Cautionary Statement Regarding Forward-Looking Statements

Historical results and trends should not be taken as indicative of future operations. Managements statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934 (the Exchange Act), as amended. Actual results may differ materially from those included in the forward-looking statements. The Company intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words believe, expect, continue, should, could, may, plan, will, intend, anticipate, estimate, project, prospects, or similar expressions. The Companys ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on the operations and future prospects of the Company on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, our high level of indebtedness, our ability to improve the operating performance of our existing stores in accordance to our long term strategy, interest rates, competition, our ability to hire and retain pharmacists and other store personnel, the efforts of third-party payors reducing prescription drug reimbursements, significant restructuring activities in calendar 2004 and thereafter, and generally accepted accounting principles. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Companys financial results, is included herein and in the Companys other filings with the SEC.

Managements Discussion and Analysis

We currently have four operating pharmacies. Our first pharmacy was opened on October 13, 2003 in Santa Ana, California. On June 10, 2004, we opened our second pharmacy location in Riverside, California. The pharmacies located in Santa Ana and Riverside were opened pursuant to a joint venture agreement entered into with TPG Partners, L.L.C. We opened our third pharmacy in Kirkland, Washington on August 11, 2004. Our fourth pharmacy was opened in Portland, Oregon on September 21, 2004. The pharmacies located in Kirkland and Portland were opened pursuant to a joint venture agreement with TAPG L.L.C.

We announced in our quarterly report for the three months ended September 30, 2004 that we were suspending the development of new pharmacies in order to evaluate and improve the operations of our four existing pharmacies. Our board of directors and executive management believed that all four stores were not operating at their full potential. This basis for this belief was primarily the reluctance of physicians to adopt our technology for electronically transmitting prescriptions and our failure to implement a successful marketing strategy to attract business. Since this announcement, management postponed activity related to the development of new locations. Following this period of evaluation, our management decided not to close any of our existing pharmacy locations. We remain hopeful that we will resume the development of new pharmacies in the third or fourth quarter of 2005.

The catalyst for the decision to suspend the development of new pharmacies was substantially attributable to a lack of sufficient cash to fund the expenses associated with the development of new

pharmacies. We incurred significant expenditures in connection with purchases of inventory for our existing pharmacies. There is a time gap between when we replenish our inventory and the time that it takes to collect our accounts receivable. We generally replenish our inventory daily and the payment terms for purchases of inventory from our suppliers average approximately 15 days. Given that nearly all of our sales are to customers whose medications are covered by health benefit plans and other third-party payors, we typically do not receive cash for our sales at the time of transactions and are dependent on health benefit plans and other third-party payors to pay for all or a portion of our customers prescription purchases. During the three months ended December 2004, our average period of time to receive payment from the time of a sale was approximately 41 days. The delay in the receipt of payment while continuing to replenish inventory resulted in a significant cash short-fall during the fourth quarter of 2004. Since the fourth quarter of 2004, we reduced the period of time that it takes to receive payment from the time of a sale to an average of 33 days for the three months ended March 31, 2005 and 27 days for the three months June 30, 2005. The reduction in this time gap is primarily attributable to our pharmacists proactively verifying the validity of a patients workers compensation coverage with the physician and any third party payor prior to dispensing any pharmaceuticals. The time period that it takes to receive payment from the time of a sale is significantly reduced when the validly of patients workers compensation coverage is not in dispute.

Management evaluated various alternatives available to us as it related to financing future inventory purchases in the early stages of our planned principal operations. Our management was successful in securing financing for inventory purposes on an interim basis. On February 23, 2005, we entered into an accounts receivable servicing agreement and line of credit agreement with Mosaic Financial Services, LLC. The monthly interest rate under this agreement is equal to one and one quarter percent (1.25%) of the maximum amount of the credit line. This agreement allows us to successfully secure financing for inventory purchases over an extended period of time. Under the terms of the line of credit agreement, the maximum amount that we can draw to purchase inventory increased on July 1, 2005 from $500,000 to $700,000. This agreement is for a term of one
(1) year and shall automatically renew for another one (1) year period unless either party provides notice to the other of termination within 180 days prior to the end of the effective term.

