
 During
                        the quarter ended June 30, 2005, the Company issued 168,412
                        shares of restricted
                        common stock to consultants in connection with services rendered
                        valued at
                        $49,042 (estimated to be the fair value based on the trading
                        price on the
                        issuance date). These securities were issued pursuant to Section
                        4(2) of the Securities Act.
 Page
                        F-26
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **6.
                        EQUITY TRANSACTIONS**(continued)
 
 ***Common
                        Stock***
 
 Under
                        the
                        terms of the Settlement Agreement (see Note 5), the Licensor
                        retained 100,000
                        shares of the Company’s common stock and returned the remaining 4,344,444 shares
                        of common stock for cancellation. Accordingly, the Company
                        recorded a debit to
                        treasury stock for $4,344. In addition, the Company agreed
                        to issue the Licensor
                        500,000 additional shares of its common stock. These
                        securities were issued pursuant to Section
                        4(2) of the Securities Act.
 
 In
                        August
                        2005, the Company issued 500,000 shares of its common stock
                        to directors of the
                        Company in consideration for services rendered during the
                        September 30, 2005
                        quarter. These shares were valued at $140,000 (estimated
                        to be the fair value
                        based on the trading price on the issuance date). These securities
                        were issued
                        pursuant to Section 4(2) of the Securities Act.
 
 During
                        the quarter ended September 30, 2005, the Company sold 856,250
                        units at $0.80
                        per unit, or an aggregate of $685,000 in proceeds, to accredited
                        investors in a
                        private equity offering. Each unit was priced at $0.80 and
                        consisted of two
                        shares of restricted common stock and one warrant to purchase
                        one share of
                        restricted common stock at an exercise price of $0.60 exercisable
                        for thirty-six
                        months after the close of the offering. These securities
                        were issued pursuant to
                        Rule 506 of Regulation D.
 
 During
                        the quarter ended September 30, 2005 the Company issued 165,000
                        shares of
                        restricted common stock to a consultant for services rendered,
                        valued at $46,200
                        (estimated to be the fair value based on the trading price
                        on the issuance
                        date). This security was issued pursuant to Section 4(2)
                        of the Securities
                        Act.
 
 During
                        the quarter ended September 30, 2005, the Company issued
                        1,430,000 shares of
                        restricted common stock to consultants in connection with one-year service
                        agreements. Such stock was valued at $449,500 (estimated
                        to be the fair value
                        based on the trading price on the issuance date). As a result
                        of these
                        transactions, the Company recorded a debit to deferred compensation of
                        $449,500 and a credit to common stock and additional paid-in
                        capital of $1,430
                        and $448,070, respectively. The Company is amortizing such
                        deferred compensation
                        over the life of the consulting contracts. These securities
                        were issued pursuant
                        to Section 4(2) of the Securities Act.
 
 During
                        the quarter ended September 30, 2005, the Company issued
                        169,090 shares of
                        restricted common stock to a consultant for services rendered,
                        valued at $60,872
                        (estimated to be the fair value based on the trading price
                        on the issuance
                        date). These securities were issued pursuant to Section 4(2)
                        of the Securities
                        Act.
  Page
                            F-27
 Table
                            of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **6.
                        EQUITY TRANSACTIONS**(continued)
 
 ***Common
                        Stock***
 
 Also,
                        in
                        August 2005, the Company issued 250,000 shares of restricted
                        common stock for a
                        performance-based bonus earned by an officer of the Company
                        valued at $70,000
                        (estimated to be the fair value based on the trading price
                        on the issuance
                        date). The Company also granted options to purchase 250,000
                        shares of the
                        Company’s common stock exercisable one-third per year for a period
                        of three
                        years from the date of issuance at a price of $0.60 per share.
                        These securities
                        were issued pursuant to Section 4(2) of the Securities Act.
 
 During
                        the quarter ended December 31, 2005, the Company sold 143,750
                        units at $0.80 per
                        unit, or an aggregate of $115,000 in proceeds, to accredited
                        investors in a
                        private equity offering. Each unit was priced at $0.80 and
                        consisted of two
                        shares of restricted common stock and one warrant to purchase
                        one share of
                        restricted common stock at an exercise price of $0.60 exercisable
                        for thirty-six
                        months after the close of the offering. These securities
                        were issued pursuant to
                        Rule 506 of Regulation D.
 
 During
                        the three months ended March 31, 2006, the Company sold 156,250
                        units at $0.80
                        per unit, or an aggregate of $125,000 in proceeds, to accredited
                        investors in a
                        private equity offering. Each unit consists of two (2) shares
                        of restricted
                        common stock and one (1) warrant to purchase one (1) share
                        of restricted common
                        stock at an exercise price of $0.60 exercisable for thirty
                        six (36) months after
                        the acceptance date of the subscription. These securities
                        were issued pursuant
                        to Section 4(2) of the Securities Act of 1933, as amended.
 
 During
                        the three months ended March 2006, the Company entered into
                        debt conversion
                        agreements with two lenders converting the total principal
                        balances of $425,000
                        into 1,062,500 restricted shares of common stock. These shares
                        were issued
                        pursuant to Section 4(2) of the Securities Act
 
 During
                        the three months ended March 2006, the Company issued 625,000
                        shares of
                        restricted common stock to three (3) consultants in connection
                        with service
                        agreements with various ending dates. Such stock was valued
                        at $254,250
                        (estimated to be the fair value based on the trading price
                        on the issuance
                        date). As a result of these transactions, the Company recorded a debit
                        to deferred compensation of $254,250 and a credit to common
                        stock and additional
                        paid-in capital of $625 and $253,625, respectively.
 Page
                            F-28
 Table
                            of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
  **6.
                      EQUITY TRANSACTIONS**(continued)
 
 ***Common
                      Stock***
 
 During
                      the three
                      months ended June 30, 2006, the
                      Company issued 750,000 shares of restricted common stock to
                      3 (three)
                      consultants in connection with the existing service agreements with various
                      ending dates. Such stock was valued at $350,000 (estimated
                      to be the fair value
                      based on the trading price on the issuance date). As a result
                      of these
                      transactions, the Company recorded a debit to deferred compensation of
                      $350,000 and a credit to common stock and additional paid-in
                      capital of $750 and
                      $349,250 respectively.
 
 During
                      the three months ended June 30, 2006, the Company sold 1,968,750
                      units at $0.80
                      per unit, or an aggregate of $1,575,000 in proceeds, to accredited
                      investors in
                      a private equity offering. Each unit consists of two (2) shares
                      of restricted
                      common stock and one (1) warrant to purchase one (1) share
                      of restricted common
                      stock at an exercise price of $0.60 exercisable for thirty
                      six (36) months after
                      the acceptance date of the subscription. These securities were
                      issued pursuant
                      to Section 4(2) of the Securities Act of 1933, as amended.
 
 During
                      the three months ended September 30, 2006, the Company issued
                      590,000 shares of
                      restricted common stock to two consultants in connection with the existing
                      service agreements with various ending dates. Such stock was
                      valued at $246,400
                      (estimated to be the fair value based on the trading price
                      on the issuance
                      date). The Company recorded $199,500 as deferred compensation,
                      and $7,000 as
                      consulting expense. As a result of these transactions, the
                      Company recorded a debit to deferred compensation and consulting
                      expense of $239,400 and $7,000, respectively and, a credit
                      to common stock and
                      additional paid-in capital of $590 and $238,810 respectively.
 
 During
                      the three months ended September 30, 2006, the Company sold
                      87,500 units at
                      $0.80 per unit, or an aggregate of $70,000 in proceeds, to
                      accredited investors
                      in a private equity offering. Each unit consists of two (2)
                      shares of restricted
                      common stock and one (1) warrant to purchase one (1) share
                      of restricted common
                      stock at an exercise price of $0.60 exercisable for thirty
                      six (36) months after
                      the acceptance date of the subscription. These securities were
                      issued pursuant
                      to Section 4(2) of the Securities Act of 1933, as amended.
 
 During
                      the three months ended December 31, 2006, the Company issued
                      250,000 shares of
                      restricted common stock to two consultants in connection with the existing
                      service agreements with various ending dates. Such stock was
                      valued at $89,500
                      (estimated to be the fair value based on the trading price
                      on the issuance
                      date). As a result of these transactions, the Company recorded a debit
                      to deferred compensation of $89,500 and a credit to common
                      stock and additional
                      paid-in capital of $250 and $89,250 respectively.
  Page
                          F-29
 Table
                          of Contents
 ASSURED
                    PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                    KNOWN AS eRXSYS, INC.
 NOTES
                    CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                    31, 2006 and December 31, 2005
 **6.
                      EQUITY TRANSACTIONS**(continued)
 
 ***Common
                      Stock***
 
 During
                      three months ended December 31, 2006, one (1) investor exercised
                      250,000
                      warrants to purchase 250,000 shares of restricted common stock
                      at an exercise
                      price of $0.60 for total consideration of $150,000.
 
