UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





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




For the
quarterly period ended March 31, 2009





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
                        
                        01-0469607(State
      or Other Jurisdiction of Incorporation
                        
                        (I.R.S.
      Employer Identification No.)or
      Organization)13 Water Street, Holliston, Massachusetts
                        
                        01746(Address
      of Principal Executive Offices)
                        
                        (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 x No  ̈





Indicate by check mark whether
the registrant has submitted electronically and posted on its corporate Web
site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such
files).          Yes ̈No ̈





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  ̈
            Smaller
      reporting company x


(do not
check if a smaller reporting company)





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




The
number of the registrant’s shares of common stock outstanding as of May 08,
2009:   3,978,199.





1


INDEX




Page No.PART
      I – FINANCIAL INFORMATIONItem
      1.
              Financial
      StatementsConsolidated
      Balance Sheets (unaudited) as of March 31, 2009, and June 30,
      2008
              3Consolidated
      Statements of Operations (unaudited) for the three and nine months ended
      March 31, 2009 and 2008
              4Consolidated
      Statements of Cash Flows (unaudited) for the nine months ended March 31,
      2009 and 2008
              5Selected
      Notes to Consolidated Financial Statements (unaudited)
              6Item
      2.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              12Item
      4T.
              Controls
      and Procedures
              15PART
      II – OTHER INFORMATIONItem
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              16Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              16Item
      6.
              Exhibits
              16Signatures
              17




2




PART I--Financial Information


Item
1.  Financial Statements


NYER
MEDICAL GROUP, INC.


Consolidated
Balance Sheets





March 31,
                                
                                
                                June 30,2009
                                
                                
                                2008Assets
                                
                                (unaudited)Current
      assets:Cash
                                
                                $
                                42,317
                                
                                
                                $
                                140,688Accounts
      receivable, net of allowance for doubtfulaccounts of $24,552 at
      March 31, 2009, and June 30, 2008
                                
                                
                                5,268,027
                                
                                
                                
                                4,837,721Inventories
                                
                                
                                7,416,931
                                
                                
                                
                                7,405,315Prepaid
      expenses and other current assets
                                
                                
                                171,122
                                
                                
                                
                                308,461Refundable
      income taxes
                                
                                
                                -
                                
                                
                                
                                36,000Current
      portion of deferred tax assets
                                
                                
                                195,000
                                
                                
                                
                                194,000Current
      portion of deferred tax assets from discontinued
operations
                                
                                
                                109,000
                                
                                
                                
                                73,000Assets
      to be disposed of from discontinued operations
                                
                                
                                112,001
                                
                                
                                
                                856,415Total
      current assets
                                
                                
                                13,314,398
                                
                                
                                
                                13,851,600Property
      and equipment, net
                                
                                
                                1,374,398
                                
                                
                                
                                1,341,055Goodwill
                                
                                
                                2,153,100
                                
                                
                                
                                2,153,100Other
      intangibles
                                
                                
                                647,915
                                
                                
                                
                                725,118Long-term
      portion of deferred tax assets
                                
                                
                                406,000
                                
                                
                                
                                444,000Long-term
      portion of deferred tax assets from discontinued
operations
                                
                                
                                -
                                
                                
                                
                                70,000Total
      assets
                                
                                $
                                17,895,811
                                
                                
                                $
                                18,584,873Liabilities
      and shareholders' equityCurrent
      liabilities:Current
      portion of long-term debt
                                
                                $
                                81,396
                                
                                
                                $
                                183,958Current
      portion of long-term debt due related parties
                                
                                
                                80,004
                                
                                
                                
                                80,004Accounts
      payable
                                
                                
                                6,144,766
                                
                                
                                
                                5,726,820Accrued
      payroll and related taxes
                                
                                
                                674,928
                                
                                
                                
                                608,209Accrued
      expenses and other current liabilities
                                
                                
                                142,007
                                
                                
                                
                                442,802Income
      taxes payable
                                
                                
                                -
                                
                                
                                
                                35,955Liabilities
      to be disposed of from discontinued operations
                                
                                
                                309,414
                                
                                
                                
                                922,051Total
      current liabilities
                                
                                
                                7,432,515
                                
                                
                                
                                7,999,799Long-term
      debt, net of current portion
                                
                                
                                204,167
                                
                                
                                
                                256,667Long-term
      debt, net of current portion, due related parties
                                
                                
                                1,733,329
                                
                                
                                
                                1,793,329Total
      liabilities
                                
                                
                                9,370,011
                                
                                
                                
                                10,049,795Shareholders'
      equity:Preferred
      stock, Class A, $0.001 par value, 500,000 shares; noneoutstanding
                                
                                
                                -
                                
                                
                                
                                -Preferred
      stock, Class B, $0.001 par value, 2,500,000 shares
    authorized;2,500
      shares designated Series 1 Class B; none outstanding
                                
                                
                                -
                                
                                
                                
                                -2,000
      shares designated convertible Series 2 Class B; 2,000 shares issued and
      outstanding at March 31, 2009, and June 30, 2008
                                
                                
                                400,000
                                
                                
                                
                                400,000Common
      stock, $0.0001 par value, 25,000,000 shares authorized; 3,978,199 shares
      issued and outstanding at March 31, 2009, and June 30,
2008
                                
                                
                                398
                                
                                
                                
                                398Additional
      paid-in capital
                                
                                
                                17,821,572
                                
                                
                                
                                17,770,328Accumulated
      deficit
                                
                                
                                (9,696,170
                                )
                                
                                
                                (9,635,648
                                )Total
      shareholders' equity
                                
                                
                                8,525,800
                                
                                
                                
                                8,535,078Total
      liabilities and shareholders' equity
                                
                                $
                                17,895,811
                                
                                
                                $
                                18,584,873





See
accompanying selected notes to consolidated financial
statements.


3




NYER
MEDICAL GROUP, INC.


Consolidated
Statements of Operations (unaudited)





For the three months
                        
                        
                        For the nine monthsended March 31,
                        
                        
                        ended March 31,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Net
      revenues:Sales
                        
                        $
                        17,072,020
                        
                        
                        $
                        16,469,728
                        
                        
                        $
                        51,237,155
                        
                        
                        $
                        48,395,230Dispensing
      fees
                        
                        
                        1,527,465
                        
                        
                        
                        825,380
                        
                        
                        
                        3,973,607
                        
                        
                        
                        2,323,140Total
      net revenues
                        
                        
                        18,599,485
                        
                        
                        
                        17,295,108
                        
                        
                        
                        55,210,762
                        
                        
                        
                        50,718,370Cost
      and expenses:Cost
      of sales
                        
                        
                        13,485,181
                        
                        
                        
                        12,934,357
                        
                        
                        
                        40,449,925
                        
                        
                        
                        37,988,752Selling,
      general and administrative expenses
                        
                        
                        5,309,134
                        
                        
                        
                        4,485,969
                        
                        
                        
                        14,615,316
                        
                        
                        
                        12,911,868Depreciation
      and amortization
                        
                        
                        136,401
                        
                        
                        
