UNITED
STATES


SECURITIES AND
EXCHANGE COMMISSION


WASHINGTON, D.C.
20549





FORM
10-Q







ý
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the quarterly
period ended September 30, 2008




OR




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




For the
transition period from ________________________________ to
___________________________




Commission File
Number                                                      000-20175




NYER MEDICAL GROUP,
INC.


(Exact Name of
Registrant as Specified in Its Charter)




Florida
              (State
      or Other Jurisdiction of Incorporation or Organization)
            01-0469607
              (I.R.S.
      Employer Identification No.)







13 Water Street,
      Holliston, Massachusetts
              (Address
      of Principal Executive Offices)
            01746
              (Zip
      Code)







(508)
429-8506


(Registrant’s
Telephone Number, Including Area Code)




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




Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of
“large accelerated filer”, “accelerated filer” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
              (do not
      check if a smaller reporting company)
            Smaller
      reporting ý




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




The number of the
registrant’s shares of common stock outstanding as of November 13, 2008:
3,978,199













INDEX




Page No.PART I –
      FINANCIAL INFORMATIONItem
      1.
            Financial
      StatementsConsolidated
      Balance Sheets, September 30, 2008 and June 30, 2008
            4Consolidated
      Statements of Operations, Three Months Ended September 30, 2008 and
      2007
            6Consolidated
      Statements of Cash Flows, Three Months Ended September 30, 2008 and
      2007
            7Selected
      Notes to Consolidated Financial Statements
            9Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17Item
      4T.
            Controls
      and Procedures
            21PART II –
      OTHER INFORMATIONItem
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            21Item
      6.
            Exhibits
            22Signatures
            22























-2-









Certain
statements contained in this report are forward-looking in nature within the
meaning of the Private Securities Litigation Reform Act of 1995 and other
federal securities laws. These statements are generally identified by the
inclusion of phrases such as “we expect”, “we anticipate”, “we believe”, “we
estimate” and other phrases of similar meaning. Whether such statements
ultimately prove to be accurate depends upon a variety of factors that may
affect our business and operations. Many of these factors are described under
“Part I. Item 1. A. - Risk Factors” in our most recent Annual Report on Form
10-K as filed with the Securities and Exchange Commission (the
“SEC”).



























-3-





PART
I – Financial Information


Item
1.  Financial Statements:


NYER MEDICAL
GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





ASSETS





September
      30, 2008
            
            
            June 30,
      2008(Unaudited)Current
      assets:Cash
            
            $
            407,707
            
            
            $
            140,688Accounts
      receivable, less allowance for doubtful
              accounts of
      $24,552 at September 30, 2008 and June
              30, 2008,
      respectively
            
            
            5,082,956
            
            
            
            4,963,542Inventories
            
            
            7,757,827
            
            
            
            7,405,315Prepaid
      expenses and other current assets
            
            
            218,235
            
            
            
            308,461Refundable
      income taxes
            
            
            62,824
            
            
            
            36,000Current
      portion of deferred tax asset
            
            
            199,000
            
            
            
            194,000Assets to
      be disposed of from discontinued operations
            
            
            263,607
            
            
            
            803,594Total
      current assets
            
            
            13,992,156
            
            
            
            13,851,600Property
      and equipment, net of accumulated depreciation
            
            
            1,379,457
            
            
            
            1,341,055Goodwill
            
            
            2,153,100
            
            
            
            2,153,100Other
      intangible assets
            
            
            702,229
            
            
            
            725,118Long-term
      portion of deferred tax asset
            
            
            379,000
            
            
            
            444,000Long-term
      portion of deferred tax asset from discontinued operations
            
            
            70,000
            
            
            
            70,0003,304,329
            
            
            
            3,392,218Total
      assets
            
            $
            18,675,942
            
            
            $
            18,584,873





See accompanying notes to
consolidated financial statements.





-4-





NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





LIABILITIES AND
SHAREHOLDERS’ EQUITY





September
      30, 2008
            
            
            June 30,
      2008(Unaudited)Current
      liabilities:Current
      portion of long-term debt
            
            $
            149,771
            
            
            $
            183,958Current
      portion of long-term debt, due related parties
            
            
            230,000
            
            
            
            230,000Accounts
      payable
            
            
            6,514,130
            
            
            
            5,871,081Accrued
      payroll and related taxes
            
            
            668,867
            
            
            
            615,483Accrued
      expenses and other liabilities
            
            
            352,968
            
            
            
            442,802Income
      taxes payable
            
            
            38,180
            
            
            
            35,955Liabilities
      to be disposed of from discontinued operations
            
            
            312,852
            
            
            
            770,516Total
      current liabilities
            
            
            8,266,768
            
            
            
            8,149,795Long-term
      debt, net of current portion
            
            
            239,167
            
            
            
            256,667Long-term
      debt, net of current portion, due related parties
            
            
            1,623,333
            
            
            
            1,643,333Shareholders’
      equity:Series
      2 Class B, Preferred stock
            
            
            400,000
            
            
            
            400,000Common
      stock
            
            
            398
            
            
            
            398Additional
      paid-in capital
            
            
            17,792,362
            
            
            
            17,770,328Accumulated
      deficit
            
            
            (9,646,086
            )
            
            
            (9,635,648
            )Total
      shareholder’ equity
            
            
            8,546,674
            
            
            
            8,535,078Total
      liabilities and shareholders’ equity
            
            $
            18,675,942
            
            
            $
            18,584,873







See accompanying
notes to consolidated financial statements.