 During
                      three months ended December 31, 2006, the Company issued 50,000
                      shares of
                      restricted common stock to TPG as a part of agreement to acquire
                      49% of API.
                      These shares were valued at $19,500
 
 During
                      three months ended December 31, 2006, the Company issued 1,011,373
                      shares of
                      restricted common stock in lieu of the total interest of $352,350,
                      due to the
                      convertible Debenture note holders (See note 7).
 
 ***Warrants***
 
 During
                      the year ended December 31, 2005, under the settlement agreement
                      with its former
                      CEO (see Note 5), the Company issued warrants to purchase 1,300,000
                      shares of
                      the Company’s restricted common stock at various exercise prices ranging
                      from
                      $0.75 to $1.25 exercisable for five (5) years.
 
 During
                      the year ended December 31, 2005, the Company issued warrants
                      to purchase
                      125,000 shares of its common stock to consultants for services.
                      Such warrants
                      were valued at $31,250 (estimated to be the fair value based
                      on the
                      Black-Scholes pricing model on the issuance date). The Company
                      recorded such
                      amount as consulting expense which is included in consulting
                      and other
                      compensation in the accompanying consolidated statements of
                      operations.
 
 During
                      the year ended December 31, 2005, in connection with a private
                      placement, the
                      Company issued warrants to purchase 1,910,000 shares of the
                      Company’s restricted
                      common stock at an exercise price of $0.60 exercisable for
                      thirty-six months
                      after October 2005.
 
 During
                      the year ended December 31, 2006, the Company issued warrants
                      to purchase
                      1,133,334 shares of its restricted common stock to an officer
                      of the Company.
                      Such warrants valued at $373,097 (estimated to be the fair
                      value based on the
                      Black-Scholes pricing model on the issuance date). One 1⁄2 of such warrants were
                      vested immediately and the rest are to be vested in 2007.
 Page
                        F-30
 Table
                        of Contents
 ASSURED
                      PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                      KNOWN AS eRXSYS, INC.
 NOTES
                      CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                      31, 2006 and December 31, 2005
 **6.
                        EQUITY TRANSACTIONS**(continued)
  ***Warrants
                        (continued)***
 
 During
                        the year ended December 31, 2006, in connection with a private
                        placement, the
                        Company issued warrants to purchase 2,212,500 shares of the
                        Company’s restricted
                        common stock at an exercise price of $0.60 exercisable for
                        thirty-six months
                        after October 2008.
 
 The
                        following tables summarize information concerning outstanding
                        warrants as of
                        December 31, 2006 and 2005:
 **Number
                                of Shares**
                            
                            **Weighted-Average
                                Exercise Price**Outstanding
                                and exercisable atJanuary
                                1, 2005
                            
                            4,145,875
                            
                            $
                            0.60Granted
                            
                            3,335,000
                            
                            $
                            0.60Cancelled
                                or forfeited
                            
                            -
                            
                            $
                            -Outstanding
                                and exercisable atDecember
                                31, 2005
                            
                            7,480,875
                            
                            $
                            0.60Granted
                            
                            3,345,834
                            
                            $
                            0.60Exercised,
                                Cancelled or forfeited
                            
                            (250,000)
                            
                            $
                            0.60Outstanding
                                and exercisable atDecember
                                31, 2006
                            
                            10,576,709
                            
                            $
                            0.60
  **Outstanding**
                              
                              **Exercisable****Range
                                  of Exercise Price**
                              
                              **Number
                                  of Shares**
                              **Weighted-Average
                                  Exercise Price**
                              **Weighted-Average
                                  Remaining Life (Years)**
                              
                              **Number
                                  of Shares**
                              **Weighted-Average
                                  Exercise Price**
                              **Weighted-Average
                                  Remaining Life (Years)**$0.60
                              
                              10,576,709
                              $0.65
                              1.3
                              
                              10,576,709
                              $0.65
                              1.3
  Page
                      F-31
 Table
                      of Contents
 ASSURED
                        PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                        KNOWN AS eRXSYS, INC.
 NOTES
                        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                        31, 2006 and December 31, 2005
  **6.
                      EQUITY TRANSACTIONS**(continued)
 
 ***Stock
                      Options***
 
 During
                      the year ended November 30, 2003, the Company’s Board of Directors approved an
                      Incentive Stock Option Plan ("ISOP") to grant options to its
                      key personnel.
                      There are two types of options that can be granted under the
                      ISOP: i) options
                      intended to qualify as incentive stock options under Section
                      422 of the Internal
                      Revenue Code ("Qualified Stock Options"), and ii) options not
                      specifically
                      qualified for favorable income tax treatment under the Internal
                      Revenue Code
                      ("Non-Qualified Stock Options"). The ISOP is administered by
                      the Company’s board
                      of directors or the compensation committee (the "Administrator").
                      The Company is
                      authorized to grant qualified stock options to any of its employees
                      or
                      directors.
 
 The
                      purchase price for the shares subject to any option shall be
                      determined by the
                      Administrator at the time of the grant, but shall not be less
                      than 85% of the
                      fair market value per share of the Company’s common stock on the grant date.
                      Except as described below, the purchase price for the shares
                      subject to any
                      Qualified Stock Option shall not be less than 100% of fair
                      market value per
                      share of common stock on the grant date. In the case of any
                      Qualified Stock
                      Option granted to an employee who owns stock possessing more
                      than 10% of the
                      total combined voting power of all classes of stock of the
                      Company or any of its
                      subsidiaries, the option price shall not be less than 110%
                      of the fair market
                      value per share of the Company’s common stock on the grant date.
 
 No
                      option
                      is exercisable after the expiration of the earliest of: (a)
                      ten years after the
                      option is granted, (b) three months after the optionee’s employment with the
                      Company and its subsidiaries terminates, or a non-employee
                      director or
                      consultant ceases to provide services to the Company, if such
                      termination or
                      cessation is for any reason other than disability or death,
                      or (c) one year
                      after the optionee’s employment with the Company and its subsidiaries
                      terminates, or a non-employee director or consultant ceases
                      to provide services
                      to the Company, if such termination or cessation is a result
                      of death or
                      disability; provided, however, that the agreement for any option
                      may provide for
                      shorter periods in each of the foregoing instances.
 
 The
                      Administrator has a right to set the period within which each
                      option shall vest
                      or be exercisable and to accelerate such time frames; however;
                      each option shall
                      be exercisable at the rate of at least 20% per year from the
                      grant date. Unless
                      otherwise provided by the Administrator, option will not be
                      subject to any
                      vesting requirements.
  Page
                          F-32
 Table
                          of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005
 
 **6.**  **EQUITY
                        TRANSACTIONS** (continued)
 
 ***Stock
                        Options*** ** (continued)
 
 In
                        September 2005, the Company entered into an employment agreement
                        with its Chief
                        Executive Officer, Robert DelVecchio. Pursuant to the terms
                        of such agreement,
                        the Company granted options to Mr. DelVecchio to purchase
                        5,000,000 shares of
                        our common stock for a period of ten years from the date
                        of issuance and
                        exercisable at a price of $0.60 per share. These options
                        became fully vested and
                        exercisable upon issuance, with a fair value of $1,950,000
                        (using Black Scholes
                        to estimate the fair value upon date of issuance). Such expense
                        is included in
                        salaries and related in the accompanying consolidated statement
                        of operations.
                        These options were issued pursuant to Section 4(2) of the
                        Securities Act. The
                        Board of Directors issued such options to Mr. DelVecchio
                        for his past services
                        to the Company other than as an employee or director. Therefore,
                        these options
                        have been accounted for under SFAS No. 123.
 
 In,
                        2005,
                        the Company granted 1,965,000 options to purchase its common
                        stock to
                        consultants in connection with three service agreements.
                        Such options were
                        valued at $498,750 (estimated to be the fair value based
                        on the Black-Scholes
                        pricing model on the issuance date), and are amortized over
                        the lives of the
                        service agreements. The President of Janus Financial Services,
                        Inc., an entity
                        that received 1.7 million of the above options has been a
                        member of the
                        Company’s board of directors since September 2005. The Company recorded
                        such
                        amount as a debit to deferred compensation and a credit to
                        additional paid in
                        capital. The options have an exercise price of $0.60 per
                        share and have
                        contractual lives that range from two to three years.
 