Following our period of evaluation, management cited our previous marketing practice as an area for improvement. Our prior marketing strategy consisted exclusively of making sales calls in person at physicians offices to secure business. During the three months ended March 31, 2005, management successfully implemented a new marketing strategy that dramatically expanded our efforts to attract business. Our current marketing strategy is targeted to physicians, new customers, and existing customers. With respect to new customers, we are offering a $10.00 coupon to be applied toward the customers first prescription filled at any of our pharmacies and a $5.00 gift card at any Starbucks location. With respect to our current customers, we commenced a promotion through direct mailing. We are offering our current customers a $10.00 coupon to be applied toward the purchase of prescription drugs for any prescription that is transferred to one of our pharmacies. In addition, we will hold a monthly drawing at each pharmacy for those customers that transferred a prescription and the winner will receive a $150.00 gift card. We also send notices to physicians informing them of our pharmacy operations. In an attempt to build more name recognition, we have created brochures and posters that are available in physicians waiting rooms.

Our new marketing strategy set forth above has in a short time period produced a significant increase in business. During the three month period ended March 31, 2005, our four pharmacies filled an average of 346 prescriptions per week. During the period ended June 30, 2005, our four pharmacies filled an average of 518 prescriptions per week. This represents an increase in the average prescriptions filled per week at our four pharmacies of approximately 50% when compared to the prior quarter.

Currently, we generate reoccurring business from approximately 52 physicians and 10 of those physicians account for approximately 94% of all prescriptions filled at our pharmacies. The number of physicians that send repeat business to our pharmacies has increased. As of March 31, 2005, we generated repeat business from approximately 38 physicians and 10 of those physicians account for approximately 83% of all prescriptions. The increase in the number of physicians that transmit prescriptions to our pharmacies on an ongoing basis is primarily attributable to our marketing efforts to physicians. We anticipate that the number physicians transmitting prescriptions to our pharmacies over the next several months will continue to increase. Prescriptions received from Compcare Pain Treatment Center in Santa Ana, California and Legacy Emanuel Pain Management Center in Portland, Oregon are the only two clinics which represent at least ten percent (10%) of our revenue.

Additionally, our two pharmacy locations in California have experienced difficulty in qualifying to participate in Californias Medicaid program, known as Medi-Cal. Medicaid is a federal/state program that provides health coverage, including prescription drug coverage to the needy. Each states Medicaid program is different, and some states impose limitations on the number of pharmacies that may serve the Medicaid population. In order to participate in Medicaid programs, each pharmacy must enroll as a participating provider. The application process required to enroll as a participating provider in Medi-Cal is onerous. We submitted our original application to the California Department of Health Services on December 14, 2004. On June 8, 2005, the Medi-Cal Provider Relations Department rejected our application and issued a list of deficiencies that should be addressed. On July 11, 2005, we addressed all cited deficiencies and re-submitted our Medi-Cal application. Under California law, Medi-Cal applications must be responded to within 180 days of its submission. As a result, we anticipate receiving a response on the re-submittal of our application no later than January 2006. Applications that have not been rejected within 180 days of submission are assigned a temporary contract number. The temporary contract number allows the applicant to participate in Medi-Cal and bill for services rendered only during the remainder of the application process which could extend for an additional 12 - 18 months.

The Medicaid program is administered and all benefits are processed by CalOptima specifically in Orange County, California. All applications to participate in the Medicaid programs for pharmacies located in Orange County are processed by CalOptima. CalOptima placed a moratorium on additional pharmacies enrolling as a supplier of prescription drugs in Orange County approximately three years ago in 2002 and this moratorium remains in effect. As a result, our location in Santa Ana, California is unable to participate as a supplier of prescription drugs to potential customers who rely on health coverage through Medicaid.

Approval to participate as a supplier to Medi-Cal would increase the customer base at our California pharmacy locations; however, there can be no assurance that our pharmacies will be able to obtain the necessary approvals to participate in Californias Medicaid program. The failure to obtain the mandatory approval could have a material adverse financial impact on our financial results.