                        140,188
                        
                        
                        
                        415,728
                        
                        
                        
                        412,814Total
      costs and expenses
                        
                        
                        18,930,716
                        
                        
                        
                        17,560,514
                        
                        
                        
                        55,480,969
                        
                        
                        
                        51,313,434Loss
      from operations
                        
                        
                        (331,231
                        )
                        
                        
                        (265,406
                        )
                        
                        
                        (270,207
                        )
                        
                        
                        (595,064
                        )Other
      income (expense), net:Interest
      expense
                        
                        
                        (43,546
                        )
                        
                        
                        (36,211
                        )
                        
                        
                        (135,715
                        )
                        
                        
                        (52,138
                        )Interest
      income
                        
                        
                        2,552
                        
                        
                        
                        1,740
                        
                        
                        
                        6,956
                        
                        
                        
                        8,574Other
      income
                        
                        
                        2,645
                        
                        
                        
                        2,566
                        
                        
                        
                        9,434
                        
                        
                        
                        19,457Total
      other income (expense), net
                        
                        
                        (38,349
                        )
                        
                        
                        (31,905
                        )
                        
                        
                        (119,325
                        )
                        
                        
                        (24,107
                        )Loss
      from continuing operations before provision for income taxes and minority
      interest
                        
                        
                        (369,580
                        )
                        
                        
                        (297,311
                        )
                        
                        
                        (389,532
                        )
                        
                        
                        (619,171
                        )Benefit
      for income taxes
                        
                        
                        160,901
                        
                        
                        
                        89,155
                        
                        
                        
                        169,480
                        
                        
                        
                        173,352Minority
      interest expense, net of income taxes
                        
                        
                        -
                        
                        
                        
                        1,095
                        
                        
                        
                        -
                        
                        
                        
                        (37,039
                        )Loss
      from continuing operations
                        
                        
                        (208,679
                        )
                        
                        
                        (207,061
                        )
                        
                        
                        (220,052
                        )
                        
                        
                        (482,858
                        )Discontinued
      operations:Loss
      from discontinued operations, net of $0, $972, $2,652, and $14,025 income
      tax benefit, for the three and nine months ended March 31, 2009 and 2008,
      respectively
                        
                        
                        -
                        
                        
                        
                        (8,834
                        )
                        
                        
                        (11,231
                        )
                        
                        
                        (48,477
                        )(Loss)
      gain on disposal, net of ($33,104), $0, $157,104, and $116,000 income
      taxes (benefit) for the three and nine months ended March 31, 2009 and
      2008, respectively
                        
                        
                        (66,113
                        )
                        
                        
                        -
                        
                        
                        
                        170,761
                        
                        
                        
                        182,628Net
      (loss) gain from discontinued operations
                        
                        
                        (66,113
                        )
                        
                        
                        (8,834
                        )
                        
                        
                        159,530
                        
                        
                        
                        134,151Net
      loss
                        
                        
                        (274,792
                        )
                        
                        
                        (215,895
                        )
                        
                        
                        (60,522
                        )
                        
                        
                        (348,707
                        )Deemed
      dividend on redemption of preferred stock
                        
                        
                        -
                        
                        
                        
                        (399,997
                        )
                        
                        
                        -
                        
                        
                        
                        (399,997
                        )Net
      loss attributable to common shareholders
                        
                        $
                        (274,792
                        )
                        
                        $
                        (615,892
                        )
                        
                        $
                        (60,522
                        )
                        
                        $
                        (748,704
                        )Basic
      and diluted loss per share:Loss
      per share, continuing operations, net of deemed dividend on redemption of
      preferred stock
                        
                        $
                        (0.05
                        )
                        
                        $
                        (0.16
                        )
                        
                        $
                        (0.06
                        )
                        
                        $
                        (0.22
                        )Earnings
      (loss) per share, discontinued operations
                        
                        
                        (0.02
                        )
                        
                        
                        (0.00
                        )
                        
                        
                        0.04
                        
                        
                        
                        0.03Loss
      per share attributable to common shareholders
                        
                        $
                        (0.07
                        )
                        
                        $
                        (0.16
                        )
                        
                        $
                        (0.02
                        )
                        
                        $
                        (0.19
                        )Shares
      used in computing loss per share:Basic
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199Diluted
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199
                        
                        
                        
                        3,978,199





See
accompanying selected notes to consolidated financial
statements.


4


NYER
MEDICAL GROUP, INC. AND SUBSIDIARIES


Consolidated
Statements of Cash Flows(unaudited)





For the nine months endedMarch 31,2009
                            
                            
                            2008Operating
      activities:Net
      loss
                            
                            $
                            (60,522
                            )
                            
                            $
                            (348,707
                            )Gain
      from discontinued operations
                            
                            
                            (159,530
                            )
                            
                            
                            (134,151
                            )Loss
      from continuing operations
                            
                            
                            (220,052
                            )
                            
                            
                            (482,858
                            )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
                            
                            
                            349,193
                            
                            
                            
                            310,279Amortization
                            
                            
                            77,203
                            
                            
                            
                            102,818Stock-based
      compensation expense
                            
                            
                            51,244
                            
                            
                            
                            57,183Deferred
      income taxes
                            
                            
                            37,000
                            
                            
                            
                            (162,900
                            )Minority
      interest
                            
                            
                            -
                            
                            
                            
                            37,039Changes
      in operating assets and liabilities, net of effects of acqusitions and
      disposals:Accounts
      receivable
                            
                            
                            (430,306
                            )
                            
                            
                            331,672Inventories
                            
                            
                            (437,976
                            )
                            
                            
                            (299,754
                            )Prepaid
      expenses and other current assets
                            
                            
                            137,339
                            
                            
                            
                            87,475Refundable
      income taxes
                            
                            
                            36,000
                            
                            
                            
                            (55,000
                            )Accounts
      payable
                            
                            
                            417,946
                            
                            
                            
                            1,860,690Accrued
      expenses and other current liabililties
                            
                            
                            (234,076
                            )
                            
                            
                            44,285Income
      taxes payable
                            
                            
                            (35,955
                            )
                            
                            
                            2,088Cash
      (used in) provided by operating activities—continuing
      operations
                            
                            
                            (252,440
                            )
                            
                            
                            1,833,017Cash
      (used in) provided by operating activities—discontinued
      operations
                            
                            
                            (181,693
                            )
                            
                            
                            126,168Cash
      (used in) provided by operating activities
                            
                            
                            (434,133
                            )
                            
                            
                            1,959,185Investing
      activities:Acquisition
      of 20% of subsidiary
                            
                            
                            -
                            
                            
                            
                            (1,750,000
                            )Acquisition
      of pharmacy, net of cash
                            
                            
                            -
                            
                            
                            
                            (552,115
                            )Purchase
      of property and equipment
                            
                            
                            (382,536
                            )
                            
                            
                            (360,575
                            )Cash
      used in investing activities—continuing operations
                            
                            
                            (382,536
                            )
                            
                            
                            (2,662,690
                            )Cash
      provided by investing activities—discontinued operations
                            