 In
                        addition, under the ISOP, the Company granted options to
                        purchase 280,000 shares
                        of common stock to employees. The stock options have exercise
                        prices that range
                        from $0.39 to $0.60 per share and vest one-third each consecutive
                        year following
                        the date of grant. Such stock options expire on the earlier
                        of three years after
                        vesting or ninety days after termination of employment with
                        the Company.
 
 In
                        May,
                        2006, the Company cancelled 1,133,334 options granted to
                        Janus Financial
                        Services, Inc., non-vested part of 1.7 million options. The
                        President of Janus
                        Financial Services, Inc. is a Chief Financial Office and
                        former Chief Operating
                        Officer of the Company.
 
 In
                        addition, options to purchase 10,000 shares of common stock
                        issued to employees
                        were terminated.
 Page
                              F-33
 Table
                              of Contents
 ASSURED
                              PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                              KNOWN AS eRXSYS, INC.
 NOTES
                              CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                              31, 2006 and December 31, 2005 
 **6.**  **EQUITY
                                  TRANSACTIONS** (continued)
 
 ***Stock
                                  Options*** ** (continued)
 
 The
                                  following tables summarize information concerning
                                  outstanding stock options as
                                  of December 31, 2005:
  **Number
                                            of Shares**
                                        
                                        **Weighted-Average
                                            Exercise Price**Options
                                            outstanding and exercisable atJanuary
                                            1, 2005
                                        
                                        55,000.00
                                        
                                        $Granted
                                        
                                        7,245,000.00
                                        
                                        $
                                        0.59Cancelled
                                            or forfeited
                                        
                                        
                                        
                                        $
                                        -Options
                                              outstanding and exercisable atDecember
                                            31, 2005Granted
                                        
                                        7,300,000.00
                                        
                                        $
                                        0.42Cancelled
                                            or forfeited
                                        
                                        (1,163,334.00)
                                        
                                        $
                                        0.60Options
                                              outstanding and exercisable atDecember
                                            31, 2006
                                        
                                        6,136,666.00
                                        
                                        $
                                        0.60
   **Outstanding**
                                        
                                        **Exercisable****Range
                                            of Exercise Price**
                                        
                                        **Number
                                            of Shares**
                                        **Weighted-Average
                                            Exercise Price**
                                        **Weighted-Average
                                            Remaining Life (Years)**
                                        
                                        **Number
                                            of Shares**
                                        **Weighted-Average
                                            Exercise Price**
                                        **Weighted-Average
                                            Remaining Life (Years)**$0.60
                                        
                                        6,136,666
                                        $0.60
                                        4.9
                                        
                                        6,136,666
                                        $0.60
                                        4.9
  Page
                                        F-34
 Table
                                        of Contents
 ASSURED
                                        PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                                        KNOWN AS eRXSYS, INC.
 NOTES
                                        CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                                        31, 2006 and December 31, 2005 **7.
                                            UNSECURED CONVERTIBLE DEBENTURE NOTES**
 
 During
                                            the year ended December 31, 2006, the
                                            Company raised $1,958,500 by issuing
                                            one
                                            year unsecured convertible debentures
                                            (“Debenture”) with interest at 18% per
                                            annum.
 
 The
                                            Debenture holders have the right to convert
                                            their notes into fully paid
                                            non-assessable shares of common stock
                                            and Common Stock Purchase Warrants at
                                            the
                                            conversion price of $0.40 The Common
                                            Stock Purchase warrants are convertible
                                            into the shares of the company’s common stock at the exercise price
                                            of $0.60 for
                                            a period of one (1) year and $0.80 per
                                            share for a period of two (2) years.
 
 The
                                            total
                                            interest is payable solely by the issuance
                                            of shares of the Company’s common
                                            stock. The number of shares to be issued
                                            in payment of the interest is to be
                                            calculated based upon average closing
                                            price for the Company’s common stock on
                                            NASD OTCBB for the five (5) consecutive
                                            trading days preceding the issuance
                                            date. The Company issued 1,011,373 shares
                                            of restricted common stock to pay the
                                            total interest of $352,530, of which
                                            $67,406 is interest expense to December
                                            31
                                            2006 and $285,124 is included in prepaid
                                            expenses and other assets on the
                                            balance sheet.
 
 **8.
                                            COMMITMENTS AND CONTINGENCIES**
 
 ***Operating
                                            Leases***
 
 The
                                            Company occupies buildings and retail
                                            space under operating lease agreements
                                            expiring on various dates through January
                                            2012 with monthly payments ranging
                                            from approximately $1,400 to $2,500.
                                            Certain leases include future rental
                                            escalations and renewal options
 
 As
                                            of
                                            December 31, 2006, future minimum payments
                                            under operating leases approximated
                                            the
                                            following:
 
 2007
                            $
                            181,4692008
                            
                            162,3602009
                            
                            75,3542010
                            
                            30,9022011
                            
                            30,902Thereafter
                            
                            2,578Total
                            $
                            483,565
 
 Total
                      rent expense for the years ended December 31, 2006 and 2005
                      was approximately
                      $202,000 and $141,000, respectively.
 
 Page
                          F-35
 Table
                          of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005
 **8.
                        COMMITMENTS AND CONTINGENCIES (Continued)**
 
 ***Legal
                        Matters***
 
 Providing
                        pharmacy services entails an inherent risk of medical and
                        professional
                        malpractice liability. The Company may be named as a defendant
                        in such lawsuits
                        and become subject to the attendant risk of substantial damage
                        awards. The
                        Company believes it possesses adequate professional and medical
                        malpractice
                        liability insurance coverage. There can be no assurance that
                        the Company will
                        not be sued, that any such lawsuit will not exceed our insurance
                        coverage, or
                        that it will be able to maintain such
 coverage
                        at acceptable costs and on favorable terms.
 
 From
                        time
                        to time, the Company may be involved in various claims, lawsuits,
                        dispute with
                        third parties, actions involving allegations of discrimination
                        or breach of
                        contract actions incidental to the normal operations of the
                        business. The
                        Company is not a party to any pending litigation which it
                        believes could have a
                        material adverse effect on the Company’s financial position or results of
                        operations.
 
 **9.
                        LOSS PER COMMON SHARE**
 
 The
                        following is a reconciliation of the numerators and denominators
                        of the basic
                        and diluted loss per common share computations for the years
                        ended December 31,
                        2006 and 2005:
 **2006**
                            
                            **2005**Numerator
                              for basic and dilutedloss
                              per common share:Net
                                loss to common stockholders
                            $
                            (4,501,839)
                            
                            $
                            (4,797,092)Denominator
                                  for basic and diluted loss per common share:Weighted
                                average number of shares outstanding
                            
                            52,013,352
                            
                            
                            40,961,989Basic
                                and diluted loss per common share
                            $
                            (0.09)
                            
                            $
                            (0.12)
 Page
                            F-36
 Table
                            of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005
 
 **9.
                      LOSS PER COMMON SHARE (continued)**
 
 Due
                      to
                      their anti-dilutive effect, the following potential common
                      shares have been
                      excluded from the computation of diluted earnings per share:
 
 2006
                            
                            2005Warrants
                            
                            10,576,709
                            
                            
                            7,480,875Stock
                                options
                            
                            6,136,666
                            
                            
                            6,091,667Convertible
                                notes
                            
                            9,792,500
                            
                            
                            -Total
                            
                            26,505,874
                            
                            
                            13,304,792
 
 10.RESTRUCTURING
                          COSTS
  Because
                          the Company’s revenue and operating margin had not grown in line with
                          management’s original expectations, the Company adopted a non-discretionary
                          restructuring plan that resulted in a workforce reduction
                          and other cost
                          reductions (collectively, the “Restructuring”) intended to strengthen the
                          Company’s future operating performance. The Company implemented
                          the
                          Restructuring during the fourth quarter of 2004 through
                          the first quarter of
                          2005. The Company’s total expense related to this Restructuring which was
                          recognized in 2005 was approximately $194,000.  No restructuring costs have
                          been incurred since in 2006.
  The
                          Restructuring charge recognized in the first quarter of
                          2005 was comprised
                          primarily of fixed asset write-offs from the termination
                          of construction work
                          for the regional office in Fort Worth, Texas and the pharmacy
                          in Santa Monica,
                          California. The Company accounts for the costs associated
                          with exiting an
                          activity, including costs associated with a reduction of
                          its workforce, in
                          accordance with SFAS No. 146.
 **11.
                        CHANGES IN THE MANAGEMENT**
 
 On
                        May 1,
                        2006, John Eric Mutter resigned as the Company’s Chief Operating Officer and the
                        Company’s board of directors appointed Mr. Mutter as the Company’s Chief
                        Technology Officer.
 
