The following discussion should be read in conjunction with the audited consolidated financial statements included in Item 8 of this Annual Report and the related notes thereto included elsewhere in this Annual Report. This discussion and analysis of our financial condition and results of operations contains forward looking statements that involve risks and uncertainties. We have based these forward looking statements on our current expectations and projections of future events. Such statements reflect our current views with respect to future events and are subject to unknown risks, uncertainty, and other factors that may cause results to differ materially from those contemplated in such forward looking statements.

Overview

We operate a chain of pharmacies and provide pharmacy management services to various not-for-profit entities. The majority of DAW's business is conducted pursuant to contracts with pharmacy benefit management companies and the Commonwealth of Massachusetts Medicaid Department, and 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. 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.

During the fiscal year 2009 and 2008, our results also included discontinued operations that consisted of the wholesale and retail sales of medical equipment and supplies of ADCO, ADCO South, and the pharmacy revenues of our Topsfield store.

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 Topsfield to CVS Pharmacy LLC ("CVS"). A gain of $507,000 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 and a loss of $193,260 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 June 30, 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.

Summary of Financial Impacts of Restatements

The consolidated financial statements of Nyer and our subsidiaries at and for the fiscal year ended June 30, 2008, and related financial information have been restated to correct errors in the accounting for direct costs associated with the purchase of the minority interest in DAW now a wholly owned subsidiary of the Company in February 2008. These costs were expensed, rather than considered part of the cost of the acquisition in accordance with Statement of Financial Accounting Standard ("SFAS") No. 141, Business Combinations. In addition, our consolidated financial statements reflect the presentation of the discontinued operations for ADCO, ADCO South, and Topsfield as of and for the years ended June 30, 2009 and 2008, and certain other classifications made to conform the fiscal year 2008 consolidated financial statements to the presentation of the fiscal year 2009 consolidated financial statements. For further details on the nature of the corrections and reclassifications and the related effects on the Company's previously issued consolidated financial statements, see Note 3, Restatements of Consolidated Financial Statements, included in Part II, Item 8, Financial Statements and Supplementary Data. Restated balances have been identified with the notation "restated" where appropriate. The remainder of this management's discussion and analysis is based on amounts as restated.

Comparison of the year ended June 30, 2009, to the year ended June 30, 2008

Results of Operations

Net revenues. We recognize revenue both from the sale of prescription medications and other products as well as through dispensing fee revenue derived through 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 following table sets forth for the periods indicated pharmacy and dispensing fees revenues from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

                                        Year ended June 30
                                                               Change
                         2009             2008              $            %
Sales                $ 68,907,483     $ 65,394,219     $ 3,513,264        5.4 %
Dispensing fees         5,815,361        3,200,795       2,614,566       81.7 %
Total net revenues   $ 74,722,844     $ 68,595,014     $ 6,127,830        8.9 %

Total net revenues increased $6,127,830 to $74,722,844 or 8.9% for fiscal year 2009, as compared to $68,595,014 for fiscal year 2008. The primary 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 June 30, 2009, compared to 23 locations in the prior year. Net revenues decreased 2% at stores open more than one year due to our decision to transfer accounts representing approximately $5,300,000 in net revenues 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 effect, comparable revenue increased approximately 5% for fiscal year 2009.

The pharmacy sales (revenues other than dispensing fees) increased $3,513,264 to $68,907,483 or 5.4% for fiscal year 2009 as compared to $65,394,219 for fiscal year 2008. Sales decreased 4% at stores open more than one year due to our decision to transfer accounts representing approximately $4,500,000 in fiscal 2009 to two of the newly opened pharmacies. If the effect of the business transfers is in taken into account, comparable sales increased approximately 3% for fiscal year 2009.