Similarly, some third party payors such as Health Net in California have also placed a moratorium on additional pharmacies which they will sanction as a supplier of medication to participants enrolled in the health benefit plans that they administer. The failure of government plans and other third party payors to approve additional pharmacies as suppliers of medication to participants enrolled in their health benefit plans could have a material adverse financial impact on us, and our operations.

Results of Operations for the Three Months Ended June 30, 2005 and June 30, 2004

Revenues. On the cash basis of accounting, our total revenue reported for the quarter ended June 30, 2005 was $789,404, an increase of 189% from $273,040 for the quarter ended June 30, 2004. The dramatic increase in revenue growth is primarily attributable to the establishment of additional pharmacies to generate revenue. We had only two operating pharmacies as of June 30, 2004, compared to four operating pharmacies as of June 30, 2005. Our management also attributes the implementation of our new marketing strategy for the increased revenue over prior quarters. During the three month period ended March 31, 2005, our four pharmacies filled an average of 346 prescriptions per week. During the period ended June 30, 2005, our four pharmacies filled an average of 518 prescriptions per week. This represents an increase in the average prescriptions filled per week at our four pharmacies of approximately 50% when compared to the prior quarter.

We are in the process of monitoring our revenues and are creating several criteria in developing a historical trend analysis based on actual claims paid in order to estimate potential contractual allowances on a monthly basis. Given that we are considered to be in the start-up stage and lack sufficient operational history, we are unable at this time to determine the fixed settlement of our revenue. Therefore, we are recognizing revenue on a cash basis until such time that management can develop the history and trends necessary to estimate potential contractual adjustments. On an accrual basis, we would have recorded additional revenue of approximately $253,000 for the quarter ended June 30, 2005. As we implement our business plan, we anticipate that our revenues will continue to increase.

Cost of Sales. The total cost of sales increased to $755,632 for the quarter ended June 30, 2005, an increase of 117% from $347,618 for the quarter ended June 30, 2004. The price on a per unit basis of pharmaceuticals has remained relatively stable between the three months ended June 30, 2004 and 2005. The increase in the cost of sales was primarily due to the four pharmacies purchasing and replenishing the inventory supply of pharmaceuticals during the current quarter versus having only two pharmacies in operation for the same quarter of the prior year. During the quarter ended June 30, 2005, we negotiated more favorable credit terms with our primary drug supplier, which we anticipate will improve our gross margins about 1% to 2% in future quarters.

Gross Profit. Gross Profit increased to $33,772, or 4% of gross sales, for the quarter ended June 30, 2005, an increase of 155% from a loss of $74,578, or (127%) of gross sales, for the quarter ended June 30, 2004. The growth of gross profit is largely attributable to all four stores focused on servicing the profitable segments of the specialty pain market. This quarter represents the second consecutive reporting period that we reported gross profits.

Our gross margin for the quarter ended June 30, 2005 dropped to 4% from 19% as reported in the quarter ended March 31, 2005. We attribute the decline in gross margin primarily to increased sales of brand named drugs that have lower margins as compared to generic brands. Our management believes that the substantial increase in sales of brand named drugs over generic brands is unique to the reporting period and this trend is not anticipated to continue.

Operating Expenses. Operating expenses decreased to $965,717 for the quarter ended June 30, 2005, a decrease of (23%) from $1,252,811 for the quarter ended June 30, 2004. Our operating expenses for the quarter ended June 30, 2005 consisted of salaries and related expenses of $425,224, consulting and other compensation of $256,940, and selling, general and administrative expenses of $283,553. Our operating expenses for the same quarter last year consisted of salaries and related expenses of $243,290, consulting and other compensation of $695,245, and selling, general and administrative expenses of $314,276.

This decrease in operating expenses was primarily attributable to renegotiating employee benefits, vendor contracts, and streamlining operational expenses so we can focus on sales and marketing activities. Our consulting and other compensation expenditures decreased significantly because we now engage fewer consultants and a small number of consultants were retained as employees that currently receive salary. As a result, our management anticipates that expenditures for consulting services will continue to decrease.