 On
                        May 1,
                        2006, the Company’s board of directors appointed Haresh Sheth as the Company’s
                        Chief Operating Officer.
 
 On
                        December 15, 2006, Robert Delvecchio resigned as the Chief
                        Financial
                        Officer.
 
 On
                        December 15, 2006, Haresh Sheth resigned as the Chief Operating
                        Officer and the
                        Company’s board of directors appointed Mr. Sheth as the Company’s Chief
                        Financial Officer.
  Page
                            F-37
 Table
                            of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005
  **12.
                        INCOME TAXES**
 
 A
                        reconciliation of income taxes computed at the U.S. Federal
                        Statutory income tax
                        rate to the provision for income tax is as follows:
 **2006**
                                
                                **2005**U.S.
                                    Federal Statutory tax at 34%
                                $
                                (5,032,408)
                                
                                $
                                (1,725,000)State
                                    Taxes, net of federal benefit
                                $
                                (888,072)
                                
                                $
                                (305,000)Valuation
                                    Allowance
                                $
                                (5,920,480)
                                
                                $
                                2,035,000Provision
                                    for income taxes
                                $
                                -
                                
                                $
                                5,000
 
 Due
                          to
                          losses incurred for the years ended December 31, 2006 and
                          2005, there is no
                          current provision for income taxes.
 
 Deferred
                          tax assets consist of the following at December 31, 2006
                          and 2005:
 
 2006
                                
                                2005Net
                                    operating loss carried forward
                                $
                                5,846,086
                                
                                $
                                4,045,350Depreciable
                                    assets
                                
                                3,355
                                
                                
                                10,472Accounts
                                    receivable
                                
                                71,039
                                
                                
                                -5,920,480
                                
                                
                                4,055,822Valuation
                                    allowance
                                
                                (5,920,480)
                                
                                
                                (4,055,822)Deferred
                                    tax assets
                                $
                                -
                                
                                $
                                -
  Based
                          upon the net operating losses incurred since inception,
                          management has
                          determined that it is more likely than not that the deferred
                          tax assets as of
                          December 31, 2006 will not be recognized. Consequently,
                          the Company has
                          established a valuation allowance against the entire deferred
                          tax
                          assets.
 
 As
                          of
                          December 31, 2006, the Company has federal and state net
                          operating losses of
                          approximately $14,600,000 that expire from 2022 to 2026.
 
 The
                          utilization of some or all of the Company’s net operating losses may be severely
                          restricted now or in the future by a significant change
                          in ownership as defined
                          under the provisions of Section 382 of the Internal Revenue
                          Code of 1986, as
                          amended. In addition, utilization of the Company’s California net operating
                          losses for the years beginning in 2002 and 2003 has been
                          suspended under state
                          law.
  Page
                              F-38
 Table
                              of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005 **13.
                              SUBSEQUENT EVENTS**
 
 ***Unsecured
                              Convertible Debenture Note***
 
 Subsequent
                              to the reporting period, the Company raised $500,000
                              by issuing a one-year
                              unsecured convertible debenture (“Debenture”) carrying an interest rate of 18%
                              per annum. The Debenture provides that all the interest
                              is payable solely in the
                              shares of the Company’s common stock on the issuance date. The number of
                              shares
                              to be issued as interest is to be calculated based
                              upon average closing price
                              for our common stock on NASD OTCBB for the five (5)
                              consecutive trading days
                              preceding the issuance date.
 
 The
                              Company issued 254,614 shares of common stock as payment
                              of interest on the
                              Debenture. The Debenture holders have the right to
                              convert their Debenture into
                              fully paid non-assessable shares of common stock at
                              $0.40 and Common Stock
                              Purchase Warrants to purchase one (1) share of restricted
                              common stock at an
                              exercise price of $0.60 exercisable for 12 months after
                              the conversion date and
                              to purchase one (1) share of restricted common stock
                              at an exercise price of
                              $0.80 exercisable for 24 months.
 
 ***Equity
                              Transactions***
 
 In
                              February 2007, the Company granted as a performance
                              base bonus to an officer of
                              the Company options to purchase 750,000 shares of its
                              common stock vesting over
                              a two year period of time from the date of issuance
                              and exercisable at the
                              exercise price of $0.60 per share.
 
 In
                              February 2007, the Company issued 300,000 shares of
                              its common stock to outside
                              members of its board of directors in consideration
                              for services rendered as a
                              member of the board. These shares were valued at $114,000
                              (estimated to be the
                              fair value based on the trading price on the issuance
                              date).
 
 In
                              February 2007, the Company issued 100,000 shares of
                              restricted common stock,
                              valued at $34,000 (estimated to be the fair value based
                              on the trading price on
                              the issuance date) granted warrants to purchase 100,000
                              shares of its common
                              stock, exercisable at $0.60 per share until December
                              31, 2009, and granted
                              warrants to purchase 100,000 shares of its common stock,
                              exercisable at $0.80
                              per share until December 31, 2009 to a consultant in
                              exchange for services
                              rendered.
 
 In
                              January 2007, the Company issued 75,000 shares of restricted
                              common stock to one
                              consultant for services rendered, valued at $28,500
                              (estimated to be the fair
                              value based on the trading price on the issuance date).
 
 Page
                          F-39
 Table
                          of Contents
 ASSURED
                          PHARMACY, INC. AND SUBSIDIARIES
 FORMERLY
                          KNOWN AS eRXSYS, INC.
 NOTES
                          CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
                          31, 2006 and December 31, 2005 **13.
                              SUBSEQUENT EVENTS (continued)**
 
 ***Opening
                              of a New Store***
 
 The
                              Company opened their new store in Gresham, Oregon,
                              a suburb of Portland on
                              January 26, 2007. This store is owned by Assured Pharmacy
                              Gresham, Inc., a
                              wholly owned subsidiary of the Company.
 Page
                        F-40
 Table
                        of Contents
 **Item8.
                    Changes In and Disagreements with Accountants on Accounting
                    and Financial** **Disclosure**





No
      events
      occurred requiring disclosure under Item 304(b) of Regulation S-B.





On
      April
      5, 2006, Squar, Milner, Reehl & Williamson, LLP (the “Squar Milner”) was
      dismissed as our independent registered public accounting firm. We engaged
      Miller, Ellin & Co. LLP as our principal accountants effective April 5,
      2006. The decision to change accountants was approved by our board of directors.
      We did not consult with Miller, Ellin & Co. LLP on any matters prior to
      retaining such firm as our principal accountants.





Squar
      Milner’s audit reports on our consolidated financial statements for the fiscal
      years ended December 31, 2005 and December 31, 2004 contained no adverse opinion
      or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
      audit scope or accounting principles, except that the audit reports on our
      financial statements for the fiscal years ended December 31, 2005 and December
      31, 2004 contained an uncertainty about our ability to continue as a going
      concern.





During
      the years ended December 31, 2005 and December 31, 2004, and through the
      subsequent period ended April 5, 2006, there were no disagreements with Squar
      Milner on any matter of accounting principles or practices, financial statement
      disclosure, or auditing scope or procedures, which disagreements if not resolved
      to the satisfaction of Squar Milner would have caused them to make reference
      thereto in their reports on the consolidated financial statements for such
      periods.





During
      the years ended December 31, 2005 and December 31, 2004, and through the
      subsequent period ended April 5, 2006, Squar Milner did not advise us with
      respect to any of the matters described in paragraphs (a)(1)(iv)(A) or (B)
      of
      Item 304 of Regulation S-B except as follows:





On
      March
      30, 2006, Squar Milner advised our board of directors about a material weakness
      in the internal control that we do not have sufficient staffing in the financial
      reporting and accounting departments regarding the specialized knowledge and
      expertise in accounting principles generally accepted in the United States
      ("GAAP") that is necessary to (i) prevent errors in financial reporting and
      related disclosures and (ii) otherwise comply with accounting pronouncements.





