The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors" and elsewhere in this prospectus. We assume no obligation to update forward-looking statements or the risk factors. You should read the following discussion in conjunction with our financial statements and related notes filed as an exhibit to the registration statement of which this prospectus forms a part.

Overview

Forward-Looking Statements

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

Business Description

We currently have six operating pharmacies. As a result of the growth in our business and improvement in our operations, our management is seeking to expand our business by establishing additional pharmacies which are wholly-owned. Our management anticipates opening ten additional wholly-owned pharmacies during 2008. Opening new pharmacies, however, will require additional funding from external sources. In August 2007, we executed a lease for our seventh pharmacy in Lomita, California. We anticipate that operations at the Lomita location will commence prior to the end of the second quarter of 2008. We are currently considering future locations within or in close proximity to medical facilities located in major metropolitan areas in Arizona, California, Nevada, Oregon, Texas, and Washington.

Our pharmacies have principally specialized in dispensing highly regulated pain medication for acute chronic pain management. During 2006, we expanded the reach of our business beyond pain management to service customers that require prescriptions to treat cancer, psychiatric, and neurological

conditions. Our management attributes the recent growth in our business in part to our being able to fill prescriptions that can accommodate a broader range of customers.

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

In an attempt to further expand our business and improve our marketing plan, we retained the marketing firm of Rainmaker & Sun Integrated Marketing, Inc. ("Rainmaker"). With the assistance of Rainmaker, we launched a new marketing campaign in July 2006 which consisted primarily of print advertisements in newspaper inserts, on billboards, bus shelter displays and in direct mailings targeted to consumers in the Seattle, Washington and Los Angeles, California test markets. These marketing efforts did not reach the level of success anticipated by management. Our management decided to discontinue these marketing efforts in favor of increasing our sales force because the efforts of our sales personnel have produced the greatest success in significantly increasing our business. Based upon the success of our sales personnel, our management has committed to staffing each pharmacy with its own sales person who will be exclusively responsible for generating sales. Our management anticipates that this staffing model will continue to have a positive material impact on our operations.

The table set forth below summarizes the number of prescriptions filled by our six operating pharmacies during the year ended December 31, 2007 and 2006.

                                         Year ended            Year ended
                                      December 31, 2007     December 31, 2006
      Total Number of Prescriptions        96,192                54,891

Our second pharmacy established in Portland, Oregon commenced operations on June 21, 2006. Our pharmacy in Gresham, Oregon began filling prescriptions during January 2007. Excluding the prescriptions filled at these pharmacies and based upon only four pharmacies which had active operations during the year 2007 and 2006, total number of prescriptions filled at our pharmacies for the year ended December 31, 2007 increased to 74,743 which is approximately a 42% increase from the 52,655 total prescriptions filled at the same four pharmacies in the prior year ended December 31, 2006. Total number of prescriptions filled at our all pharmacies for the year ended December 31, 2007 increased to 96,192 which is approximately a 75% increase from the 54,891 total prescriptions filled at all our pharmacies in the prior year ended December 31, 2006. Our management primarily credits the increases in our business to the efforts of additional sales personnel added during the reporting period and the expanded reach of our business beyond pain management.

During 2006, we implemented a monthly call program where our pharmacies contact each recurring patient directly on a monthly basis to ensure that the patient has experienced no complications with the prescribed medication and to inquire into whether the patient needs the prescription refilled. At the time of each monthly call, our pharmacies also inquire into whether other members of the household also need a prescription refilled. Our management believes that the monthly call program has enhanced consumer loyalty and will continue to increase the total number of prescriptions filled at our pharmacies.

On an ongoing basis, our management is evaluating our operations and seeking additional opportunities to expand our business. During the fiscal quarter ended March 31, 2006, we established a working relationship with a specialty compounding pharmacy, which enabled our pharmacies to fill prescriptions for custom compounded drugs. Since this time, we established a relationship with another compound drug

provider to increase our available inventory of compounded drugs. Pharmaceutical compounding is the combining, mixing, or altering of ingredients to create a customized medication for an individual patient in response to a licensed physician's prescription. Physicians often prescribe compounded medications for reasons that include situations where there is not presently a commercially available drug to treat the unique health condition of an individual patient or to combine several medications the patient is taking to increase compliance. Custom compounded drugs can offer additional means of treating chronic pain. We anticipate that our ability to fill prescriptions for custom compounded drugs will expand our business and enable us to better service patients who require treatment for chronic pain management. During the year ended December 31, 2007, we generated $162,890 in revenue for compounded drugs. The gross profit margin on these prescriptions was 61%.