-5-





NYER MEDICAL
GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF OPERATIONS, (unaudited)








For the
      three months endedSeptember
      30, 2008
            
            
            September
      30, 2007Revenues:Sales
            
            $
            17,344,207
            
            
            $
            16,221,025Dispensing
      fees
            
            
            905,426
            
            
            
            720,932Total
      revenues
            
            
            18,249,633
            
            
            
            16,941,957Cost and
      expenses:Cost
      of sales
            
            
            13,475,295
            
            
            
            12,849,541Selling,
      general and administrative expenses
            
            
            4,472,000
            
            
            
            3,901,420Depreciation
      and amortization
            
            
            144,638
            
            
            
            137,791Total
      costs and expenses
            
            
            18,091,933
            
            
            
            16,888,752Operating
      income
            
            
            157,700
            
            
            
            53,205Other
      (expense) income:Interest
      expense
            
            
            (47,395
            )
            
            
            (7,405
            )Interest
      income
            
            
            3,123
            
            
            
            2,833Other
            
            
            2,119
            
            
            
            1,521Total
      expense
            
            
            (42,153
            )
            
            
            (3,051
            )Income from
      continuing operations before income
              taxes and
      minority interest
            
            
            115,547
            
            
            
            50,154Provision
      for income taxes
            
            
            (60,200
            )
            
            
            (34,780
            )Minority
      interest expense, net of income taxes expense
            
            
            -
            
            
            
            (27,881
            )Net income
      (loss) from continuing operations
            
            
            55,347
            
            
            
            (12,507
            )Discontinued
      operations:Loss from
      operations of discontinued operations,
              net of
      $9,100 and $11,450 income taxes benefit,
              September
      30, 2008 and 2007, respectively
            
            
            (17,667
            )
            
            
            (22,282
            )Loss on
      disposal, net of $24,800 income taxes benefit,
              September
      30, 2008
            
            
            (48,118
            )
            
            
            -Net Loss
      from discontinued operations
            
            
            (65,785
            )
            
            
            (22,282
            )Net
      loss
            
            $
            (10,438
            )
            
            $
            (34,789
            )Basic and
      diluted earnings (loss) per shareContinuing
      operations
            
            $
            .01
            
            
            $
            -Discontinued
      operations
            
            
            (.02
            )
            
            
            (.01
            )Basic and
      diluted loss per share
            
            $
            (.01
            )
            
            $
            (.01
            )Weighted
      average common shares outstanding, basic and diluted
            
            
            3,978,199
            
            
            
            3,978,199





See accompanying
notes to the consolidated financial statements.





-6-





NYER MEDICAL
GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS, (unaudited)





For the
      three months endedSeptember
      30, 2008
            
            
            September
      30, 2007Cash flows
      from continuing operating activities:Net  loss
      from continuing operations
            
            $
            (10,438
            )
            
            $
            (34,789
            )Adjustment
      to reconcile net loss to net cash provided
              by
      operating activities:Depreciation
            
            
            121,749
            
            
            
            103,502Amortization
            
            
            22,889
            
            
            
            34,289Stock-based
      compensation expense
            
            
            22,034
            
            
            
            13,357Deferred
      income tax
            
            
            46,000
            
            
            
            42,000Minority
      interest
            
            
            -
            
            
            
            27,881Changes in
      working capital
            
            
            (51,815
            )
            
            
            (80,259
            )Net cash
      flows provided by operating activities from
              continuing
      operations
            
            
            150,419
            
            
            
            105,981Cash flows
      used in continuing investing activities:Acquisition
      of pharmacy
            
            
            -
            
            
            
            (552,115
            )Purchase of
      property and equipment
            
            
            (160,151
            )
            
            
            (58,300
            )Net cash
      flows used in investing activities
            
            
            (160,151
            )
            
            
            (610,415
            )Cash flows
      used in financing activities:Payments of
      long-term debt
            
            
            (71,687
            )
            
            
            (46,186
            )Net cash
      flows used in financing activities
            
            
            (71,687
            )
            
            
            (46,186
            )Cash flows
      provided by discontinued activities:Cash flows
      from  operating activities
            
            
            348,438
            
            
            
            106,800Cash flows
      used in investing activities
            
            
            -
            
            
            
            (596
            )Cash flows
      provided by financing activities:
            
            
            -
            
            
            
            65,000Cash
      flows provided by discontinued operations
            
            
            348,438
            
            
            
            171,204Net
      increase (decrease) in cash
            
            
            267,019
            
            
            
            (379,416
            )Cash at
      beginning of  period
            
            
            140,688
            
            
            
            1,135,677Cash at end
      of period
            
            $
            407,707
            
            
            $
            756,261





See accompanying notes to
consolidated financial statements.