                            
                            933,360
                            
                            
                            
                            (595
                            )Cash
      provided by (used in) investing activities
                            
                            
                            550,824
                            
                            
                            
                            (2,663,285
                            )Financing
      activities:Payments
      on long-term debt
                            
                            
                            (215,062
                            )
                            
                            
                            (151,061
                            )Cash
      used in financing activities—continuing operations
                            
                            
                            (215,062
                            )
                            
                            
                            (151,061
                            )Cash
      provided by financing activities—discontinued operations
                            
                            
                            -
                            
                            
                            
                            175,000Cash
      (used in) provided by financing activities
                            
                            
                            (215,062
                            )
                            
                            
                            23,939Net
      decrease in cash
                            
                            
                            (98,371
                            )
                            
                            
                            (680,161
                            )Cash
      at beginning of period
                            
                            
                            140,688
                            
                            
                            
                            1,135,677Cash
      at end of period
                            
                            $
                            42,317
                            
                            
                            $
                            455,516





See
accompanying selected notes to consolidated financial
statements.


5





NYER
MEDICAL GROUP, INC.




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 generally accepted accounting
principles in the United States of America (“GAAP”) and pursuant to the rules
and regulations of the Securities and Exchange Commission
(“SEC”).  Certain information and footnote disclosures normally
included in financial statements prepared in accordance with GAAP 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.  The consolidated
financial statements include the accounts of the Company and its subsidiaries,
and all intercompany transactions have been eliminated.




The
results shown for the interim period are not necessarily indicative of the
results to be obtained for the full year.  These consolidated interim
financial statements should 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 GAAP 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
their fair values.  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 June
2008, the Financial Accounting Standards Board (“FASB”) ratified Emerging Issues
Task Force (“EITF”) Issue No. 07-5 (“EITF 07-5”), Determining Whether an Instrument
(or an Embedded Feature) Is Indexed to an Entity's Own Stock.  EITF
07-5 provides that an entity should use a two-step approach to evaluate whether
an equity-linked financial instrument (or embedded feature) is indexed to its
own stock, including evaluating the instrument's contingent exercise and
settlement provisions.   EITF 07-5 is effective for fiscal years beginning
after December 15, 2008.  The consensus must be applied to outstanding
instruments as of the beginning of the fiscal year in which the consensus is
adopted and should be treated as a cumulative-effect adjustment to the opening
balance of retained earnings.  Early adoption is not
permitted.  The Company is in the process of evaluating the impacts,
if any, of adopting this EITF.





In May
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No.
162 (“SFAS No. 162”), The
Hierarchy of Generally Accepted Accounting Principles.  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
GAAP.  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 on its consolidated results of
operations and financial condition.





In
April 2008, the FASB issued FASB Staff Position Financial Accounting
Standard 142-3 (“FSP FAS 142-3”), Determination of the Useful Life of
Intangible Assets.  FSP FAS 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142 (“SFAS 142”), Goodwill and Other Intangible
Assets.  The intent of this FSP is to improve the consistency
between the useful life of a recognized intangible asset under SFAS 142 and the
period of expected cash flows used to measure the fair value of the asset under
FASB Statement No. 141 (revised 2007) (“SFAS 141R”), Business Combinations, and
other GAAP.  This statement is effective for fiscal years beginning on
or after December 15, 2008, and interim periods within those
years.  Early application is not permitted.  The Company has
not yet determined the impact of the adoption of FSP FAS 142-3 on its
consolidated results of operations and financial condition.




6





In April
2008, the FASB issued FSP Accounting Principles Board 14-1 (“FSP APB 14-1”),
Accounting for Convertible
Debt Instruments That May be Settled in Cash upon Conversion (Including Partial
Settlement).  FSP APB 14-1 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
nonconvertible debt borrowing rate.  FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008, and on a retroactive
basis.  The Company is evaluating the potential impact of the adoption
of FSP APB 14-1 on its consolidated results of operations and financial
condition.





In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (“SFAS No 141(R)”),
Business Combinations,
which replaces SFAS No. 141, Business
Combinations.  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. 141(R) 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(R) on its
consolidated results of operations and financial condition.




2.
            Goodwill
      andOther Intangible
    Assets




In
accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, the Company’s policy is to evaluate goodwill for impairment on an
annual basis during the fourth quarter of its fiscal year or more frequently if
events or circumstances occur that would indicate a reduction in the fair value
of the Company.  Goodwill impairment is determined using a two-step
process.  The first step of the process is to identify potential
impairment by comparing the Company’s fair value with its net book value (or
carrying value).  If the fair value of the Company exceeds its
carrying amount, the Company’s goodwill is not considered to be impaired and the
second step of the impairment test is not performed.  If the carrying
amount of the Company’s goodwill exceeds its fair value, the second step is
performed to measure the amount of impairment loss, if any.  The
second step of the impairment test compares the implied fair value of the
Company’s goodwill with the carrying amount.  If the carrying amount
exceeds the implied fair value of the goodwill, an impairment loss is recognized
in an amount equal to that excess.




On
December 31, 2008, the carrying value of the Company’s net assets was
$8,792,471; and the market capitalization of the Company’s outstanding shares,
assuming conversion of outstanding preferred shares, was
$3,776,579.   The Company calculated the estimated fair value of
the Company as of December 31, 2008, as that amount that would be received to
sell the Company as a whole on that date.  It arrived at the estimated
fair value by preparing a discounted cash flow using updated forward-looking
projections of the Company’s estimated future operating
results.  Based on the results of the discounted cash flow analysis,
the Company has concluded that the Company’s fair value exceeds its carrying
value as of December 31, 2008, and that goodwill is not impaired.  The
recent sale of Company’s Topsfield, Massachusetts, store (“Topsfield”) in
December 2008 supports the conclusion that the Company’s fair value exceeds its
carrying value as of December 31, 2008.




The
Company has concluded that the market value of the Company’s common stock as of
December 31, 2008, is not an indication of the Company’s market value due to the
fact that it is very thinly traded and that the implied fair value test is a
more accurate indication of whether or not there has been an impairment of
goodwill.  Inherent in such fair value determinations are certain
judgment and estimates, including the interpretation of economic indicators and
market valuations and assumptions about the Company’s strategic
plans.  To the extent that its strategic plans change or that economic
and market conditions worsen, it is possible that its conclusion regarding
goodwill impairment could change and result in a material effect on financial
position and results of operations of the Company.




The
following is a summary of other intangible assets:





March 31, 2009
                  
                  
                  June 30, 2008Gross
                  
                  
                  
                  
                  
                  
                  
                  
                  Gross
                  
                  
                  
                  
                  
                  NetCarrying
                  
                  
                  Accumulated
                  
                  
                  Carrying
                  
                  
                  Carrying
                  
                  
                  Accumulated
                  
                  
                  CarryingValue
                  
                  
                  Amortization
                  
                  
                  Value
                  
                  
                  Value
                  
                  
                  Amortization
                  
                  
                  ValuePrescription
      lists
                  
                  $
                  1,011,555
                  
                  
                  $
                  363,640
                  
                  
                  $
                  647,915
                  
                  
                  $
                  1,031,555
                  
                  
                  $
                  306,437
                  
                  
                  $
                  725,118





Amortization
expense was $21,958 and $34,290 for the three months ended March 31, 2009 and
2008, respectively; and $77,203 and $90,312 for the nine months ended March 31,
2009 and 2008, respectively.