Other Income and Expense. As part of our ongoing business activities, our sales have continued to increase and we are now able to access financing for purchases of inventory through our financing agreement with Mosaic Financial Services,
LLC. This relationship has allowed us to turn approximately $973,000 for inventory purchases for approximately $19,000 of interest expense during the quarter ended June 30, 2005.

On June 30, 2005, the United Stated Bankruptcy Court for the Eastern District of Texas located in Tyler, Texas approved a Settlement Agreement and Mutual Release (the Settlement Agreement) between Safescript Pharmacies, Inc., a Texas corporation f/k/a RTIN Holdings, Inc. and Safe Med Systems, Inc., a Texas corporation (collectively, Safescript), and us. The Settlement Agreement contained a mutual release which resulted in the Safescript releasing us from of any liability with respect to a note payable due to the Safescript in the amount of approximately $1,013,000.

Net Profit. Net profit for the quarter ended June 30, 2005 was $90,484, an increase from $(1,222,183) for the quarter ended June 30, 2004. The net profit was primarily due to a settlement agreement forgiving the debt related to a license agreement netting approximately $1,013,000.

Our basic and diluted loss per common share for the quarter ended June 30, 2005 increased to $0.00 from $(0.03) for the quarter ended June 30, 2004.

Assets

As of June 30, 2005, we had total assets of $1,029,961. Cash increased to $211,782 for the quarter ended June 30, 2005, an increase of $125,457 from $86,325 for the year ended December 31, 2004. The increase in cash was primarily due to an ongoing private offering to accredited investors which yielded $728,000 during the quarter ended June 30, 2005.

Inventory for the quarter ended June 30, 2005 increased by approximately $113,277, or 72%, from the year ended December 31, 2004. In response to the increase in sales over the last two quarters, we have increased our inventory to satisfy increased demand. In addition, as we increase the number of physicians transmitting prescriptions to our stores, we expect additional inventory may be required to meet the needs of their patients.

Property and equipment for the quarter ended June 30, 2005 decreased by approximately $237,479, or (32%), from the year ended December 31, 2004. Approximately $137,000 of the reduction in net property and equipment relates directly with the prior quarter ended March 31, 2005 restructuring activities, whereby we closed our Regional Office build in Fort Worth, Texas and a pharmacy build in Santa Monica, California. The remaining $100,000 reduction in net property and equipment is attributed to the depreciation and amortization of computer systems, furniture, fixtures, leasehold improvements, and software license.

Liabilities and Stockholders Deficit

Our total liabilities as of June 30, 2005 were $1,833,839. Our liabilities consisted of current liabilities of $1,823,839 and $10,000 due to our former chief executive officer under a termination and settlement agreement entered into on February 1, 2005. Our total liabilities as of March 31, 2005 were $2,594,533. The decrease in our liabilities is primarily attributable to the Settlement Agreement entered into with Safescript where we were released from any liability with respect to a note payable due to the Safescript in the amount of approximately $1,013,000.

Accounts payable and accrued liabilities for the quarter ended June 30, 2005 increased $216,887 from December 31, 2004. The increase in accounts payables is primarily attributable to increasing our inventory on hand to satisfy increased sales demand.

Our Line of Credit of $500,000 was fully utilized during the quarter ended June 30, 2005. Under the terms of our Line of Credit Agreement, the additional credit lines monthly financing rate remains at one and one quarter percent (1.25%) of the maximum amount of the line of credit. On July 1, 2005, our line of credit was increased from $500,000 to $700,000.

Our operations were primarily funded through debt and equity financings. Stockholders deficit was $1,319,726 as of June 30, 2005.

Liquidity and Capital Resources

As of June 30, 2005, we maintained $211,782 in cash which primarily resulted from funds raised in the private offering of common stock and receivables financing. This cash was used, among other things, to fund additional working capital needs, support the establishment of our corporate infrastructure, and to pay for additional purchases of inventory.