**Item
      8A. Controls and Procedures**





We
      carried out an evaluation of the effectiveness of the design and operation
      of
      our disclosure controls and procedures (as defined in Exchange Act Rules
      13a-15(e) and 15d-15(e)) as of December 31, 2006. This evaluation was carried
      out under the supervision and with the participation of our Chief Executive
      Officer, Mr. Robert DelVecchio, and our Chief Financial Officer, Mr. Haresh
      Sheth. Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that, as of December 31, 2006, our disclosure
      controls and procedures are of limited effectiveness. There have been no
      significant changes in our internal


29
 Table
          of Contents


controls
      over financial reporting during the quarter ended December 31, 2006 that have
      materially affected or are reasonably likely to materially affect such controls.





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in our reports filed or
      submitted under the Exchange Act are recorded, processed, summarized and
      reported, within the time periods specified in the SEC's rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed in
      our
      reports filed under the Exchange Act is accumulated and communicated to
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.





Limitations
      on the Effectiveness of Internal Controls





Our
      management does not expect that our disclosure controls and procedures or our
      internal control over financial reporting will necessarily prevent all fraud
      and
      material error. Our disclosure controls and procedures are designed to provide
      reasonable assurance of achieving our objectives and our Chief Executive Officer
      and Chief Financial Officer concluded that our disclosure controls and
      procedures are effective at that reasonable assurance level. Further, the design
      of a control system must reflect the fact that there are resource constraints,
      and the benefits of controls must be considered relative to their costs. Because
      of the inherent limitations in all control systems, no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within our company have been detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of simple error or mistake. Additionally, controls
      can be circumvented by the individual acts of some persons, by collusion of
      two
      or more people, or by management override of the internal control. The design
      of
      any system of controls also is based in part upon certain assumptions about
      the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions.
      Over time, control may become inadequate because of changes in conditions,
      or
      the degree of compliance with the policies or procedures may deteriorate.





**Item
      8B. Other information**





None.


30
 Table
          of Contents


**PART
      III**





**Item9.
      Directors, Executive Officers, Promoters and Control Persons;
      Compliance with** **Section
      16(a) of the Exchange Act**





The
      following information sets forth the names of our current directors and
      executive officers, their ages and their present positions.





Name
            Age
            Position(s)
                and Office(s) HeldRobert
                DelVecchio
            42
            Chief
                Executive Officer & DirectorJames
                Manfredonia
            45
            DirectorRichard
                Falcone
            53
            DirectorHaresh
                Sheth
            56
            Chief
                Financial Officer & DirectorJohn
                Eric Mutter
            46
            Chief
                Technology Officer





Set
      forth
      below is a brief description of the background and business experience of each
      of our current executive officers and directors.





**Robert
      DelVecchio** .
      On
      February 3, 2005, our board of directors appointed Mr. Robert DelVecchio to
      serve as Chief Executive Officer. Mr. DelVecchio was appointed as a member
      of
      the board of directors on March 31, 2005. Mr. DelVecchio also served as our
      Chief Financial Officer from March 2005 to December 2006. Since 1995, Mr.
      DelVecchio has acted as Chief Executive Officer and President of Brockington
      Securities, Inc., a broker-dealer who is a member of the National Association
      of
      Securities Dealers.





**James
      Manfredonia.** Mr.
      Manfredonia was appointed to the board of directors of Assured Pharmacy, Inc.
      in
      June 2004. Since 2002, Mr. Manfredonia has served as manager of listed equity
      trading and New York Stock Exchange operations at Bear Stearns. Mr. Manfredonia
      currently serves as the Chairman of the New York Stock Exchange Upstairs Traders
      Advisory Committee and as a member of the Market Performance Committee of the
      New York Stock Exchange. Prior to joining Bear Stearns, Mr. Manfredonia worked
      for ten years at Merrill Lynch where he managed the listed trading desk with
      additional responsibilities for NASDAQ, portfolio trading, sales trading, and
      NYSE staff. Mr. Manfredonia was the founding general partner of Blair
      Manfredonia Limited Partners, a hedge fund/broker-dealer. Mr. Manfredonia has
      also worked at Lehman Brothers, Salomon Brothers, and Drexel
      Burnham.




**Richard
      Falcone.** Mr.
      Falcone was appointed to the board of directors of Assured Pharmacy, Inc. in
      July 2004. From February 2006 to December 2006, Mr. Falcone served as President
      and Chief Executive Officer of Tasker Capital Corp.  Mr. Falcone also
      served as Chairman of the Board of Tasker Capital Corp. from May 2006 to
      December 2006.  From 2001 to February 2006, Mr. Falcone served as Chief
      Financial Officer of The A Consulting Team, Inc., an IT service company. Mr.
      Falcone has served as Chief Financial Officer of Netgrocer.com. In 1990, Mr.
      Falcone joined Bed Bath & Beyond, Inc. as its Chief Financial Officer. In
      1983, Mr. Falcone joined Tiffany & Co. and served as Manager of Audit,
      Director of Financial Control, and Director of International Finance and
      Operations. Mr. Falcone has also worked at


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PriceWaterhouseCoopers
      & Co., an international public accounting firm.





**Haresh
      Sheth.** Mr. Sheth was
      appointed to serve as our Chief Operating Officer on May 1, 2006 and served
      in
      this capacity until December 15, 2006 when Mr. Sheth was appointed our Chief
      Financial Officer. Mr. Sheth was appointed to the board of directors of Assured
      Pharmacy, Inc. in September 2005. Mr. Sheth is a graduate of West Virginia
      University where he earned an engineering degree. Since 1991, Mr. Sheth has
      acted as President of Janus Finance Corporation, an asset based finance company.
      Mr. Sheth served as the group financial officer to Mosaic Capital Advisors
      LLC from 2004 to December 31, 2006.





**John
      Eric Mutter** .
      Mr.
      Mutter was appointed to serve as Chief Operating Officer on May 11, 2005 and
      served in this capacity until May 1, 2006 when Mr. Mutter was appointed Chief
      Technology Officer. Since January 2004, Mr. Mutter has acted as a consultant
      to
      Assured Pharmacy, Inc. providing technology and information systems support.
      From 2000 to 2003, Mr. Mutter performed similar responsibilities for the MedEx
      Systems Inc. designing, implementing and managing a digital prescribing
      infrastructure for Pegasus Pharmacies. Prior to these positions, Mr. Mutter
      has
      held numerous field engineering and technology positions with Alpha
      Microsystems, Tomba Communications, Neosoft Inc., Checkpoint Systems, and
      Southwest Communications.





**Term
      of Office**





Our
      directors are appointed for a one-year term to hold office until the next annual
      meeting of our shareholders or until removed from office in accordance with
      our
      bylaws.





Our
      executive officers are appointed by our board of directors and hold office
      until
      removed by the board.





**Significant
      Employees**





We
      have
      no significant employees other than our officers and directors.





**Family
      Relationships**





There
      are
      no family relationships between or among the directors, executive officers
      or
      persons nominated or chosen by us to become directors or executive
      officers.





**Involvement
      in Certain Legal Proceedings**





To
      the
      best of our knowledge, during the past five years, none of the following
      occurred with respect to a present director, person nominated to become
      director, executive officer, or control person: (1) any bankruptcy petition
      filed by or against any business of which such person was a general partner
      or
      executive officer either at the time of the bankruptcy or within two years
      prior
      to that time; (2) any conviction in a criminal proceeding or being subject
      to a
      pending criminal proceeding (excluding traffic violations and other minor
      offenses); (3) being subject to any order, judgment or decree, not subsequently
      reversed, suspended or vacated, of any court of


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competent
      jurisdiction, permanently or temporarily enjoining, barring, suspending or
      otherwise limiting his or her involvement in any type of business, securities
      or
      banking activities; and (4) being found by a court of competent jurisdiction
      (in
      a civil action), the SEC or the Commodities Futures Trading Commission to have
      violated a federal or state securities or commodities law, and the judgment
      has
      not been reversed, suspended or vacated.





**Audit
      Committee**





We
      do not
      have a separately-designated standing audit committee. The entire board of
      directors performs the functions of an audit committee, but no written charter
      governs the actions of the board of directors when performing the functions
      of
      that would generally be performed by an audit committee. The board of directors
      approves the selection of our independent accountants and meets and interacts
      with the independent accountants to discuss issues related to financial
      reporting. In addition, the board of directors reviews the scope and results
      of
      the audit with the independent accountants, reviews with management and the
      independent accountants our annual operating results, considers the adequacy
      of
      our internal accounting procedures and considers other auditing and accounting
      matters including fees to be paid to the independent auditor and the performance
      of the independent auditor.





Richard
      Falcone is an audit committee financial expert and is independent, as the term
      is used in Item 7(d)(3)(iv) of Schedule 14A of the Exchange Act.