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

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

Also on January 3, 2006, we incorporated Assured Pharmacy DME, Corp. ("DME") as a wholly-owned subsidiary for the purpose of facilitating and making available specialized medical equipment to our consumers. We established a relationship with a provider of specialized medical equipment to make these products available to our consumers. In July 2006, we began notifying our consumers of the availability of these products by disseminating a notification with each prescription filled at our pharmacies. We accept and process orders for specialized medical equipment. We will not maintain any inventory of specialized medical equipment at any of our pharmacies. All orders will be shipped directly to the consumer from a product wholesaler. The gross profit margin on orders we received for specialized medical equipment during the year ended December 31, 2006 was approximately 63%. Our management was encouraged by our consumers' early response to our offering of specialized medical equipment, but has not committed any significant resources to expanding this area because it is presently allocating our resources towards developing future locations and increasing our sales of custom compounded drugs.

Our revenue generated from the operations of Plus Corp. and DME for the years ended December 31, 2006 and 2007 has been relatively insignificant to our business. To date, our management has not advanced these opportunities because our resources are currently being devoted to expanding the sales of compounded drugs, focusing on the establishment of additional pharmacies, and growth within our existing pharmacy locations. Our management anticipates focusing more on these opportunities during 2008 or at such time that allocating resources to these opportunities is in our best interest.

Results of Operations for the Years Ended December 31, 2007 and 2006

Revenues

Our total revenue reported for the year ended December 31, 2007 was $13,923,487, a 76% increase from $7,897,118 for the year ended December 31, 2006. Our revenue for the year ended December 31, 2007 and 2006 was generated almost exclusively from the sale of prescription drugs. The average revenue generated per prescription during the year ended December 31, 2007 was $144. We generated more revenue in the year ended December 31, 2007 than in any other annual period since our inception.

The table set forth below shows our total reported gross revenue generated for each quarterly period during fiscal 2006 and 2007:

                                                     2006            2007
          Quarterly Period Ended March 31          $1,515,645      $2,733,685
          Quarterly Period Ended June 30           $1,894,976      $3,305,890
          Quarterly Period Ended September 30      $2,310,248      $3,676,798
          Quarterly Period Ended December 31       $2,176,249      $4,207,115

Our management attributes the significant increase in our revenue from the prior fiscal year to our successful marketing efforts and an expansion of our business beyond the pain management sector to service customers that require prescriptions to treat cancer, psychiatric, and neurological conditions. Our management anticipates that our revenues generated will continue to increase based upon the efforts of additional sales personnel retained during the reporting period and the establishment of additional pharmacies in the current year. In 2008, we consolidated the operations of two of our pharmacies and opened a new pharmacy at Las Vegas. We plan to open another pharmacy at Oak Lomita in the second quarter of 2008. We anticipate the establishment of these additional pharmacies will increase our revenues for the fiscal year ended December 31, 2008.

Cost of Sales

The total cost of sales for the year ended December 31, 2007 was $10,724,239, a 72% increase from $6,222,267 for the year ended December 31, 2006. The cost of sales consists primarily of the pharmaceuticals. The increase in cost of sales is primarily attributable to increased sales in the reporting period.

Gross Profit

Gross profit increased to $3,199,248, or approximately 23% of sales, for the year ended December 31, 2007. This is an increase from a gross profit of $1,674,851, or approximately 21% of sales for the year ended December 31, 2006.

The increase in the gross profit percentage for the year ended December 31, 2007 when compared to the prior fiscal year is attributable to increased sales of generic type drugs which have lower costs and higher gross margins.

Operating Expenses

Operating expenses for the year ended December 31, 2007 was $5,808,779, a 1% decrease from $5,871,564 for the year ended December 31, 2006. Our operating expenses for the year ended December 31, 2007 consisted of salaries and related expenses of $2,670,088, consulting and other compensation of $921,258, and selling, general and administrative expenses of $2,217,433. Our operating expenses for the year ended December 31, 2006 consisted of salaries and related expenses of $2,193,682, consulting and other compensation of $1,555,354, selling, general and administrative expenses of $2,122,528.

Salaries and related expenses were significantly higher in the year ended December 31, 2007 when compared to the previous fiscal year primarily as a result of increase in sales and the opening of new pharmacies. The significant decrease in consulting and other compensation is primarily attributable to less consulting services utilized in the fiscal year ended 2007. The increase in selling, general and administrative expenses is nominal.

Other Income and Expense

During the year ended December 31, 2007, we reported other expenses in the amount of $644,700, compared to $363,882 for the prior year. We incurred interest expense of $644,447 during the year ended December 31, 2007 as compared to $201,735 during the year ended December 31, 2006. Interest expense for the year ended December 31, 2007 was incurred on financing from related parties and convertible debentures issued during the reporting period.