-7-





NYER MEDICAL
GROUP, INC. AND SUBSIDIARIES





CONSOLIDATED
STATEMENTS OF CASH FLOWS, (unaudited), continued





For the
      three months endedSeptember
      30, 2008
            
            
            September
      30, 2007Changes in
      working capital:Accounts
      receivable
            
            $
            (119,414
            )
            
            $
            322,318Inventories
            
            
            (604,627
            )
            
            
            (145,444
            )Prepaid
      expenses and other current assets
            
            
            90,226
            
            
            
            10,255Refundable
      income taxes
            
            
            (26,824
            )
            
            
            (80,115
            )Accounts
      payable
            
            
            643,049
            
            
            
            24,536Accrued
      payroll and related taxes
            
            
            53,384
            
            
            
            (12,404
            )Accrued
      expenses and other liabilities
            
            
            (89,834
            )
            
            
            (131,960
            )Income tax
      payable
            
            
            2,225
            
            
            
            (67,445
            )Net
      change
            
            $
            (51,815
            )
            
            $
            (80,259
            )Supplemental
      disclosure of cash flow information:Cash paid
      during the period for:Interest
            
            $
            47,087
            
            
            $
            6,950Income
      taxes
            
            $
            28,796
            
            
            $
            128,892





Supplemental
disclosure of non-cash investing and financing activities:





The acquisition
of a pharmacy in July 2007:





Inventory
            
            $
            252,115Property,
      plant and equipment
            
            
            19,945Prescription
      lists
            
            
            280,055Cash
      paid for acquisition
            
            $
            552,115





See accompanying notes to
consolidated financial statements.








-8-





NYER MEDICAL
GROUP, INC. AND SUBSIDIARIES




SELECTED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)




1.       Accounting
Policies




Basis
of Presentation




The consolidated
financial statements included herein have been prepared by the Company, without
audit, in accordance with accounting principals generally accepted in the United
States of America and pursuant to the rules and regulations of the Securities
and Exchange Commission.  Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principals generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not to be misleading. In the opinion of management, the amounts shown
reflect all adjustments necessary to present fairly the financial position and
results of operations for the periods presented. All such adjustments are of a
normal recurring nature.




It is suggested
that the financial statements be read in conjunction with the financial
statements and notes thereto included in the Company’s Form 10-K for the year
ended June 30, 2008.




Reclassifications




Prior year
information is reclassified whenever necessary to conform to current year’s
presentation.




Use
of estimates




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




Fair
value of financial instruments




The carrying
values of accounts receivable, accounts payables and debt approximate fair
value. The carrying values and estimated fair values for long-term debt, based
on quoted market rates of financial instruments were approximately the
same.




Recent
Accounting Pronouncements




In May 2008, the
Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards (“SFAS”) No. 162, The Hierarchy of Generally Accepted
Accounting
Principles (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States. This statement shall be effective 60 days following the SEC’s
approval of the Public Company Accounting Oversight Board’s amendments to AU
section 411, The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles. The Company is in the process of evaluating the potential
effect of adoption of SFAS No. 162.







-9-




In March 2008,
the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities — an Amendment of FASB Statement No. 133 (“SFAS No. 161”).
SFAS No. 161 requires disclosure of the following: objectives for using
derivative instruments in terms of underlying risk and accounting designation,
the fair values of derivative instruments and their gains and losses in a
tabular format, and information about credit-risk-related contingent features.
SFAS No. 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. The Company is in the process of evaluating the potential
effect of adoption of SFAS No. 161.




In December 2007,
the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which
replaces SFAS No. 141. The statement retains the purchase method of accounting
for acquisitions but requires a number of changes, including changes in the way
assets and liabilities are recognized in the purchase accounting. It also
changes the recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS No. 141R is effective for the Company beginning July 1,
2009 and will apply prospectively to business combinations completed on or after
that date. The Company is in the process of evaluating the potential effect of
adoption of SFAS No. 141.




2.       Stock Based
Compensation




The Company
accounts for share-based payments as compensation expense at the fair value of
the options.




As a result, the Company recorded stock based
compensation expenses of $22,034 and $13,357 for the three months ended
September 30, 2008 and 2007, respectively.




3.       Other intangible
assets




The following is
a summary of other intangible assets:







September 30, 2008
            
            Amortization
      Period (years)
            
            
            Cost
            
            
            Accumulated
      Amortization
            
            
            NetPrescription
      lists
            
            
            7.6
            
            
            $
            1,031,555
            
            
            $
            329,326
            
            
            $
            702,229





June 30, 2008
            
            Amortization
      Period (years)
            
            
            Cost
            
            
            Accumulated
      Amortization
            
            
            NetPrescription
      lists
            
            
            7.9
            
            
            $
            1,031,555
            
            
            $
            306,437
            
            
            $
            725,118Non-compete
      agreements
            
            
            -
            
            
            
            340,000
            
            
            
            340,000
            
            
            
            -Totals
            
            
            
            
            
            $
            1,371,555
            
            
            $
            646,437
            
            
            $
            725,118








-10-








Amortization
expense was $22,889 and $34,289 for the three months ended September 30, 2008
and 2007, respectively.