For
      the
      fiscal year ending December 31, 2006, the board of directors:





1.
            Reviewed
                and discussed the audited financial statements with management,
                and





2.
            Reviewed
                and discussed the written disclosures and the letter from our independent
                auditors on the matters relating to the auditor's
                independence.





Based
      upon the board of directors’ review and discussion of the matters above, the
      board of directors authorized inclusion of the audited financial statements
      for
      the year ended December 31, 2006 to be included in this Annual Report on Form
      10-KSB and filed with the Securities and Exchange Commission.





**Section
      16(a) Beneficial Ownership Reporting Compliance**





Section
      16(a) of the Exchange Act requires our
      directors and executive officers and persons who beneficially own more than
      ten
      percent of a registered class of our equity securities to file with the SEC
      initial reports of ownership and reports of changes in ownership of common
      stock
      and other equity securities of the Company. Officers, directors and greater
      than
      ten percent beneficial shareholders are required by SEC regulations to furnish
      us with copies of all Section 16(a) forms they file. To the best of our
      knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments
      thereof) received by us during or with respect to the year ended December 31,
      2006, the following persons have failed to file, on a timely basis, the
      identified reports required by Section 16(a) of the Exchange Act during fiscal
      year ended December 31, 2006:


33
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Name
            Principal
                Position
            Number
                oflate
                reports
            Transactions
                not
              timely
                reported
            Known
                failures to
              file
                a required formRobert
                DelVecchio
            CEO
                & Director
            0
            0
            0Richard
                Falcone
            Director
            0
            0
            0James
                Manfredonia
            Director
            0
            0
            0Haresh
                Sheth
            CFO
                & Director
            0
            0
            0John
                Eric Mutter
            Chief
                Technology Officer
            0
            0
            0





**Code
      of Ethics Disclosure**





As
      of
      December 31, 2006, we have not adopted a Code of Ethics for Financial
      Executives, which include our principal executive officer, principal financial
      officer, principal accounting officer or controller, or persons performing
      similar functions.





We
      have
      begun the process of drafting a code of ethics which will be filed with the
      Security and Exchange Commission upon its adoption by the board of directors.





**Item
      10. Executive Compensation**





The
      table
      below summarizes all compensation awarded to, earned by, or paid to our former
      or current executive officers for the fiscal years ended 2006 and
      2005.




SUMMARY
                COMPENSATION TABLENameand
              principalposition
            Year
            Salary($)
            Bonus
              ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
                Plan
              Compensation
              ($)
            Nonqualified
              Deferred
              Compensation
              Earnings
                ($)
            All
                Other
              Compensation
              ($)
            Total
              ($)Robert
                DelVecchio(1)
              CEO
                & Former CFO
            2006
              2005
            150,000
              39,577
            128,860
              -
            -
              -
            -
              1,950,000
            -
              -
            -
              -
            -
              15,077
            278,860
              1,988,077Haresh
                Sheth(2)
              CFO
                & Former COO
            2006
              2005
            110,577
              n/a
            -
              n/a
            -
              n/a
            283,333
              n/a
            -
              n/a
            -
              n/a
            -
              n/a
            393,910
              n/aJohn
                Eric Mutter(3)
              CTO
                & Former COO
            2006
              2005
            185,000
              109,692
            -
              -
            -
              70,000
            -
              70,000
            -
              -
            -
              -
            -
              41,667
            185,000
              291,359




(1)
            Mr.
                DelVecchio resigned as our Chief Financial Officer on December 15,
                2006.




(2)
            Mr.
                Sheth was appointed as our Chief Operating Officer on May 1, 2006
                and
                served in this capacity until his appointment as Chief Financial
                Officer
                on December 15, 2006. The information in the summary compensation
                table
                includes all compensation paid to Mr. Sheth for the full fiscal year
                ended
                December 31, 2006.  34
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(3)
            Mr.
                Mutter was appointed as our Chief Operating Officer on May 11, 2005
                and
                served in this capacity until his appointment as Chief Technology
                Officer
                on December 15, 2006. The information in the summary compensation
                table
                includes all compensation paid to Mr. Mutter for the full fiscal
                years
                ended December 31, 2006 and 2005.




**Narrative
      Disclosure to the Summary Compensation Table**




Salary
      and stock options granted to our executive officers based on their level of
      experience and contributions to the company.





We
      have
      not entered into an employment agreement with Mr. Mutter. Mr. Mutter is paid
      an
      annual base salary of $185,000. Mr. Mutter was not granted any stock option
      awards during the fiscal year ended December 31, 2006. During the fiscal year
      ended December 31, 2005, we granted Mr. Mutter options to purchase 250,000
      shares of our common stock at the exercise price of $0.60 per share with an
      expiration date of August 29, 2008. These option are fully vested an immediately
      exercisable. The aggregate value of these options was computed in accordance
      with FAS 123R and is reported in the summary compensation table above in the
      column titled “Option Awards.” During the fiscal year ended December 31, 2005,
      we issued 250,000 shares of our common stock to Mr. Mutter as a stock award.
      The
      aggregate value of these shares was computed in accordance with FAS 123R and
      is
      reported in the summary compensation table above in the column titled “Stock
      Awards.” Also during the fiscal year ended December 31, 2005, we paid Mr. Mutter
      $41,667 in consulting fees prior to his appointment as an executive officer
      in
      May 2005. These consulting fees are reported in the summary compensation table
      above in the column titled “All Other Compensation.”





Employment
      Agreements





In
      September 2005, we entered into an employment agreement with our Chief Executive
      Officer, Robert DelVecchio. As provided in the employment agreement, Mr.
      DelVecchio is paid a base salary of $150,000. Mr. DelVecchio received $39,577
      in
      salary for the fiscal year ended December 31, 2005 and $150,000 in salary for
      the fiscal year ended December 31, 2006. Salary paid is recorded in the summary
      compensation table above in the column titled “Salary.” Upon execution of the
      employment agreement, Mr. DelVecchio was granted options to purchase 5,000,000
      shares of our common stock for a period of ten years from the date of issuance
      and exercisable at the exercise price of $0.60 per share. These options became
      fully vested and exercisable upon issuance. The aggregate fair value of these
      options was computed in accordance with FAS 123R and is reported in the summary
      compensation table above in the column titled “Option Awards.” Based upon the
      overall performance of our company since his appointment as Chief Executive
      Officer, the board of directors in 2006 approved and paid Mr. DelVecchio
      $128,860 in bonus compensation.





On
      May 1,
      2006, we entered into an employment agreement with Mr. Sheth. As provided in
      the
      employment agreement, Mr. Sheth is paid a base salary of $150,000. During the
      fiscal year ended December 31, 2006, Mr. Sheth received $110,577 in salary
      and
      this is recorded in the summary compensation table above in the column titled
      “Salary.” Upon execution of the


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employment
      agreement, Mr. Sheth was granted options to purchase 1,133,334 shares of common
      stock exercisable for a period of ten years from the date of issuance at the
      exercise price of $0.60 per share. The aggregate fair value of these options
      was
      computed in accordance with FAS 123R and is reported in the summary compensation
      table above in the column titled “Option Awards.”


At
      no
      time during the last fiscal year was any outstanding options issued to our
      executive officers repriced or otherwise modified. There was no tandem feature,
      reload feature, or tax-reimbursement feature associated with any of the stock
      options we granted to our executive officers or otherwise.





**Outstanding
      Equity Awards at Fiscal Year-End**





The
      table
      below summarizes all unexercised options, stock that has not vested, and equity
      incentive plan awards for each named executive officer as of December 31,
      2006.





**OUTSTANDING
                EQUITY AWARDS AT FISCAL YEAR-END**OPTION
                AWARDS
            STOCK
                AWARDSName
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            Number
                of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            Equity
              Incentive
              Plan
              Awards:
              Number
                of
              Securities
              Underlying
              Unexercised
              Unearned
              Options
              (#)
            Option
              Exercise
              Price
              ($)
            Option
              Expiration
              Date
            Number
              of
              Shares
              or
                Units
              of
              Stock
                That
              Have
              Not
              Vested
              (#)
            Market
              Value
              of
              Shares
              or
              Units
              of
              Stock
              That
              Have
              Not
              Vested
              ($)
            Equity
              Incentive
              Plan
              Awards:
              Number
              of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
                Have
              Not
              Vested
              (#)
            Equity
              Incentive
              Plan
              Awards:
              Market
                or
              Payout
              Value
                of
              Unearned
              Shares,
              Units
                or
              Other
              Rights
              That
              Have
                Not
              Vested
              (#)Robert
                DelVecchio
            5,000,000
            -
            -
            0.60
            09/19/2015
            -
            -
            -
            -Haresh
                Sheth
            566,667
            566,667(1)
            -
            0.60
            05/01/2016
            -
            -
            -
            -John
                Eric Mutter
            250,000
            -
            -
            0.60
            08/29/2008
            -
            -
            -
            -





(1)
            566,667
                become fully vested and exercisable on September 29,
                2007.