7




Based
on the balance of intangible assets as of March 31, 2009, the remaining
amortization expense for the remainder of fiscal 2009 and each of the succeeding
five years is estimated to be as follows:




AmortizationYear
                  
                  Amount2009
      (remaining 3 months)
                  
                  $
                  21,9562010
                  
                  
                  87,8222011
                  
                  
                  87,8222012
                  
                  
                  85,7162013
                  
                  
                  81,1562014
                  
                  
                  81,156Thereafter
                  
                  
                  202,287Total
                  
                  $
                  647,915


3.
              Indebtedness and Related
      Parties




March 31,
                  
                  
                  June 30,2009
                  
                  
                  2008Related
      parties:Convertible
      notes
                  
                  $
                  1,500,000
                  
                  
                  $
                  1,500,000Note
      payable, shareholder
                  
                  
                  313,333
                  
                  
                  
                  373,3331,813,333
                  
                  
                  
                  1,873,333Less
      current portion of debt due related parties
                  
                  
                  80,004
                  
                  
                  
                  80,004Long-term
      portion of debt due related parties
                  
                  $
                  1,733,329
                  
                  
                  $
                  1,793,329Other
      debt:Note
      payable, former shareholder
                  
                  $
                  274,167
                  
                  
                  $
                  326,667Note
      payable, pharmacy acquisition
                  
                  
                  11,396
                  
                  
                  
                  113,958285,563
                  
                  
                  
                  440,625Less
      current portion of debt
                  
                  
                  81,396
                  
                  
                  
                  183,958Long-term
      portion of debt
                  
                  $
                  204,167
                  
                  
                  $
                  256,667





The
holders of the convertible notes have indicated that they do not intend to
redeem the convertible notes until after June 30, 2010.




In
October 2004, the Company’s discontinued operation, ADCO Surgical Supply, Inc.
(“ADCO”), obtained a $300,000 line of credit (“line”), that is collateralized by
land and a building owned by ADCO, not sold with the rest of ADCO’s assets, and
is guaranteed by the Company.   Repayment of the line is in monthly
payments of interest only, with the principal being due at maturity, unless
renewed.   Prior to the maturity date, ADCO must repay the
amounts outstanding under the line upon the demand of the Bank.  The
line expired on March 1, 2009, and was renewed.  All of the terms and
remain the same with the exception of the maturity date, which is now September
1, 2009, and the interest rate, which is now two percentage points over the
Wall Street JournalPrime Rate.  As of March 31, 2009, borrowings outstanding
against the line were $300,000 and are classified in the liabilities to be
disposed of from discontinued operations on the Company’s balance
sheet.




4.
              Discontinued Operations




In
December 2008, the Company sold the inventory and prescription lists of
Topsfield to CVS Pharmacy L.L.C. (“CVS”).  In conjunction with this
sale, the Company also entered into a non-compete agreement with CVS, whereby it
has agreed not to compete for three years within a 10-mile radius of the CVS
store located in Danvers, Massachusetts, excluding two currently operating Eaton
Apothecary pharmacies.  A gain of $500,000 was recognized on the sale
of Topsfield.





In
September 2008, the Company sold certain assets and liabilities of ADCO, a
medical and surgical equipment and supplies company engaged in both the
wholesale and retail selling of medical equipment and surgical supplies
throughout New England and the Internet.  A loss was recognized from
discontinued operations of $17,667 and a loss on disposal of certain assets and
liabilities of $48,118 was recognized. For the three months ended March 31,
2009, the Company recognized an additional loss related to the disposal of the
discontinued operations.  The Company retained ADCO’s building and
land and its line of credit of $300,000, which has been fully
utilized.  The buyer of ADCO’s assets had an option to purchase the
building and land that was not exercised and expired on January 31,
2009.   In connection with this sale, the Company received a
$50,000 note receivable that was payable January 31, 2009.  The
Company and the buyer are currently in dispute over certain assets and
liabilities that were included in the ADCO sale, and the note receivable
has not been paid.  The Company is unable to determine the final
outcome of this dispute, but it may result in an additional charge to the
disposal of discontinued operations.




8





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.




Effective
July 1, 2007, the Company’s consolidated financial statements have been
reclassified to reflect these businesses as discontinued operations in
accordance with SFAS No.144, Accounting for Disposal or
Impairment of Long-lived Assets. The following table shows the assets and
liabilities for the discontinued operations:





March 31,
                          
                          
                          June 30,2009
                          
                          
                          2008Cash
                          
                          $
                          -
                          
                          
                          $
                          33,293Accounts
      receivable, net
                          
                          
                          -
                          
                          
                          
                          323,681Inventories
                          
                          
                          -
                          
                          
                          
                          279,208Prepaid
      expenses and other current assets
                          
                          
                          -
                          
                          
                          
                          12,828Property
      and equipment, net
                          
                          
                          112,001
                          
                          
                          
                          120,942Current
      portion of deferred tax assets
                          
                          
                          109,000
                          
                          
                          
                          73,000Goodwill
                          
                          
                          -
                          
                          
                          
                          86,463Long-term
      portion of deferred tax assets
                          
                          
                          -
                          
                          
                          
                          70,000Total
      assets
                          
                          $
                          221,001
                          
                          
                          $
                          999,415Line
      of credit
                          
                          $
                          300,000
                          
                          
                          $
                          300,000Accounts
      payable
                          
                          
                          -
                          
                          
                          
                          566,833Accrued
      payroll and related taxes
                          
                          
                          -
                          
                          
                          
                          28,187Accrued
      expenses and other liabilities
                          
                          
                          9,414
                          
                          
                          
                          27,031Total
      current liabilities
                          
                          $
                          309,414
                          
                          
                          $
                          922,051





The
following table shows the income statement for the discontinued
operations:




For the three months
                                
                                
                                For the nine monthsended March 31,
                                
                                
                                ended March 31,2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Sales
                                
                                $
                                -
                                
                                
                                $
                                1,628,763
                                
                                
                                $
                                1,664,872
                                
                                
                                $
                                5,230,799Costs
      and expenses:Cost
      of sales
                                
                                
                                -
                                
                                
                                
                                1,179,823
                                
                                
                                
                                1,291,464
                                
                                
                                
                                3,903,426Selling,
      general and administrative expenses
                                
                                
                                -
                                
                                
                                
                                450,117
                                
                                
                                
                                374,352
                                
                                
                                
                                1,357,771Depreciation
      and amortization expense
                                
                                
                                -
                                
                                
                                
                                9,284
                                
                                
                                
                                12,861
                                
                                
                                
                                34,427Total
      costs and expenses
                                
                                
                                -
                                
                                
                                