Based on the
balance of intangible assets at September 30, 2008, the remaining amortization
expense for each of the succeeding five years is estimated to be as
follows:







Year
            
            Amortization amount2009
            
            $
            66,2662010
            
            
            89,1552011
            
            
            89,1552012
            
            
            87,0482013
            
            
            82,489Thereafter
            
            
            288,116Total
            
            $
            702,229







4.       Notes payable and related
parties




As of September
30, 2008, notes payable were:





September
      30, 2008
              
              
              June 30,
      2008Related
      parties:Long-term debt, convertible
      notes
              
              $
              1,500,000
              
              
              $
              1,500,000Long-term debt,
      shareholder
              
              
              353,333
              
              
              
              373,3331,853,333
              
              
              
              1,873,333Less current
      portion
              
              
              230,000
              
              
              
              230,000Long term
      portion
              
              $
              1,623,333
              
              
              $
              1,643,333Other:Long-term debt, former
      shareholder
              
              $
              309,167
              
              
              $
              326,667Long-term debt, pharmacy
      acquisition
              
              
              79,771
              
              
              
              113,958388,938
              
              
              
              440,625Less current
      portion
              
              
              149,771
              
              
              
              183,958Long term
      portion
              
              $
              239,167
              
              
              $
              256,667




In February 2008,
Convertible Notes were issued to the former minority shareholders of one of the
Company’s now wholly-owned subsidiaries (the “Minority Shareholders”) in the
amount of $1,500,000. The Convertible Notes bear interest at the rate of 8% per
annum, are due on February 4, 2011. After February 4, 2009 (the first
anniversary of the transaction), any of the former Minority Shareholders can
convert all or any portion of their allocable payment of the Note into shares of
the Company’s common stock at an initial conversion price of $1.84 per
share.  They can also redeem for cash. The former minority
shareholders have indicated that they do not intend to redeem the Convertible
Notes until after October 1, 2009.




In February 2008,
a promissory note was issued to Mr. Samuel Nyer in the amount of $400,000 for
the purchase of the Company’s 2,000 shares of Class A Preferred Stock and 1,000
shares of Class B Preferred Stock, Series 1.  The note is payable in
equal monthly installments of $6,667 plus interest on the unpaid balance at
7%.  The note matures in February 2013.







-11-




In February 2008,
a promissory note was issued to the former Minority Shareholders in the amount
of $350,000. The note is payable in equal monthly installments of $5,833 plus 7%
interest on the unpaid balance and matures in February 2013. The note was
assigned by the Minority Shareholders to Nyle International Corp on February 4,
2008 as consideration for their purchase of common stock of the Company owned by
Nyle.




The Company also
had an outstanding note payable for an acquisition of a pharmacy, payable in
equal monthly installments of $4,000 plus interest on the unpaid balance at 5%.
The note matured in April 2008 and was collateralized by pharmacy
inventory.




The Company also
has outstanding a note payable for an acquisition of a pharmacy, payable in
equal monthly installments of $11,396 plus interest on the unpaid balance at 6%.
The note matures in March 2009.




5.       Discontinued
operations




Through September
24, 2008, the Company operated a medical and surgical equipment and supplies
segment, ADCO Surgical Supply, Inc. (“ADCO”). ADCO engaged in both the wholesale
and retail selling of medical equipment and surgical supplies throughout New
England and the Internet. On September 24, 2008, the Company sold certain assets
and liabilities of ADCO. A loss was recognized from discontinued operations of
$17,667 and loss on disposal of certain assets and liabilities of $48,118 was
recognized. ADCO retained its building and land and its line of credit of
$300,000, which has been maximized. The Company granted the purchaser of ADCO’s
assets an option to purchase the building and land.  As such, the
Company does not anticipate a loss on the sale of ADCO.




In June 2008, the
Company sold ADCO South Medical Supplies, Inc. (“ADCO South”). ADCO South
engaged in the wholesale selling of medical equipment and surgical supplies
throughout Florida.  A loss was recognized on the sale of ADCO South
of $3,848.




Both of these
entities have been reflected as discontinued operations.




The following
table shows assets and liabilities for discontinued operations at:







September
      30, 2008
            
            
            June 30,
      2008Cash
            
            $
            2,922
            
            
            $
            33,293Accounts
      receivable, net
            
            
            -
            
            
            
            197,860Inventories
            
            
            -
            
            
            
            279,208Prepaid
      expenses and other current assets
            
            
            60,770
            
            
            
            12,828Current
      portion of deferred tax asset
            
            
            87,000
            
            
            
            73,000Fixed
      assets, net
            
            
            112,915
            
            
            
            120,942Goodwill,
      net
            
            
            -
            
            
            
            86,463Long-term
      portion of deferred tax asset
            
            
            70,000
            
            
            
            70,000Total
      assets
            
            $
            333,607
            
            
            $
            873,594Line of
      credit
            
            $
            300,000
            
            
            $
            300,000Accounts
      payable
            
            
            -
            
            
            
            422,573Accrued
      payroll and related taxes
            
            
            -
            
            
            
            20,913Accrued
      expenses and other liabilities
            
            
            12,852
            
            
            
            27,030Total current
      liabilities
            
            $
            312,852
            
            
            $
            770,516








-12-




The following
income statement is for discontinued operations at:







September
      30, 2008
            
            
            September 30,
      2007Sales
            
            $
            455,767
            
            
            $
            1,160,720Costs and
      expenses:Costs of
      sales
            
            
            307,072
            
            
            
            807,344Selling general and
      administrative expenses
            
            
            174,104
            
            
            
            375,154Depreciation and
      amortization
            
            
            1,280
            
            
            
            13,091Total costs and
      expenses
            
            
            482,456
            
            
            
            1,195,589Operating
      loss
            
            
            (26,689
            )
            
            
            (34,869
            )Other
      (expense) income:Interest
      expense
            
            
            (578
            )
            
            
            -Interest
      income
            
            
            -
            
            
            