The total number of prescriptions dispensed increased 34% for the fiscal year 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 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 $2,614,566 to $5,815,361 or 81.7% for fiscal year 2009 as compared to $3,200,795 for fiscal year 2008. This increase is primarily attributable to our new pharmacy contract with the East Boston Neighborhood Health Center in East Boston, as well as the expanded number 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 from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

                                        Year ended June 30
                                                               Change
                         2009             2008              $            %
Cost of sales        $ 54,560,932     $ 51,019,594     $ 3,541,338        6.9 %

Profit margin rate 20.8 % 22.0 % (1.2 )%

Cost of sales increased $3,541,338 to $54,560,932 or 6.9% for fiscal year 2009, as compared to $51,019,594 for fiscal year 2008 due to increased sales and declining insurance reimbursement rates. Cost of goods sold includes the following: the cost of inventory sold during the period, net of related vendor rebates, allowances and purchase discounts, costs incurred to return merchandise to vendors, inventory shrinkage costs, and inbound freight charges.

Gross profit margins. Pharmacy gross profit margins decreased by 1.2% to 20.8% for fiscal year 2009 as compared to 22.0% for fiscal year 2008 primarily due to declining insurance reimbursement rates. Dispensing fee revenue is excluded from the calculation as there is no correlating inventory cost associated with the services provided.

Selling, general, and administrative expenses. The following table sets forth for the periods indicated selling, general, and administrative expenses ("SG&A") from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

Year ended June 30 Change 2009 2008 $ %

SG&A increased $3,040,208 to $19,815,584 or 18.1% for fiscal year 2009, as compared to $16,775,376 for fiscal year 2008. The increase was primarily due to increases in payroll costs of approximately $3,165,000, facility rent of approximately $109,000, and equipment rent of approximately $146,000, partially offset by a decrease in advertising expense of approximately $402,000. The increases in payroll costs were primarily due to $2,364,000 related to six newly opened locations plus $801,000 at stores open more than one year and are predominately the result of market pressures on salary and benefit packages for pharmacists. The additional pharmacies also added approximately $197,000 in additional overhead.

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

                                                    Year ended June 30
                                                                        Change
                                       2009          2008            $            %
Interest expense                    $ (185,247 )   $ (98,188 )   $ (87,059 )      88.7 %
Interest income                         11,104        11,631          (527 )      (4.5 )%
Other income                            18,112        25,977        (7,865 )     (30.3 )%
Total other income (expense), net   $ (156,031 )   $ (60,580 )   $ (95,451 )     157.6 %

Total other income (expense), net, increased $95,451 primarily due to the interest expense on the related party notes issued in connection with the purchase of the remaining 20% of DAW.

Income taxes. We recorded an income tax benefit from continuing operations of $182,087 for fiscal year 2009 primarily due to the losses from operations, offset by changes in deferred tax assets. In addition, for fiscal year 2009, we recorded income tax benefit from discontinued operations of $2,394 and income tax expense of $142,176 due to the disposal of the discontinued operations of ADCO and Topsfield. We recorded income tax expense from continuing operations of $12,132 for fiscal year 2008 primarily due to the income from operations and changes in deferred taxes. We also recorded income tax expense from discontinued operations of $93,407 and income tax benefit of $1,270 due to the disposal of discontinued operations.

Discontinued operations. In December 2008, we sold the inventory and prescription lists of Topsfield to CVS. In conjunction with this sale, we also entered into a non-compete agreement with CVS, whereby we 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 $507,000 was recognized on the sale of Topsfield.

In September 2008, we 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 on disposal of $193,260 was recognized on the sale of ADCO's certain assets and liabilities. In connection with this sale, we received a $50,000 note receivable that was payable January 31, 2009. 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. We are unable to determine the final outcome of this dispute, but it may result in an additional charge to the disposal of discontinued operations.

We 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. On September 21, 2009, we sold the building to Dovesco, LLC, an assignee of Doane, for $830,000 and recognized a gain on the sale of $519,199. A portion of the proceeds from the sale was used to pay the existing line of credit. No balance remains outstanding against the line; and as of September 21, 2009, the line of credit was terminated.