                                1,639,224
                                
                                
                                
                                1,678,677
                                
                                
                                
                                5,295,624Operating
      loss
                                
                                
                                -
                                
                                
                                
                                (10,461
                                )
                                
                                
                                (13,805
                                )
                                
                                
                                (64,825
                                )Other
      (expense) income, net:Interest
      expense
                                
                                
                                -
                                
                                
                                
                                (258
                                )
                                
                                
                                (578
                                )
                                
                                
                                (451
                                )Interest
      income
                                
                                
                                -
                                
                                
                                
                                913
                                
                                
                                
                                -
                                
                                
                                
                                2,774(Loss)
      gain on disposal
                                
                                
                                (99,217
                                )
                                
                                
                                -
                                
                                
                                
                                327,865
                                
                                
                                
                                298,628Other
      income
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                500
                                
                                
                                
                                -Total
      other (expense) income, net
                                
                                
                                (99,217
                                )
                                
                                
                                655
                                
                                
                                
                                327,787
                                
                                
                                
                                300,951(Loss)
      income from discontinued operations before provision for income
      taxes
                                
                                
                                (99,217
                                )
                                
                                
                                (9,806
                                )
                                
                                
                                313,982
                                
                                
                                
                                236,126Provision
      for income tax (benefit)
                                
                                
                                (33,104
                                )
                                
                                
                                (972
                                )
                                
                                
                                154,452
                                
                                
                                
                                101,975Net
      (loss) income from discontinued operations
                                
                                $
                                (66,113
                                )
                                
                                $
                                (8,834
                                )
                                
                                $
                                159,530
                                
                                
                                $
                                134,151




9




5.
              Share-based
      Compensation







Stock
Option 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 than ten
years from the date of grant. Except with respect to certain incentive stock
options (“ISOs”), options under the 1993 Plan expire ten years from the date of
grant. Under the 1993 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.




Stock Options and
Warrants





The
Company’s share-based compensation consists of stock option awards, which are
accounted for as compensation expense at the fair value on the grant date, using
the Black-Scholes valuation model.  The Company recorded share-based
compensation expense of $8,122 and $31,993 for the three months ended March 31,
2009 and 2008, respectively, and $51,244 and $57,183 for the nine months ended
March 31, 2009 and 2008, respectively.





For
the nine months ended March 31, 2009, the Company granted 24,000 stock
options.  The fair value of each option was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions:




2009
                  
                  
                  2008Dividend
      yield
                  
                  
                  0.0
                  %
                  
                  
                  0.0
                  %Volatility
                  
                  
                  89
                  %
                  
                  
                  93
                  %Risk-free
      interest rate
                  
                  
                  1.9
                  %
                  
                  
                  3.8
                  %Weighted
      average expected option term (in years)
                  
                  
                  5.0
                  
                  
                  
                  5.0Weighted
      average fair value per share of options granted
                  
                  $
                  0.61
                  
                  
                  $
                  0.95




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.  None
of these have been exercised as of March 31, 2009.  In addition, the
Company had outstanding 150,000 stock options that were granted in 1999 to a
third party in connection with consulting services, which were not
exercised and expired in January 2009.




6.
            Earnings per
  Share




Below is
reconciliation of weighted average common shares outstanding for purposes of
calculating basic and diluted loss per share:




For the three months
                                                            
                                                            
                                                            For the nine monthsended March 31,
                                                            
                                                            
                                                            ended March 31,2009
                                                            
                                                            
                                                            2008
                                                            
                                                            
                                                            2009
                                                            
                                                            
                                                            2008Numerator
      for basic and diluted earnings per common share
    calculation:Loss
      from continuing operations
                                                            
                                                            $
                                                            (208,679
                                                            )
                                                            
                                                            $
                                                            (207,061
                                                            )
                                                            
                                                            $
                                                            (220,052
                                                            )
                                                            
                                                            $
                                                            (482,858
                                                            )Deemed
      dividend on redemption of preferred stock
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (399,997
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (399,997
                                                            )Loss
      from continuing operations, net of deemed dividend on redemption of
      preferred stock
                                                            
                                                            
                                                            (208,679
                                                            )
                                                            
                                                            
                                                            (607,058
                                                            )
                                                            
                                                            
                                                            (220,052
                                                            )
                                                            
                                                            
                                                            (882,855
                                                            )Income
      (loss) from discontinued operations, net of income tax
      (benefit)
                                                            
                                                            
                                                            (66,113
                                                            )
                                                            
                                                            
                                                            (8,834
                                                            )
                                                            
                                                            
                                                            159,530
                                                            
                                                            
                                                            
                                                            134,151Net
      loss
                                                            
                                                            $
                                                            (274,792
                                                            )
                                                            
                                                            $
                                                            (615,892
                                                            )
                                                            
                                                            $
                                                            (60,522
                                                            )
                                                            
                                                            $
                                                            (748,704
                                                            )Denominator
      for basic and diluted earnings per common share
    calculation:Weighted
      average common shares outstanding
                                                            
                                                            
                                                            3,978,199
                                                            
                                                            
                                                            
                                                            3,978,199
                                                            
                                                            
                                                            
                                                            3,978,199
                                                            
                                                            
                                                            
                                                            3,978,199


10




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




For the three months
                    
                    
                    For the nine monthsended March 31,
                    
                    
                    ended March 31,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Stock
      options
                    
                    
                    1,488,000
                    
                    
                    
                    1,650,000
                    
                    
                    
                    1,488,000
                    
                    
                    
                    1,650,000Warrants
                    
                    
                    53,320
                    
                    
                    
                    53,320
                    
                    
                    
                    53,320
                    
                    
                    
                    53,320Convertible
      notes
                    
                    
                    815,217
                    
                    
                    
                    815,217
                    
                    
                    
                    815,217
                    
                    
                    
                    815,217Convertible
      preferred stock
                    
                    
                    218,000
                    
                    
                    
                    218,000
                    
                    
                    
                    218,000
                    
                    
                    
                    218,0002,574,537
                    
                    
                    
                    2,736,537
                    
                    
                    
                    2,574,537
                    
                    
                    
                    2,736,537




7.
            Supplemental Cash Flow
      Information




For the nine monthsended March 31,2009
                      
                      
                      2008Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                      
                      $
                      135,910
                      
                      
                      $
                      52,330Cash
      (received) paid for income (refunds) taxes
                      
                      $
                      (20,120
                      )
                      
                      $
                      130,892Supplemental
      schedule of non-cash investing and financing activities:Disposition
      (acquisition) of pharmacies is summarized as follows:Inventory
                      
                      $
                      426,360
                      
                      
                      $
                      (252,115
                      )Property
      and equipment
                      
                      
                      -
                      
                      
                      
                      (19,945
                      )Prescription
      lists
                      
                      
                      500,000
                      
                      
                      
                      (280,055
                      )Cash
      received (paid) for disposition (acquisition)
                      
                      $
                      926,360
                      
                      
                      $
                      (552,115
                      )Reversal
      of discontinued operations accounts payable, accrued expenses, and other
      liabilities
                      