            1,137Loss on
      disposal
            
            
            (72,918
            )
            
            
            -Other
            
            
            500
            
            
            
            -Total (expense)
      income
            
            
            (72,996
            )
            
            
            1,137Loss from
      operations of discontinued operations
            
            
            (99,685
            )
            
            
            (33,732
            )Benefit for
      income taxes
            
            
            33,900
            
            
            
            11,450Net
      loss
            
            $
            (65,785
            )
            
            $
            (22,282
            )




Because the operations of ADCO are
classified as discontinued operations on the Company’s consolidated statements
of operations, pro forma revenues, net income (loss) and basic and diluted
earnings (loss) per share that give effect to the sale of certain operating
assets and liabilities of ADCO as if such sale had occurred at July 1, 2008 and
2007 are already reflected in Total Revenues, Net Income (Loss) from Continuing
Operations and Basic and Diluted Earnings (Loss) Per Share-Continuing Operations
on the Company's consolidated statements of operations.







-13-





6.       Shareholders’
equity
  Class
A preferred stock
  Total authorized
shares are 5,000, par value $.001; no shares are outstanding. Each share has
voting rights equal to 1,000 shares of common stock.




Class
B preferred stock




Total authorized
shares are 2,500,000, par value $.001; 2,500 shares have been designated as
Series 1 Class B Preferred Stock of which none are outstanding. Each share has
voting rights equal to 2,000 shares of common stock.




Series
2 Class B preferred stock




Total authorized
shares of Series 2 Stock are 2,000 shares of which 2,000 shares are outstanding
and have been designated as Series 2 Stock. Each share has voting rights equal
to 2,000 shares of common stock.




In February 2008,
2,000 shares of Series 2 Stock, a newly-created series of convertible Class B
preferred stock of the Company was issued to the former Minority Shareholders.
The shares are initially convertible into 218,000 shares of the Company’s common
stock, based upon an initial conversion price of $1.84 (which is subject to
adjustment (“the “Conversion Price”)), and which have 2,000 votes per share of
Series 2 Stock (for an aggregate of 4,000,000 votes).




At any time, the
holders of the Series 2 Stock may convert their shares into common stock upon
the Company’s (i) consolidation with or merger into any other person (ii)
transfer of all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company subject to certain conditions described below, which may be waived by
the holders of at least a majority of the Series 2 Stock when outstanding. The
Series 2 Stock will convert to shares of common stock on February 4,
2011.




On February 4,
2011, or such later date as the following conditions are met in their entirety,
all of the shares of Series 2 Stock will be converted into common stock: (i) no
event of default has occurred and is continuing beyond any applicable cure
periods under the promissory notes issued by the Company to any of the former
Minority Shareholders pursuant to the promissory note evidencing the
indebtedness of the Company’s subsidiary, ADCO, to KeyBank National Association
(“KeyBank”) and (ii) the resale of common stock issuable upon conversion of the
Series 2 Stock is covered by an effective registration statement.




Subject to
certain exceptions, if the Company issues or sells any shares of common stock by
means of options, convertible securities, or otherwise for a price per share
(the “New Issuance Price”) less than the Conversion Price then in effect, then
immediately after such dilutive issuance, the Conversion Price then in effect
will be reduced to the New Issuance Price. The adjustment to the Conversion
Price made in regard to an option or convertible security will be made at the
time such option or convertible security is issued (and not when such option or
convertible security is exercised or converted). The Conversion Price is also
subject to additional anti-dilution adjustments in the event of stock splits,
dividends, recapitalization, and other events. In the event of certain mergers,
asset sales or reorganization, the holders of the Series 2 Stock will be
entitled to receive the securities and property they would have received for the
shares of common stock that should have been issued to such holders had they
fully converted their shares of Series 2 Stock prior to such event.







-14-





Common
stock




Total authorized
shares are 25,000,000, par value $.0001; 3,978,199 shares are issued and
outstanding.




Stock
options and warrants




In April 2005,
the Company granted to investors, warrants to purchase 53,320 common shares over
a five-year period at an exercise price of $2.60 per share.




At September 30,
2008, the Company has outstanding 150,000 stock options that were granted in
1999 to a third party in connection with consulting services. The consultant
resigned effective January 1, 2007. The options are exercisable at $1.71 per
share and expire in January 2009. The options have registration rights with
respect to any shares of common stock issuable upon exercise. No options have
been exercised as of September 30, 2008.




7.           Stock options
plans




The Company has
two stock option plans under which employees, consultants and directors have
been granted options to purchase shares of the Company’s common stock. The 1993
Stock Option Plan (the “1993 Plan”) was amended in fiscal 2003 to, among other
things, (a) cease grants under such plan upon the effectiveness of the 2002
Stock Option Plan of the Company (the “2002 Plan”) and (b) increase the maximum
aggregate number of shares available for award under such plan to 1,000,000. The
maximum aggregate number of shares of common stock available for award under the
2002 Plan is 3,000,000, and is subject to adjustment as set forth therein. Under
the 2002 Plan automatic options vest semi-annually to all directors and certain
officers and expire no later ten years from the date of grant. Except with
respect to certain incentive stock options (“ISOs”), options under the 1993 Plan
expire 10 years from the date of grant. Under the 1999 Plan, except for ISOs and
non-qualified options, which are not non-discretionary options (as such term is
used in the 1993 Plan), the exercise price for options is the fair market value
of the common stock of the Company at the date of grant, as such fair market
value is determined under the 1993 Plan. Under the 2002 Plan, except for certain
ISOs and certain non-qualified options, the exercise price is not to be less
than the Market Price (as defined in the 2002 Plan) of the common stock of the
Company on the date of the grant.