36
 Table
          of Contents


**Compensation
      of Directors**





The
      table
      below summarizes all compensation of our directors as of December 31,
      2006.





**DIRECTOR
                COMPENSATION**Name
            Fees
                Earned or
              Paid
                in
              Cash
              ($)
            Stock
                Awards
              ($)
            Option
                Awards
              ($)
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            Non-Qualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Robert
                DelVecchio
            -
            -
            -
            -
            -
            -
            -Haresh
                Sheth
            -
            -
            -
            -
            -
            -
            -Richard
                Falcone
            -
            -
            -
            -
            -
            -
            -James
                Manfredonia
            -
            -
            -
            -
            -
            -
            -





**Narrative
      Disclosure to the Director Compensation Table**





The
      all
      fees earned or paid in cash and stock options awards granted to Robert
      DelVecchio and Haresh Sheth as were earned in connection with their employment
      agreement as executive officers. Robert DelVecchio and Haresh Sheth received
      no
      compensation for their service as members of our board of directors. We only
      compensate outside directors for the service as members of our board of
      directors.





Our
      outside directors are entitled to receive $1,500 for attending any board of
      director’s meeting in-person, $1,500 for any speaking engagement on our behalf,
      and reimbursement for reasonable expenses incurred in attending board or
      committee meetings. Our outside directors received no compensation for services
      rendered as members of our board during the year ended December 31, 2006.





**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related****Stockholder
      Matters**





The
      following table sets forth, as of March 7, 2007, the beneficial ownership of
      the
      our common stock by each executive officer and director, by each person known
      by
      us to beneficially own more than 5% of our common stock and by the executive
      officers and directors as a group. Except as otherwise indicated, all shares
      are
      owned directly and the percentage shown is based on 54,073,522 shares of common
      stock issued and outstanding on March 7, 2007. Except as otherwise indicated,
      the address of each person named in this table is c/o Assured Pharmacy, Inc.,
      17935 Sky Park Circle, Suite F, Irvine, California 92614.


37
 Table
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**Title
                of class**
            **Name
                and address****of
                beneficial owner****(1)**
            **Amount
                of****beneficial
                ownership**
            **Percent****of
                class*****Executive
                Officers & Directors:**Common
            Robert
                DelVecchio
            1,279,360
                shares(2)
            14.7
                %(3)Common
            James
                Manfredonia
            500,000
                shares
            0.9
                %Common
            Richard
                Falcone
            500,000
                shares
            0.9
                %Common
            Haresh
                Sheth
            973,777
                shares(4)
            8.4
                %(5)Common
            John
                Eric Mutter
            325,000
                shares
            1.5%(6)**Total
                of All Directors and Executive Officers:**
            3,278,137
                shares
            26.4
                %**More
                Than 5% Beneficial Owners:**Common
            Mosaic
                Capital Advisors, LLC(7)
              545
                Fifth Avenue, Suite 709
              New
                York, NY 10017
            6,681,231
                shares
            21.2%




(1)
            As
                used in this table, "beneficial ownership" means the sole or shared
                power
                to vote, or to direct the voting of, a security, or the sole or shared
                investment power with respect to a security (i.e., the power to dispose
                of, or to direct the disposition of, a security). In addition, for
                purposes of this table, a person is deemed, as of any date, to have
                "beneficial ownership" of any security that such person has the right
                to
                acquire within 60 days after such date.(2)
            Mr.
                DelVecchio is the indirect beneficial owner of 1,279,360 shares held
                by
                Brockington Securities, Inc. Mr. DelVecchio is the President and
                Chief
                Executive Officer of Brockington Securities, Inc.(3)
            Included
                in the calculation of beneficial ownership for Mr. DelVecchio are
                warrants
                held by Brockington Securities, Inc. which are immediately exercisable
                into 350,000 shares of our common stock at the exercise price of
                $0.60 per
                share and terminate on June 17, 2009. Mr. DelVecchio is an indirect
                beneficial owner of the warrants held by Brockington Securities,
                Inc. Also
                included in the calculation of beneficial ownership for Mr. DelVecchio
                are
                options to purchase 5,000,000 shares of common stock at the exercise
                price
                of $0.60 per share. These options are immediately exercisable and
                were
                granted to Mr. DelVecchio pursuant to the terms of an employment
                agreement
                executed in September 2005. Brockington Securities, Inc. purchased
                a
                debenture that is immediately convertible at the option of the holder
                into
                625,000 shares of common stock. In the event that this debenture
                is
                exercised, Brockington Securities, Inc. will also receive warrants
                to
                purchase 312,500 shares of common stock at the exercise price of
                $0.60 per
                shares and 312,500 shares of common stock at the exercise price of
                $0.80
                per shares. The shares issuable upon conversion of the debenture
                and
                shares to be issued upon exercise of the warrants issued upon conversion
                of the debenture have been included in the calculation of beneficial
                ownership for Mr. DelVecchio.(4)
            Mr.
                Sheth is the indirect beneficial owner of 375,000 shares held Mr.
                Janus
                Finance Corporation, 28,125 shares held by Janus Financial Services
                Inc.,
                and 570,652 shares held by Woodfield Capital Services Inc. Mr. Sheth
                is
                the President of these
                entities.


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 Table
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(5)
            Janus
                Financial Services Inc. purchased a debenture that is immediately
                convertible at the option of the holder into 125,000 shares of common
                stock. In the event that this debenture is exercised, Janus Financial
                Services Inc. will also receive warrants to purchase 62,500 shares
                of
                common stock at the exercise price of $0.60 per shares and 62,500
                shares
                of common stock at the exercise price of $0.80 per shares. The shares
                issuable upon conversion of the debenture and shares to be issued
                upon
                exercise of the warrants issued upon conversion of the debenture
                have been
                included in the calculation of beneficial ownership for Mr. Sheth.
              
              Janus
                Finance Corporation holds warrants that are immediately exercisable
                to
                purchase 187,500 shares of our common stock at the exercise price
                of $0.60
                per shares. Pursuant to the terms of a consulting agreement, Janus
                Financial Services, Inc. hold warrants to purchase 566,667 shares
                of
                common stock at an exercise price of $0.60 per share. These warrants
                are
                immediately exercisable and expire on September 29, 2017. Mr. Sheth
                is the
                President of Janus Finance Corporation and has an indirect beneficial
                ownership interest in its securities. The shares issuable upon exercise
                of
                these warrants have been included in the calculation of beneficial
                ownership for Mr. Sheth.
              
              Woodfield
                Capital Services, Inc. purchased a debenture that immediately convertible
                at the option of the holder into 875,000 shares of common stock.
                In the
                event that this debenture is exercised, Woodfield Capital Services,
                Inc.
                will also receive warrants to purchase 437,500 shares of common stock
                at
                the exercise price of $0.60 per shares and 437,500 shares of common
                stock
                at the exercise price of $0.80 per shares. The shares issuable upon
                conversion of the debenture and shares to be issued upon exercise
                of the
                warrants issued upon conversion of the debenture have been included
                in the
                calculation of beneficial ownership for Mr. Sheth. Woodfield Capital
                Services Inc. also holds warrants that are immediately exercisable
                to
                purchase 187,500 shares of our common stock at the exercise price
                of $0.60
                per shares. The shares issuable upon exercise of these warrants have
                been
                included in the calculation of beneficial ownership for Mr. Sheth.
              