                      $
                      -
                      
                      
                      $
                      298,628The
      purchase of 20% of subsidiary, D.A.W. in February 2008is summarized as
      follows:Purchase
      price allocation:Goodwill
                      
                      
                      -
                      
                      
                      $
                      2,135,100Minority
      interest
                      
                      
                      -
                      
                      
                      
                      1,864,900Total
      purchase price
                      
                      
                      -
                      
                      
                      $
                      4,000,000Consideration
      for the acquisition:Preferred
      stock, Series 2 class B
                      
                      
                      -
                      
                      
                      $
                      400,000Convertible
      notes
                      
                      
                      -
                      
                      
                      
                      1,500,000Note
      payable
                      
                      
                      -
                      
                      
                      
                      350,000Cash
                      
                      
                      -
                      
                      
                      
                      1,750,000Total
      consideration
                      
                      
                      -
                      
                      
                      $
                      4,000,000




8.
            Contingencies




The
Company and the buyer of ADCO are currently in dispute over certain assets and
liabilities that were included in the ADCO sale.  The Company is
unable to determine the final outcome of this dispute, but it may result in an
additional charge to the disposal of discontinued operations.




Legal
proceedings




In the
ordinary course of business, the Company may become involved in litigation
incidental to its business; however, the Company is not aware of any pending
legal proceeding that would have a material effect on operating
results.




11


Item
2.  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations






This
Quarterly Report on Form 10-Q contains statements which constitute forward
looking statements within the meaning of the Private Securities Litigation
Reform Act of 1995 and other federal securities laws.  Forward looking
information includes statements concerning pharmacy sales trends, the sale of
discontinued operations and demographic trends; as well as those that include or
are preceded by the words “expects,” “estimates,” “believes,” “plans,”
“anticipates,” or similar language.





Forward
looking statements may involve risks and uncertainties, known or unknown to us
that could cause results to differ materially from management’s expectations as
projected in such forward-looking statements. These risks and uncertainties are
discussed in Item 1A in our most recent Annual Report on Form 10-K as filed with
the Securities and Exchange Commission (the “SEC”).





You
should not place undue reliance upon forward looking
statements.  Unless otherwise required by applicable securities laws,
we assume no obligation to update our forward-looking statements to reflect
subsequent events or circumstances.




Overview




We
operate a chain of pharmacies and provide pharmacy management services to
various not-for-profit entities.  While the long-term outlook for
prescription utilization is strong due in part to the aging population and the
continued development of innovative drugs that improve the quality of life and
control health care costs, the pharmacy industry is highly
competitive.  The majority of our business is conducted pursuant to
contracts with pharmacy benefit management companies and the Commonwealth of
Massachusetts Medicaid Department.  Each applies consistent downward
pressure on our margins.   The current recessionary economic
environment has not significantly adversely affected the number of prescriptions
dispensed at our pharmacies, as our business is generally recession
resistant.  We continue to target market niches not occupied by our
larger competitors.




Recent
Developments





In March 2009, we began operating at
the Dimock Community Health Center in Roxbury, Massachusetts, increasing our
number of locations with 340B affiliations to 14 and our total pharmacy
locations to 25.




In
December 2008, we sold the inventory and prescription lists of our Topsfield,
Massachusetts, store (“Topsfield”) to CVS Pharmacy LLC (“CVS”).  A
gain of $500,000 was recognized on the sale.





In
October 2008, we entered into a contract with the East Boston Neighborhood
Health Center to assume management of the Health Center’s pharmacy already in
operation.  The pharmacy immediately became our highest volume
location in terms of prescriptions dispensed.  As of December 31,
2008, we had successfully integrated the pharmacy dispensing software platform,
the robotic dispensing unit, the work-flow software, and the point of purchase
software.  While the process was taxing on operational resources, we
believe the changes were necessary in order to maximize the long-term profit
potential of the pharmacy.





In
September 2008, we sold certain assets and liabilities of ADCO Surgical Supply,
Inc. (“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 on
the sale.   In connection with the sale, we recorded a note
receivable of $50,000.  We and the buyer are currently in dispute over
certain assets and liabilities that were included in the ADCO sale, and the note
receivable has not been paid.  As of March 31, 2009, we are unable to
determine the final outcome of this dispute, but it may result in an additional
loss on the disposal of discontinued operations.




In July
2008, we coordinated the relocation of the pharmacy that we manage for the
Boston Health Care for the Homeless Program (“BHCHP”) from the Barbara McInnis
House to BHCHP’s new, state of the art location within the Jean Yawkey Center
across from Boston Medical Center.  At the new pharmacy, we began
dispensing patient prescriptions for patients visiting the new walk-in clinic in
addition to dispensing prescriptions for the program’s respite
patients.




In July
2008, we opened a pharmacy in Dorchester, Massachusetts, as a mirror operation
to our Peabody, Massachusetts, location to manage dispensing for a different
geographical area.  Significant “location insensitive” business was
transferred from our other Dorchester pharmacy to gain efficiencies in the
dispensing process.  The new pharmacy increased dispensing capacity
for the rapidly growing assisted living and adherence packaging market
segment.





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 and nine months ended March 31, 2009 and 2008.  The following
discussion should be read in conjunction with our consolidated financial
statements and selected notes thereto for the three and nine months ended March
31, 2009 and 2008, included herein, and our audited consolidated financial
statements and notes thereto contained in our Annual Report on Form 10-K for the
year ended June 30, 2008, as filed with the SEC.




12




Net
Revenues. The following
table sets forth for the periods indicated pharmacy and dispensing fees
revenues:





For the three months March
    31,
                        
                        
                        For the nine months ended March
      31,Change
                        
                        
                        
                        
                        
                        
                        
                        
                        Change2009
                        
                        
                        2008
                        
                        
                        $
                        
                        
                        %
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        $
                        
                        
                        %Pharmacy
                        
                        $
                        17,072,020
                        
                        
                        $
                        16,469,728
                        
                        
                        $
                        602,292
                        
                        
                        
                        3.7
                        %
                        
                        $
                        51,237,155
                        
                        
                        $
                        48,395,230
                        
                        
                        $
                        2,841,925
                        
                        
                        
                        5.9
                        %Dispensing
      fees
                        
                        
                        1,527,465
                        
                        
                        
                        825,380
                        
                        
                        
                        702,085
                        
                        
                        
                        85.1
                        %
                        
                        
                        3,973,607
                        
                        
                        
                        2,323,140
                        
                        
                        
                        1,650,467
                        
                        
                        
                        71.0
                        %Total
                        
                        $
                        18,599,485
                        
                        
                        $
                        17,295,108
                        
                        
                        $
                        1,304,377
                        
                        
                        
                        7.5
                        %
                        
                        $
                        55,210,762
                        
                        
                        $
                        50,718,370
                        
                        
                        $
                        4,492,392
                        
                        
                        
                        8.9
                        %





Net
revenues increased $1.3 million or 7.5% to $18.6 million and $4.5 million or
8.9% to $55.2 million for the three and nine months ended March 31, 2009,
respectively, as compared to $17.3 million and $50.7 million for the three and
nine months ended March 31, 2008, respectively.  The main reason for
the increase in revenues was due to the addition of five new locations in April,
July, and October 2008 and March 2009.  We operated 25 locations as of
March 31, 2009, compared to 23 locations in the prior year.