Operating Cash Flows. During the six months ended June 30, 2005, net cash used in operating activities was $1,328,804 compared to $1,539,086 in the six months ended June 30, 2004. Improved management of working capital, primarily inventory, accounts payable and accrued expenses favorably affected our operating cash flows by $210,282 in the first half of 2005 with four operating pharmacies compared to the first half of 2004 with only two operating pharmacies.

Investing Cash Flows. Net cash provided by investing activities was $0 in the six months ended June 30, 2005, compared to $276,876 net cash used in investing activities during the six months ended June 30, 2004 for building two pharmacies: Kirkland, Washington; Portland, Oregon. These improvements represent a $276,876 contribution to cash flows.

Financing Cash Flows. Net cash provide by financing activities was $1,454,260 in the six months ended June 30, 2005, compared to $3,288,021 for the same period last year. For the six months ended in June 30, 2005, there are two significant sources of net cash for working capital: the line of credit and issuance of common stock for cash. However, last year during the same period, we raised $2,650,030 through the issuance of common stock for cash, which was primarily used to finance the working capital requirements of building stores, corporate infrastructure, and hiring pharmacy employees.

Based upon the current financial condition of the company, our management anticipates that the current cash on hand is sufficient for us to operate our four existing pharmacies at the current level through the end of the third quarter. Following a period of evaluation, our management has taken aggressive steps to reduce our operating costs which include the following:

· We negotiated more favorable purchasing terms from our primary drug supplier.

· We have converted a number of consultants to employees that currently receive salary. We currently employ eighteen (18) full time employees.

· We reduced our overhead expenses by streamlining our business processes and consolidating redundant vendor relationships.

Our operations have been primarily funded through debt and equity financings. In addition to the agreements entered into for the purpose of financing inventory purchases, we have entered into several loan and security agreements to fund our operations. The following table summarizes the other loan and security agreements we have entered into since January 2005:

                                                        Annual     Maturity
        Lender                Execution Date Amount  Interest Rate   Date
        TAPG LLC                 1/27/05     $40,000      7%       1/14/06
        VVPH                      2/4/05     $50,000      3%        9/7/05
        Steven Rosner            2/10/05     $50,000      3%        9/7/05
        Steven Rosner            2/16/05     $90,000      3%        9/7/05
        Weil Consulting Corp.    3/11/05     $50,000     7.5%      9/10/05

Currently, we received only $40,000 and have agreed to repay this principal amount together with interest as set forth in the loan agreement. Our management does not anticipate that TAPG LLC will advance any further monies as required by the loan agreement.

The maturity dates on the promissory notes entered into with VVPH and Steven Rosner previously were the earlier of May 8, 2005 or such date that we consummate an accounts receivable factoring arrangement. During the reporting period, we extended the maturity dates on the loans from VVPH, Steven Rosner, and Weil Consulting Corp for 90 days. Subsequent to the reporting period, the maturity dates were further extended an additional 30 days. We intend to repay all of the named loans upon maturity.

The underlying drivers that resulted in material changes and the specific inflows and outflows of cash in the quarter ended June 30, 2005 are as follows:

a. Our inventory level increased with the addition of more physicians. We continually track inventory usage and adjust inventory levels to market requirements.

b. We have fully utilized our $500,000 Line of Credit with Mosaic Financial Services, LLC.

c. We obtained financing from the issuance of common stock, which yielded cash proceeds of $728,000 from fifteen (15) accredited investors for a total of 910,000 units. Our management believes that additional issuance of stock and/or debt financing will be required to provide us with working capital and a positive cash flow for the remainder of 2005.

d. Our settlement agreement with Safescript was recorded as a forgiveness of debt for approximately $1,013,000.

We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements for the year ending December 31, 2005. We have an ongoing private equity offering in an attempt to secure funding for our operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be

impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

Off Balance Sheet Arrangements

As of June 30, 2005, there were no off balance sheet arrangements. Please refer to the Commitment and Contingency footnote to the Companys consolidated financial statements included elsewhere herein.

Going Concern

The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the . . .