At September 30,
2008, summarized stock options were:







Outstanding
      stock options
            
            
            Exercisable
      stock optionsExercise
              price
              range
            
            
            Shares
            
            
            Weighted
              average
              remaining
              contractual
              life
            
            
            Weighted
              average
              exercise
              price
            
            
            Shares
            
            
            Weighted
              average
              remaining
              contractual
      life
            
            
            Weighted
              average
              exercise
              price$
            1.29-$1.95
            
            
            
            796,000
            
            
            
            6.7
            
            
            $
            1.48
            
            
            
            700,000
            
            
            
            6.7
            
            
            $
            1.70$
            2.10-$3.52
            
            
            
            120,000
            
            
            
            4.7
            
            
            $
            4.02
            
            
            
            116,000
            
            
            
            4.7
            
            
            $
            2.73$
            4.75-$6.50
            
            
            
            558,000
            
            
            
            1.8
            
            
            $
            6.37
            
            
            
            558,000
            
            
            
            1.8
            
            
            $
            6.371,474,000
            
            
            
            
            
            
            
            
            
            
            
            1,374,000








-15-








At September 30,
summarized changes in common stock options were:




2008
            
            
            2007Weighted
      average
            
            
            Weighted
      averageShares
            
            
            exercise
      price
            
            
            Shares
            
            
            exercise
      priceOutstanding
      at June 30:
            
            
            1,488,000
            
            
            $
            3.54
            
            
            
            1,471,600
            
            
            $
            3.72Cancelled
            
            
            (14,000
            )
            
            
            3.38
            
            
            
            (63,600
            )
            
            
            5.05Outstanding
      at September 30:
            
            
            1,474,000
            
            
            $
            3.54
            
            
            
            1,408,000
            
            
            $
            3.66





There were no
grants for the three months ended September 30, 2008 and 2007,
respectively.




The Company
recorded stock based compensation expense of $22,034 and $13,357 for the three
months ended September 30, 2008 and 2007, respectively.  Unrecognized
compensation cost to be recognized in the future for unvested stock option
grants at September 30, 2008 is $52,632.




The fair value of
each stock option grant has been estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:




September
      30, 2008
            
            
            September
      30, 2007Risk-free
      Interest
            
            
            3.6
            %
            
            
            3.7
            %Dividend
      yield
            
            
            0
            %
            
            
            0
            %Expected
      volatility
            
            
            91
            %
            
            
            102
            %Expected
      life (years)
            
            
            5
            
            
            
            5





8.       Earnings per
share




Due to their
anti-dilutive effect, the following potential common shares have been excluded from the
computation of diluted loss per shares:





Three
      months ended
              September
      302008
            
            
            2007Stock
      options
            
            
            1,677,320
            
            
            
            1,611,320Convertible
      notes
            
            
            815,217
            
            
            
            -Convertible
      preferred stock
            
            
            218,000
            
            
            
            -2,710,537
            
            
            
            1,611,320





9.       Contingencies
  Legal
proceedings
  In the ordinary
course of business, we may become involved in litigation incidental to our
business; however, we are not aware of any pending legal proceeding that would
have a material effect on operating results.







-16-





Item
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




Results of
Operations




The following
discussion provides information with respect to our results of operations,
liquidity, and capital resources on a comparative basis for the three months
ended September 30, 2008 and 2007. The following discussion should be read in
conjunction with our consolidated financial statements and notes thereto for the
three months ended September 30, 2008 and 2007, included herein, and for the
year ended June 30, 2008, included in our Annual Report on Form 10-K for the
year ended June 30, 2008.




Net
Revenues




2008
            
            
            2007
            
            
            % IncreasePharmacy
            
            $
            17,344,207
            
            
            $
            16,221,025
            
            
            
            6.9Dispensing
      Fees
            
            
            905,426
            
            
            
            720,932
            
            
            
            25.6$
            18,249,633
            
            
            $
            16,941,957
            
            
            
            7.7





Total revenues
increased $1.3 million to $18.2 million or 7.7% for the three months ended
September 30, 2008 as compared to $16.9 million for the three months ended
September 30, 2007. The main reason was due to the addition of three new
pharmacies in December 2007, February 2008 and July 2008.  Revenue was
flat at stores open more than one year due to our decision to transfer accounts
with approximately $.9 million in revenue to two of the newly opened
pharmacies.  The transfer was done to group certain specialized
accounts together in order to achieve efficiencies in the dispensing
process.  If the effect of the business transfer is taken into
account, comparable revenue was up 5.3%.  The number of prescriptions
dispensed at locations open more than one year increased 11%.  The
number of prescriptions dispensed did not correlate to a commensurate growth in
revenue due to an increased number of generic medications as a percentage of
total number of prescriptions dispensed. Generic medications typically have a
lower selling price than brand name medications. We recognize revenue both from
the sale of prescription medications and other products as well as through
dispensing fee revenue derived through the dispensing of prescriptions with
inventory owned by Federally Qualified Health Centers (“FQHCs”) pursuant to
pharmacy management services contracts entered into between us and various
FQHCs.