Net
revenues decreased at stores open more than one year for the three and nine
months ended March 31, 2009, due to our decision to transfer accounts with
approximately $1.7 million and $5.2 million in net revenues for the three and
nine months ended March 31, 2009, respectively, 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 increased approximately 5% and 8%, respectively, for
the three and nine months ended March 31, 2009.




The total
number of prescriptions dispensed increased 21% for the nine months ended March
31, 2009.  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 $0.6 million or
3.7% to $17.0 million and $2.8 million or 5.9% to $51.2 million for the three
and nine months ended March 31, 2009, respectively, as compared to $16.5 million
and $48.4 million for the three and nine months ended March 31, 2008,
respectively.  The increase was attributable to the opening of the
three new pharmacies.  Sales slightly decreased at stores open more
than one year due to our decision to transfer accounts with approximately $1.6
million and $4.9 million in sales for the three and nine months ended March 31,
2009, respectively, to two of the newly opened pharmacies.  If the
effect of the business transfer is taken into account, comparable sales
increased approximately 4% and 7%, respectively, for the three and nine months
ended March 31, 2009.




We
attribute the increase in prescription dispensing 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.




Dispensing
fee revenue increased $0.7 million or 85.1% to $1.5 million and $1.7 million or
71.0% to $4.0 million for the three and nine months ended March 31, 2009,
respectively, as compared to $0.8 million and $2.3 million for the three and
nine months ended March 31, 2008, respectively.  The increase is
primarily attributable to the our new pharmacy contract with the East Boston
Neighborhood Health Center in East Boston, as well as the 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.




Cost of
Sales. The following
table sets forth for the periods indicated cost of sales and profit margin rate
for pharmacy net revenues:





For the three months March
    31,
                      
                      
                      For the nine months ended March
      31,Change
                      
                      
                      
                      
                      
                      
                      
                      
                      Change2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %Cost
      of sales
                      
                      $
                      13,485,181
                      
                      
                      $
                      12,934,357
                      
                      
                      $
                      550,824
                      
                      
                      
                      4.3
                      %
                      
                      $
                      40,449,925
                      
                      
                      $
                      37,988,752
                      
                      
                      $
                      2,461,173
                      
                      
                      
                      6.5
                      %Profit
      margin rate
                      
                      
                      21.0
                      %
                      
                      
                      21.5
                      %
                      
                      
                      
                      
                      
                      
                      -0.5
                      %
                      
                      
                      21.1
                      %
                      
                      
                      21.5
                      %
                      
                      
                      
                      
                      
                      
                      -0.4
                      %




13





Cost of
sales increased $0.6 million or 4.3% to $13.5 million and $2.5 million or 6.5%
to $40.4 million for the three and nine months ended March 31, 2009,
respectively, as compared to $12.9 million and $38.0 million for the three and
nine months ended March 31, 2008, respectively, primarily due to the increase in
pharmacy net revenues.




Pharmacy
gross profit margins were 21.0% and 21.1% for the three and nine months ended
March 31, 2009, respectively, as compared to 21.5% and 21.5% for the three and
nine months ended March 31, 2008, respectively.  Dispensing fees were
not included in the calculation as no cost of sales is estimatable for
dispensing fees.   The decrease in gross profit margin was
primarily due to declining insurance reimbursement rates.




Selling,
General and Administrative Expenses. The following
table set forth for the periods indicated selling, general and administrative
expenses (“SG&A”):





For the three months ended March 31,
                      
                      
                      For the nine months ended March 31,Change
                      
                      
                      
                      
                      
                      
                      
                      
                      Change2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %SG&A
      expenses
                      
                      $
                      5,290,214
                      
                      
                      $
                      4,485,969
                      
                      
                      $
                      804,245
                      
                      
                      
                      17.9
                      %
                      
                      $
                      14,615,316
                      
                      
                      $
                      12,911,868
                      
                      
                      $
                      1,703,448
                      
                      
                      
                      13.2
                      %





SG&A
increased $0.8 million or 18.3% to $5.3 million and $1.7 million or 13.2% to
$14.6 million for the three and nine months ended March 31, 2009, respectively,
as compared to $4.5 million and $12.9 million for the three months ended March
31, 2008, respectively.  The increase for the three months ended March
31, 2009, was primarily due to increased payroll costs of $0.8 million related
to five newly opened locations, partially offset by a decrease in administrative
expenses of $0.2 million.  The increase for the nine months ended
March 31, 2009, was primarily due to increased payroll costs of $1.8 million
related to the five newly opened locations, $0.5 million related to increased
payroll costs at existing pharmacies, partially offset by a decrease in
administrative expenses of $0.7 million.  The decrease in
administrative expenses of approximately $0.2 million and $0.7 million for the
three and nine months ended March 31, 2009, was primarily due to the elimination
of fees paid to the minority shareholders and investment banker and other
capital raising expenses related to the buy-out of the 20% minority interest of
D.A.W., Inc., our now wholly owned pharmacy subsidiary (“D.A.W.”)




Other
Income (Expense), net.  The following table sets forth for the
periods indicated the breakdown of other income (expense), net:





For the three months ended March 31,
                      
                      
                      For the nine months ended March 31,Change
                      
                      
                      
                      
                      
                      
                      
                      
                      Change2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      $
                      
                      
                      %Interest
      expense
                      
                      $
                      (43,546
                      )
                      
                      $
                      (36,211
                      )
                      
                      $
                      (7,335
                      )
                      
                      
                      20.3
                      %
                      
                      $
                      (135,715
                      )
                      
                      $
                      (52,138
                      )
                      
                      $
                      (83,577
                      )
                      
                      
                      160.3
                      %Interest
      income
                      
                      
                      2,552
                      
                      
                      
                      1,740
                      
                      
                      
                      812
                      
                      
                      
                      46.7
                      %
                      
                      
                      6,956
                      
                      
                      
                      8,574
                      
                      
                      
                      (1,618
                      )
                      
                      
                      (18.9
                      )%Other
      income
                      
                      
                      2,645
                      
                      
                      
                      2,566
                      
                      
                      
                      79
                      
                      
                      
                      3.1
                      %
                      
                      
                      9,434
                      
                      
                      
                      19,457
                      
                      
                      
                      (10,023
                      )
                      
                      
                      (51.5
                      )%$
                      (38,349
                      )
                      
                      $
                      (31,905
                      )
                      
                      $
                      (6,444
                      )
                      
                      
                      20.2
                      %
                      
                      $
                      (119,325
                      )
                      
                      $
                      (24,107
                      )
                      
                      $
                      (95,218
                      )
                      
                      
                      395.0
                      %





Other
Income (Expense), net increased $6,444 or 20.2% to $38,349 and $95,218 or 395.0%
to $119,325 for the three and nine months ended March 31, 2009, respectively,
primarily due to the interest on the related party notes issued in connection
with the purchase of the remaining 20% of D.A.W.