              Also
                included in the calculation of beneficial ownership for Mr. Sheth
                are
                options to purchase 566,667 shares of common stock at the exercise
                price
                of $0.60 per share. These options are immediately exercisable and
                were
                granted to Mr. Sheth pursuant to the terms of an employment agreement
                executed in May 2006.(6)
            Included
                in the calculation of beneficial ownership for Mr. Mutter are options
                to
                purchase 500,000 shares of common stock at the exercise price of
                $0.60 per
                share. All of these options are immediately exercisable and 250,000
                of
                these options expire on August 29, 2008 and 250,000 of these options
                expire on January 31, 2010.(7)
            Mosaic
                Capital Advisors, LLC (“MCA”) is the investment advisor to Mosaic Partners
                Fund, Mosaic Partners Fund LP, MPE III Ltd. Class L, MPE US LP Series
                B,
                MPE US LP Series E, and Mosaic Private Equity Fund (US) LP Series
                E2.
                Mosaic Financial Services, LLC is a wholly-owned subsidiary of MCA.
                As of
                the date reported above, (a) Mosaic Partners Fund held 387,500 shares
                of
                the Company’s common stock and warrants to purchase 193,750 shares of
                common stock that are immediately exercisable at the exercise price
                of
                $0.60 per share; (b) Mosaic Partners Fund LP held 300,000 shares
                of the
                Company’s common stock and warrants to purchase 150,000 shares of common
                stock that are immediately exercisable at the exercise price of $0.60
                per
                share; (c) MPE III Ltd. Class L held 1,025,000 shares of the Company’s
                common stock and warrants to purchase 512,500 shares of common stock
                that
                are immediately exercisable at the exercise price of $0.60 per share;
                (d)
                MPE US LP Series B held 1,250,000 shares of the Company’s common stock and
                warrants to purchase 625,000 shares of common stock that are immediately
                exercisable at the exercise price of $0.60 per share; (e) MPE US
                LP Series
                E held 975,000 shares of the Company’s common stock and warrants to
                purchase 487,500 shares of common stock that are immediately exercisable
                at the exercise price of $0.60 per share; (f) Mosaic Private Equity
                Fund
                (US) LP Series E2 purchased a debenture that immediately convertible
                at
                the option of the holder into 1,333,750 shares of common stock. In
                the
                event that this debenture is exercised, Mosaic Private Equity Fund
                (US) LP
                Series E2 will also receive warrants to purchase 666,875 shares of
                common
                stock at the exercise price of $0.60 per shares and 666,875 shares
                of
                common stock at the exercise price of $0.80 per shares. In connection
                with
                this debenture, Mosaic Private Equity Fund (US) LP Series E2 received
                243,731 as interest; and (g) Mosaic Financial Services, LLC holds
                2,500,000 shares of the Company’s common stock. The shares issuable within
                60 days upon exercise of stock purchase warrants or conversion of
                outstanding debentures have not been included in the amount of beneficial
                ownership, but have been included in the percentage of beneficial
                ownership interest.




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**Item
      12. Certain Relationships and Related
      Transactions**





Except
      as
      disclosed below, none of our directors or executive officers, nor any proposed
      nominee for election as a director, nor any person who beneficially owns,
      directly or indirectly, shares carrying more than 5% of the voting rights
      attached to all of our outstanding shares, nor any members of the immediate
      family (including spouse, parents, children, siblings, and in-laws) of any
      of
      the foregoing persons has any material interest, direct or indirect, in any
      transaction since the beginning of our last fiscal year on January 1, 2006
      or in
      any presently proposed transaction which, in either case, has or will materially
      affect us.





In
      January 2007, we completed a private offering of one-year unsecured convertible
      debentures (“Debenture”) carrying an interest rate of 18% per annum. The
      Debenture provides that all the interest is payable solely in the shares of
      our
      common stock on the issuance date. The number of shares issued as interest
      was
      calculated based upon average closing price for our common stock on NASD OTCBB
      for the five (5) consecutive trading days preceding the issuance date. The
      Debenture holders have the right to convert their Debenture into fully paid
      non-assessable shares of our common stock at $0.40 and Common Stock Purchase
      Warrants to purchase one (1) share of restricted common stock at an exercise
      price of $0.60 exercisable for 12 months after the conversion date and to
      purchase one (1) share of restricted common stock at an exercise price of $0.80
      exercisable for 24 months.





Brockington
      Securities, Inc. (“Brockington”) purchased $250,000 in Debentures and was issued
      138,500 restricted shares of our common stock as interest. Robert DelVecchio,
      our Chief Executive Officer and member of our board of directors, is the
      President and Chief Executive Officer of Brockington. Brockington purchased
      the
      Debenture on the same terms as was received by all other investors.





Woodfield
      Capital Services Inc. (“Woodfield”) purchased $350,000 in Debentures and was
      issued 195,652 restricted shares of our common stock as interest. Haresh Sheth,
      our Chief Financial Officer and member of our board of directors, is the
      President of Woodfield. Woodfield purchased the Debenture on the same terms
      as
      was received by all other investors.





Janus
      Financial Services Inc. (“Janus”) purchased $50,000 in Debentures and was issued
      28,125 restricted shares of our common stock as interest. Haresh Sheth, our
      Chief Financial Officer and member of our board of directors, is the President
      of Janus. Janus purchased the Debenture on the same terms as was received by
      all
      other investors.





Mosaic
      Private Equity (US) LP Series E2 purchased $533,500 in Debentures and was issued
      243,731 restricted shares of our common stock as interest. Mr. Sheth maintains
      a
      24% voting interest and 25% economic interest in Mosaic Capital Advisors, LLC
      (“MCA”). MCA is the investment advisor to Mosaic Private Equity (US) LP Series
      E2. Mosaic Private Equity (US) LP Series E2 purchased the Debenture on the
      same
      terms as was received by all other investors.


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**Item
      13. Exhibits**





Exhibit
                Number
            Description3.1
            Articles
                of Incorporation, as amended(1)3.2
            By-laws,
                as amended(1)10.1
            Agreement
                with TPG, LLC(2)10.2
            Purchase
                Agreement of Ownership Interest from TPG, LLC(3)10.3
            Agreement
                with TAPG LLC(4)10.4
            Employment
                Agreement with Chief Executive Officer, Robert DelVecchio(5)10.5
            Employment
                Agreement with Chief Financial Officer, Haresh Sheth(6)21.1
            Subsidiaries
                of Small Business
                Issuer31.1
            Certification
                of Chief Executive Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200231.2
            Certification
                of Chief Financial Officer pursuant to
                Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 200232.1
            Certification
                of Chief Executive Officer and Chief
                Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant
                to Section 906 of the Sarbanes-Oxley Act of
                2002





(1)
            Incorporated
                by reference to the registration statement filed on Form SB-2 on
                December
                15, 2004


(2)
            Incorporated
                by reference to Annual Report on Form 10-KSB/A for the year ended
                November
                30, 2003 filed on March 23, 2004


(3)
            Incorporated
                by reference to Current Report on Form 8-K filed December 18,
                2006


(4)
            Incorporated
                by reference to Current Report on Form 8-K filed April 21,
                2004


(5)
            Incorporated
                by reference to Quarterly Report on Form 10-QSB for the quarter ended
                September 30, 2004 and filed on November 14,
                2005


(6)
            Incorporated
                by reference to Current Report on Form 8-K filed May 8,
                2006





**Item
      14. Principal Accountant Fees and Services**





**Audit
      Fees**





The
      aggregate fees billed by our auditors for professional services rendered in
      connection with a review of the financial statements included in our quarterly
      reports on Form 10-QSB and the audit of our annual consolidated financial
      statements for the fiscal years ended December 31, 2006 and December 31, 2005
      were approximately $201,262 and $117,000 respectively.





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**Audit-Related
      Fees**





The
      additional fees billed by our auditors for assurance and related services that
      are reasonably related to the performance of the audit or review of our
      financial for
      the
      fiscal years ended December 31, 2006 and December 31, 2005 were approximately
      $146,000 and $33,000 respectively.





**Tax
      Fees**





The
      aggregate fees billed by our auditors for professional services for tax
      compliance, tax advice, and tax planning were $ 23,000 and
      $13,000 for the fiscal years ended December 31, 2006 and 2005.





**All
      Other Fees**





The
      aggregate fees billed by our auditors for all other non-audit services, such
      as
      attending meetings and other miscellaneous financial consulting, for the fiscal
      years ended December 31, 2006 and 2005 were $ 31.000 and
      $5,000 respectively.


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**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**Assured
      Pharmacy, Inc.**




By:
              /s/ Robert DelVecchio
              By:
              /s/Haresh
                ShethRobert DelVecchio
                Chief Executive Officer
                April 2, 2007
              
              Haresh Sheth
                Chief
                  Financial Officer
                April 2,
                    2007


In
      accordance with the Exchange Act, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated:




By:
            /s/ Robert DelVecchio
            By:
            /s/Haresh
              ShethRobert DelVecchio
              Director
              April 2, 2007
            
            Haresh Sheth
              Director
              April 2,
                  2007




By:
            /s/ Richard Falcone
            By:
            /s/James
              ManfredoniaRichard Falcone
              Director
              April 2, 2007
            
            James Manfredonia
              Director
              April 2,
                  2007