The pharmacy
sales (revenues other than dispensing fees) increased $1.1 million to $17.3
million or 6.9% for the three months ended September 30, 2008 as compared to
$16.2 million for the three months ended September 30, 2007. The increase
was attributable to the opening of the three new pharmacies. Sales were flat at
stores open more than one year due to our decision to transfer accounts with
approximately $765,000 in sales to two of the newly opened
pharmacies.  If the effect of the business transfer is taken into
account, comparable sales were up 4.4%.




The increase in
prescription dispensing at stores open more than one year can be attributed to
greater drug utilization on the part of an aging population, an overall increase
in market share within certain communities and an increased utilization of
pharmacy services by patients of FQHCs with whom the pharmacies have contracts
to provide services. The pharmacies manage two pharmacies owned by FQHCs and
additionally have contracts to provide pharmacy services to patients of five
other FQHCs. The pharmacies maintain a segregated inventory owned by the FQHCs
for the purpose of dispensing prescriptions to health center
patients.







-17-




Dispensing fee
revenue increased $184,000 to $905,000 or 25.6% for the three months ended
September 30, 2008 as compared to $721,000 for the three months ended September
30, 2007.  The increase can be attributed to an expanded number of and
increased demand for covered medications effectuated during the fiscal year by
the Massachusetts Health Safety Net Office, an increased number of prescription
benefit management contracts entered into by the FQHCs contracted with us and
marketing initiatives targeting the patients of the FQHCs.




Gross Profit
Margins.  Pharmacy gross profit margins were 22.3% for the
three months ended September 30, 2008 as compared to 20.8% for the three
months ended September 30, 2007.  Dispensing fees were not included in
the calculation as no cost of sales are estimatable for dispensing
fees.




The following is
a table of Pharmacy gross profit margin percentages for the three months ended
September 30:




2008
            2007
            % Increase22.3
            20.8
            7.2





The increase in
gross profit margins was due to increased purchase volume discounts as well as
increased dispensing of generic medications that carry higher gross profit
margins. Each helped to offset declining insurance reimbursements.




Selling, General and Administrative
Expenses.  Selling, general and administrative expenses
(“S,G&A”) increased $570,580 to $4,472,000 or 14.6% for the three months
ended September 30, 2008 as compared to $3,901,420 for the three months ended
September 30, 2007.




The following
table shows the breakdown for the three months ended September 30:




2008
            2007
            % Increase$4,472,000
            $3,901,420
            14.6





S,G&A at the
pharmacies increased $631,000 to $4.3 million or 17.1% for the three months
ended September 30, 2008 as compared to $3.7 million for the three months ended
September 30, 2007. The pharmacies’ increase was primarily due to increased
payroll costs of approximately $618,000. Labor costs at stores opened more than
one year increased $277,000 due to market pressures on salary and benefit
packages for pharmacists.  Labor costs at the three newly opened
pharmacies aggregated $313,000.  The new pharmacies also added
approximately $67,000 in additional overhead.  The increase (in
non-labor costs) was due primarily to increases in rent and utility expense as
well as store supply expense.




Corporate
overhead decreased approximately $60,000 to $161,000 or 27.1% for the three
months ended September 30, 2008 as compared to $221,000 for the three
months ended September 30, 2007 due mainly to the elimination of: fees paid to
the minority shareholders for an extension of $99,990 and investment banker and
capital raising expense of $28,016. These decreases were partially offset by
increases in legal expenses of $39,000; salaries of $16,000, stock option
expense of $9,000 and public relations expense of $7,000.







-18-







Interest Expense: Interest
expense increased by $39,990 to $47,395 or 540% for the three months ended
September 30, 2008 as compared to $7,405 for the three months ended September
30, 2007.




The following
table shows the breakdown of interest expense for the three months ended
September 30:




2008
            2007
            % Increase$47,395
            $7,405
            540.0





The pharmacies’
interest expense decreased $2,476 to $1,453 or 63% for the three months ended
September 30, 2008 as compared to $3,929 for the three months ended September
30, 2007 due to pay down on interest bearing notes.




Corporate
interest expense increased $42,466 or 1,221.7% for the three months ended
September 30, 2008 as compared to $3,476 for the three months ended September
30, 2007, due to interest on notes issued in connection with the February 2008
purchase of the remaining 20% of D.A.W., Inc., our now wholly owned pharmacy
subsidiary (“D.A.W.”).




Income Tax
Expense.  Income tax expense decreased by $5,610 to $17,720 or
24% for the three months ended September 30, 2008 as compared to $23,330 for the
three months ended September 30, 2007.




The following
table shows income taxes for the three months ended September 30:




2008
            
            
            2007
            
            
            % (Increase) decreasePharmacy
            
            $
            100,000
            
            
            $
            105,200
            
            
            
            (4.9
            )Corporate
            
            
            (39,800
            )
            
            
            (70,420
            )
            
            
            43.560,200
            
            
            
            34,780
            
            
            
            73.1Discontinued
      operations
            
            
            (33,900
            )
            
            
            (11,450
            )
            
            
            (196.1
            )$
            26,300
            
            
            $
            23,330
            
            
            
            (24.0
            )





The pharmacies income tax expense decreased by
$5,200 to $100,000 or 4.9% for the three months ended September 30, as compared
to $105,200 for the three months ended September 30, 2007 due to less net
income.