Net Loss

Net loss for the year ended December 31, 2007 was $3,272,818, compared to net loss of $4,501,839 for the year ended December 31, 2006. The decrease in our net loss was primarily attributable to increased gross profit and lower operating expenses during the reporting period.

Our loss per common share for the year ended December 31, 2007 was $0.06 , compared to a loss per common share of $0.09 for the year ended December 31, 2006.

Liquidity and Capital Resources

As of December 31, 2007, we had $408,305 in cash which primarily resulted from funds raised in the private offering of unsecured convertible debentures. As of December 31, 2007, we had current assets in the amount of $3,183,480 and had current liabilities in the amount of $7,276,545 resulting in a working capital deficit of $4,093,065.

Operating activities used $2,246,690 in cash for the year ended December 31, 2007. Our net loss of $3,272,818, less non-cash expenses of $1,100,358 principally for $451,285 for non-cash services, $285,124 for amortization of debt discount and $181,362 of depreciation and amortization were the primary reasons for our negative operating cash flow. Investing activities during the year ended December 31, 2007 used $112,385 for the purchase of property. Net cash flows provided by financing activities during the year ended December 31, 2007 was $2,300,976. We received $1,875,000 as proceeds from the issuance of debentures and $425,976 as proceeds from the issuance of notes during year ended December 31, 2007.

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

Off Balance Sheet Arrangements

As of December 31, 2007, there were no off balance sheet arrangements.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the ordinary course of business. As of December 31, 2007, we had an accumulated deficit of $23,008,195, recurring losses from operations of prior years and negative cash flow from operating activities of $2,246,690 for the year ended December 31, 2007. We also had a negative working capital of $4,093,065 as of December 31, 2007.

We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund capital expenditures, working capital or other cash requirements for the year ending December 31, 2008. We intend to seek additional funds to finance our long-term operations. The successful outcome of future financing activities cannot be determined at this time and there is no assurance that if achieved, we will have sufficient funds to execute our intended business plan or generate positive operating results.

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

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

º We are expanding our revenue base beyond the pain management sector to service customers that require prescriptions to treat cancer, psychiatric, and neurological conditions.
º We are aggressively signing up new physicians.
º We are seeking investment capital.
º We implemented a new marketing strategy and retained additional sales personnel to attract business.
º We consolidated our two pharmacies in Portland, Oregon into a single operation. This consolidation is expected to allow us to further leverage our existing infastructure and is expected to result in a reduction of costs.
º In March 2008, we entered into an accounts receivable purchase agreement whereby we have agreed to sell certain accounts receivable for a price equal to 80% of the outstanding accounts receivable being purchased. We expect this additional source of working capital to help significantly with the daily operations.

Critical Accounting Policies

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

Inventories

Inventories are stated at the lower of cost (first-in, first-out method) or estimated market, and consist primarily of pharmaceutical drugs. Market is determined by comparison with recent sales or net realizable value. Net realizable value is based on management's forecast for sales of its products or services in the ensuing years and/or consideration and analysis of changes in customer base, product mix, payor mix, third party insurance reimbursement levels or other issues that may impact the estimated net realizable value. Management regularly reviews inventory quantities on hand and records a reserve for shrinkage and slow-moving, damaged and expired inventory, which is measured as the difference between the inventory cost and the estimated market value based on management's assumptions about market conditions and future demand for its products. No reserves were provided at September 30, 2007 and 2006, respectively, as the reserves were insignificant to the accompanying financial statements. Should the demand for the our products prove to be less than anticipated, the ultimate net realizable value

of our inventories could be substantially less than reflected in the accompanying consolidated balance sheet.

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

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

Long-Lived Assets

We adopted Statement of Financial Accounting Standard ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset, an impairment loss is recognized.

Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS No. 144 also requires companies to separately report discontinued operations, and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or the estimated fair value less costs to sell.

Our long-lived assets consist of computers, software, office furniture and equipment, store fixtures and leasehold improvements on pharmacy build-outs which are depreciated with useful lives varying from 3 to 10 years. Leasehold improvements are depreciated over the shorter of the useful life or the remaining lease term, typically 5 years. We assess the impairment of these long-lived assets at least annually and make adjustment accordingly.

Intangible Assets

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

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

Revenue Recognition

We recognize revenue on an accrual basis when the product is delivered to the customer. Payments are received directly from the customer at the point of sale, or the customers' insurance provider is billed. Authorization which . . .