In June 2008, we sold ADCO South, a medical and surgical equipment and supplies company engaged in the wholesale selling of medical equipment and surgical supplies throughout Florida. We recognized a loss on the sale of $5,112.

In December 2007, we reevaluated the outstanding liabilities related to our fire and police segment (discontinued in 2004) and concluded there were no remaining liabilities. The liabilities were reversed and a $298,628 gain has been reflected in discontinued operations.

Deemed dividend on redemption of preferred stock. In February 2008, we redeemed the then outstanding Series A and B Preferred Stock for $400,000. The excess over the carrying value of $3 was recorded as a deemed dividend and increased the net loss applicable to common shareholders. For the year ended June 30, 2008, this resulted in $399,997 being subtracted from net earnings. Financial Accounting Standards Board ("FASB") Emerging Issue Task Force Topic D-42, The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock, provides among other things, that any excess of
(1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of preferred stock, should be subtracted from net earnings to determine net (loss) income available to common shareholders in the calculation of earnings per share.

Comparison of the year ended June 30, 2008, to the year ended June 30, 2007

Results of Operations

Net revenues. The following table sets forth for the periods indicated pharmacy and dispensing fees revenues from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

                                        Year ended June 30
                                                               Change
                         2008             2007              $            %
Sales                $ 65,394,219     $ 59,605,468     $ 5,788,751        9.7 %
Dispensing fees         3,200,795        2,335,674         865,121       37.0 %
Total net revenues   $ 68,595,014     $ 61,941,142     $ 6,653,872       10.7 %

Total revenues increased $6,653,872 to $68,595,014 or 10.7% for fiscal year 2008, as compared $61,941,142 for fiscal year 2007. The primary reason for the increase in revenues was due to a 4.75% increase in the number of prescriptions dispensed at stores open more than one year, the acquisition of a pharmacy in July 2007, and the addition of three new pharmacies in April and December 2007, and February 2008. Stores open more than one year experienced a 2.4% growth in revenue. The growth in 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 the total number of prescriptions dispensed. Generic medications typically have a lower selling price than brand name medications.

The pharmacy sales (revenues other than dispensing fees) increased $5,788,751 to $65,394,219 or 9.7% for fiscal year 2008 as compared to $59,605,468 for fiscal year 2007. The increase was attributable to the acquired pharmacy, the opening of three new pharmacies, and a 2.0% increase in sales at locations open more than one year. The increase in prescription dispensing at stores open more than one year can be attributed to greater drug utilization on the part of an aging population, an overall increase in market share within certain communities, and an increased utilization of pharmacy services by patients of FQHCs with whom the pharmacies have contracts to provide services. The pharmacies manage two pharmacies owned by FQHCs and additionally have contracts to provide 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 $865,121 to $3,200,795 or 37.0% for fiscal year 2008 as compared to $2,335,674 for fiscal year 2008. Two locations which opened in February and April 2007, accounted for $513,013 of the increase. The remainder of the increase can be attributed to an expanded number of and increased demand for covered medications effectuated during the fiscal year by the Massachusetts Health Safety Net Office, an increased number of prescription benefit management contracts entered into by the FQHCs contracted with DAW, and marketing initiatives targeting the patients of the FQHCs.

Cost of sales. The following table sets forth for the periods indicated cost of sales from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

                                       Year ended June 30
                                                              Change
                         2008             2007              $            %
Cost of sales        $ 51,019,594     $ 46,874,820     $ 4,144,774       8.8 %

Profit margin rate           22.0 %           21.4 %                     0.6 %

Cost of sales increased $4,144,774 to $51,019,594 or 8.8% for fiscal year 2008, as compared to $46,874,820 for fiscal year 2007 primarily due to increased sales. Cost of goods sold includes the following: the cost of inventory sold during the period, net of related vendor rebates, allowances and purchase discounts, costs incurred to return merchandise to vendors, inventory shrinkage costs, and inbound freight charges.