Corporate tax benefit decreased by $30,620 to
$39,800 or 43.5% for the three months ended September 30, 2008 as compared
to $70,420 for the three months ended September 30, 2007 due to decreased
expenses mainly related to the buyout of the 20% interest in D.A.W.







-19-







The discontinued operations’ tax benefit
increased by $22,450 to $33,900 or 196.1% for the three months ended September
30, 2008 as compared to $11,450 for the three months ended September 30, 2007,
mainly due to the loss on disposal of certain assets and liabilities of our
medical discontinued operation.




Liquidity and Capital
Resources




Net cash provided
by operating activities from continuing operations was $150,419 for the three
months ended September 30, 2008 as compared to $105,981 for the three months
ended September 30, 2007. Cash was used to fund operations for the medical and
corporate operations.




Net cash used in
investing activities was $160,151 for the three months ended September 30, 2008
as compared $610,415 the three months ended September 30, 2007.  The
cash used was to fund the purchase of property and equipment.




Net cash used in
financing activities was $71,687 for the three months ended September 30, 2008
and consisted of repayment of long-term debt, as compared to $46,186 the three
months ended September 30, 2007.




Our primary
source of liquidity is cash provided from operations.  Our principal
uses of cash are: acquisitions, capital expenditures and repayment of
debt.




Cash.  At
September 30, 2008, cash was $407,707 as compared to $140,688 at June 30, 2008
due to increased collections on accounts receivables and increased
revenues.




Asset security
interest.  The pharmacy has an agreement with its major supplier to
purchase pharmaceuticals.  This agreement terminates January 31,
2012.  Payment for merchandise delivered is secured by a first primary
interest in all assets of D.A.W.




Accounts
receivable.  At September 30, 2008, we had net accounts receivable of
$5,082,956 as compared to $4,963,542 at June 30, 2008.   Accounts
receivable increased due to increased sales from the pharmacies.




Debt.  At
September 30, 2008, debt was $2,242,271 as compared to $2,313,958 at June 30,
2008. Our debt has decreased due to the payments made on long-term
debt.




Line of Credit.
In October 2004, our discontinued operation, ADCO, obtained a $300,000 line of
credit which is collateralized by property owned by ADCO and guaranteed by
us.  The interest rate for the line of credit is the Wall Street
Journal Prime Rate.  Repayment of the line of credit is in monthly
payments of interest only, with the principal being due at maturity, unless
renewed.  The line of credit expires November 30, 2008.  We
intend to renew the line of credit.  As of the date of this report, we
have drawn $300,000 on the line of credit.  The line of credit is
classified in the Liabilities to be disposed of from discontinued operations on
our balance sheet.







-20-





Please note that
we do not have any interest bearing investments. The difference between the
Company’s carrying amount and fair value of its long-term debt was immaterial at
September 30, 2008.




Item
4A(T).   Controls and
Procedures




Evaluation
of Disclosure Controls and Procedures.




We maintain a system of disclosure controls and
procedures that are designed for the purposes of ensuring that information
required to be disclosed in our SEC reports is recorded, processed, summarized
and reported within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosures.




As of the end of the period covered by this
report, we carried out an evaluation, under the supervision and with the
participation of our Chief Executive Officer and acting Chief Financial Officer,
of the effectiveness of our disclosure controls and procedures as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based on that evaluation, our Chief Executive Officer and acting Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.




Changes
in Internal Control Over Financial Reporting.




There has been no
change in our internal control over financial reporting during the quarter ended
September 30, 2008 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.




PART
II - Other Information




Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds




ISSUER PURCHASES
OF EQUITY SHARES




For the
      Period Ended (2008)
            
            Total
      Number of Shares
      Purchased
            
            
            Average
      Price Paid Per Share
            
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or Programs
            
            
            Maximum
      Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased
      Under the Plans or Programs
      (shares)July
      1-31
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            
            148,000August
      1-31
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            
            148,000September
      1-30
            
            
            0
            
            
            $
            -
            
            
            
            0
            
            
            
            148,000








-21-





On May 12, 2003,
the Company announced that the Board of Directors of the Company had authorized
the repurchase of up to 150,000 shares of the Company’s outstanding common stock
from time-to-time in open market transactions at prevailing market prices. There
was no expiration date established for this repurchase plan.  As of
the date of this report, the plan has not been terminated.




Item
6.  Exhibits




Exhibit
      10.1
            Purchase
      Agreement among ADCO Surgical Supply, Inc., ADCO South Medical Supplies,
      Inc. and Anand Patel entered into on September 25, 2009 (incorporated by
      reference from the Company’s Current Report on Form 8-K filed on October
      1, 2008).Exhibit
      31.1
            Certification
      Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Actof
      1934 by President, Chief Executive Officer and acting Principal Financial
      Officer (filed herewith).Exhibit
      32.1
            Certification
      Pursuant to 18 U.S.C. Section 1350 by President, Chief Executive
      Officer  and acting Principal Financial Officer (furnished
      herewith).




SIGNATURES




Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.




NYER
      MEDICAL GROUP, INC.RegistrantBy: /s/ Mark DumouchelName: Mark
      DumouchelTitle:   President
      and Chief Executive Officer(Principal Executive Officer and acting Principal Financial   
      Officer)


Date:  November
14, 2008

















-22-