Income
Taxes.
  We recorded an income tax benefit from continuing operations of
$160,901 and $169,480 for the three and nine months ended March 31, 2009,
respectively, and $89,155 and $173,352 for the three and nine months ended March
31, 2008, respectively, primarily due to the losses from continuing operations
for each of the periods presented.  In addition, we recorded income
tax benefit for discontinued operations of $33,104 and income tax expense of
$154,452 for the three and nine months ended March 31, 2009, respectively, and
$972 income tax benefit and $101,975 income tax expense for the three and nine
months ended March 31, 2008, respectively, due to the disposal of discontinued
operations.




Discontinued
Operations.  For the three months ended March 31, 2009, we
recognized a loss of $66,113 from discontinued operations, which consisted of a
loss on disposal of discontinued operations of $99,217 net of an income tax
benefit of $33,104.   For the three months ended March 31, 2008,
we recognized a loss of $8,834 from discontinued operations, which consisted of
a loss on discontinued operations of $9,806 net of an income tax benefit of
$972.  For the nine months ended March 31, 2009, we recognized a gain
of $159,530 from discontinued operations, which consisted of a loss on
discontinued operations of $13,883 net of income tax benefit of $2,652 and a
gain on the disposal of the discontinued operations of $327,865 net of income
taxes of $157,104.   For the nine months ended March 31, 2008, we
recognized a gain of $134,151from discontinued operations, which consisted of a
loss on discontinued operations of $62,502 net of income tax benefit of $14,025
and a gain on the disposal of the discontinued operations of $298,628 net of
income taxes of $116,000.




14




In
connection with the sale of ADCO, we recorded a note receivable of
$50,000.  We and the buyer are currently in dispute over certain
assets and liabilities that were included in the ADCO sale, and the
note receivable has not been paid.  As of March 31, 2009, we are
unable to determine the final outcome of this dispute, but it may result in an
additional loss on the disposal of discontinued operations.




Liquidity and Capital
Resources




As of
March 31, 2009, we had $42,317 of cash as compared to $140,688 at June 30, 2008,
as cash was used to fund current operations. Our primary source of liquidity is
cash provided by operations; and our principal uses of cash are operating
expenses, acquisitions, capital expenditures, and repayments of
debt.




Net Cash Used by Operating Activities
from Continuing Operations.  Net cash used by operating
activities from continuing operations was $0.3 million for the nine months ended
March 31 2009, and consisted of our net loss of $0.2 million adjusted for
non-cash items of $0.5 million (including depreciation of $0.3 million,
amortization and stock-based compensation expense of $0.1 million, and deferred
income taxes of $0.1 million) and net cash used from changes in working capital
of $0.6 million.  The net cash used from changes in working capital
was principally the result of an increase in inventories and accounts receivable
partially offset by an increase in accounts payable.    The
increase in inventories was primarily the result of new pharmacy locations and
the increase in accounts receivable and accounts payable was due to the increase
in sales.




Net Cash Used in Investing Activities
from Continuing Operations.   Net cash used in investing
activities from continuing operations was $0.4 million for the nine months ended
March 31, 2009, and consisted of the purchase of equipment primarily due to the
new pharmacy locations, the purchase of three new delivery trucks to meet the
requirements of an increased delivery radius necessitated by one of our assisted
living facility contracts, and the upgrade of some of our existing information
technology equipment.




Net Cash Used in Financing Activities
from Continuing Operations.   Net cash used in financing
activities was $0.2 million for the nine months ended March 31, 2009, and
consisted of long-term debt repayments.




We
recognized a net operating loss of $208,679 and $220,052 for the three and nine
months ended March 31, 2009.  Although it is our intention is to
generate an operating profit in the future, there can be no assurance that we
will not generate a net operating loss.  We believe that we have
adequate resources to fund our operations for at least the next 12
months.




Contractual
Obligations




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.




Line of Credit.
  ADCO has a $300,000 line of credit, which is collateralized by the
building and land owned by ADCO and guaranteed by us.  The interest
rate for the line of credit is 2% above the Wall Street Journal Prime rate; and
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 will expire on September 1, 2009.  As of March 31, 2009, we
have $300,000 of outstanding borrowings 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.




We do not
have any interest-bearing investments. The difference between the carrying
amount and fair value of our long-term debt was immaterial as of March 31,
2009.




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 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.  Based
on that evaluation, our Chief Executive Officer and 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 March 31, 2009, that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.




15




PART
II - Other Information




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




ISSUER
PURCHASES OF EQUITY SHARES




For the Period Ended
                  (2009)
                
                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)January
      1-31
                
                
                0
                
                
                $
                -
                
                
                
                0
                
                
                
                148,000February
      1-28
                
                
                0
                
                
                $
                -
                
                
                
                0
                
                
                
                148,000March
      1-31
                
                
                0
                
                
                $
                -
                
                
                
                0
                
                
                
                148,000Total
                
                
                0
                
                
                $
                -
                
                
                
                0
                
                
                
                148,000





On May
12, 2003, we 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 4.   Submission
of Matters to a Vote of Security Holders





At the Company's annual meeting of
shareholders held on February 23, 2009, the shareholders of the Company elected
Messrs. James J. Schweiger and Gerald Weston as directors of the Company to
serve for a three-year term or until their successors are duly elected and
qualified.





The
following table shows the results of the voting:





Total Votes For
                      Each Director
                    
                    
                    Total Votes Withheld
                      From Each DirectorJames
      J. Schweiger
                    
                    
                    6,700,731
                    
                    
                    
                    500,010Gerald
      Weston
                    
                    
                    6,706,833
                    
                    
                    
                    493,908





Each of
the following persons' terms as directors continued after the
meeting:  David Dumouchel, Mark A. Dumouchel, and Robert J.
Landis.





Item
6.  Exhibits




Exhibit
      10.1
            Change
      in Terms Agreement, dated March 20, 2009, between Key Bank National
      Association and ADCO Surgical Supply, Inc. (incorporated by reference from
      the Company’s Current Report on Form 8-K filed March 26,
    2009)Exhibit
      31.1
            Certification
      Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act
      of 1934Exhibit
      31.2
            Certification
      Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act
      of 1934Exhibit
      32.1
            Certification
      Pursuant to 18 U.S.C. Section 1350Exhibit
      32.2
            Certification
      Pursuant to 18 U.S.C. Section
1350


16





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.
                  RegistrantDate:  May
      15, 2009
                By:
                /s/  Mark DumouchelName:
                Mark
      DumouchelTitle:
                President
      and Chief  Executive Officer
                  (Principal
      Executive Officer)Date:  May
      15, 2009
                By:
                /s/
      Sandra M. ZimmermanName:
                Sandra
      M. ZimmermanTitle:
                Chief
      Financial Officer
                  (Principal
      Financial Officer)


17