Gross profit margins. Pharmacy gross profit margins slightly increased to 22.0% for fiscal year 2008 as compared to 21.4% for fiscal year 2007 primarily due to increased purchase volume discounts as well as increased dispensing of generic medications which carry higher gross profit margins. Each helped to offset lower insurance reimbursements. Dispensing fee revenue is excluded from the calculation as there is no correlating inventory cost associated with the services provided.

Selling, general, and administrative expenses. The following table sets forth for the periods indicated SG&A from continuing operations and changes between the specified periods expressed as a percentage increase or decrease:

Year ended June 30 Change 2008 2007 $ %

SG&A increased $2,745,155 to $16,775,378 or 19.6% for fiscal year 2008, as compared to $114,030,223 for fiscal year 2007. The increase was primarily due to increases in payroll costs of approximately $2,200,000, rent expense and administrative expenses. Increased labor costs consisted of the following: $1,000,000 of the increase occurred at stores open more than one year and is predominately the result of market pressures on salary and benefit packages for pharmacists. The balance of the increase in payroll is attributable to the pharmacy acquired in July 2007, as well as the four pharmacies opened between February 2007 and February 2008. The additional pharmacies also added approximately $300,000 in additional overhead.

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

                                                    Year ended June 30
                                                                        Change
                                      2008          2007            $             %
Interest expense                    $ (98,188 )   $ (25,769 )   $ (72,419 )       281.0 %
Interest income                        11,631        14,077        (2,446 )       (17.4 )%
Other income                           25,977        16,040         9,937          62.0 %
Total other income (expense), net   $ (60,580 )   $   4,348     $ (64,928 )     (1493.3 )%

Total other income (expense), net, increased $72,419 primarily due to the interest expense on the related party notes issued in connection with purchase of the remaining 20% of DAW.

Income taxes. We determined that in fiscal year 2009, we would be able to utilize a portion of the tax benefits from intangible assets previously written-off for book purposes and we most likely would not be able to utilize the benefit from the increase in the Florida net operating loss. The net tax effect of these changes is a decrease of $19,000 in the valuation allowance for fiscal year 2008.

Discontinued operations. In December 2008, we sold the inventory and prescription lists of Topsfield to CVS. In conjunction with this sale, we also entered into a non-compete agreement with CVS, whereby we 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 $507,000 was recognized on the sale of Topsfield.

In September 2008, we sold certain assets and liabilities of ADCO and recognized a loss on disposal of $193,260.

In June 2008, we sold ADCO South and recognized a loss on the sale of $5,118.

In December 2007, we reevaluated the outstanding liabilities related to our fire and police segment (discontinued in 2004) and concluded there were no remaining liabilities. The liabilities were reversed and a $298,628 gain has been reflected in discontinued operations.

Deemed dividend on redemption of preferred stock. In February 2008, we redeemed the then outstanding Series A and B Preferred Stock for $400,000. The excess over the carrying value of $3 was recorded as a deemed dividend and increased the net loss applicable to common shareholders. For fiscal year 2008, this resulted in $399,997 being subtracted from net earnings. FASB Emerging Issue Task Force Topic D-42, The Effect on the Calculation of Earnings Per Share for the Redemption or Induced Conversion of Preferred Stock, provides among other things, that any excess of (1) the fair value of the consideration transferred to the holders of preferred stock redeemed over (2) the carrying amount of preferred stock, should be subtracted from net earnings to determine net income available to common shareholders in the calculation of earnings per share.

Liquidity and Capital Resources

As of June 30, 2009, we had $62,752 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 $549,931 for fiscal year 2009 and consisted of our net loss of $256,076 adjusted for non-cash items of $600,053 (including depreciation of $539,398, and amortization, provision for losses in accounts receivable, and stock-based compensation expenses of $136,575, offset by a decrease deferred income taxes of $76,500) and net cash used from changes in working capital of $893,908. The net cash used from changes in working capital, net of effects of acquisitions and disposals, was principally the result of an increase in inventories, accounts receivable, and prepaid expenses and other current assets partially offset by an increase in . . .