The Company’s investment in Fairways Frisco includes its cumulative cash investment of $1,219,000 and its cumulative equity in the losses of Fairways Frisco of ($910,000). The Company received no distributions from Fairways Frisco during the three and nine month periods ended September 30, 2006 and 2005, respectively. Summarized unaudited financial information for Fairways Frisco is included below:

The Company’s real estate advisory services operations defer direct costs associated with its tenant representation services until such time a lease is signed between the tenant and landlord. Upon execution of a signed lease, the Company expenses 50% of these direct costs associated with the transactions, with the balance being paid by the individual broker through a reduction in the commission earned. The Company regularly reviews these direct costs and expenses the costs related to canceled or unlikely to be completed transactions.

The Bank of Texas credit facility contains a borrowing base formula with which the Company must comply. If the outstanding borrowings under the facility exceed the borrowing base, the Company is obligated to make additional principal payments to reduce the outstanding borrowings. As of September 30, 2006 and December 31, 2005, the Company was in compliance with this borrowing base requirement. 

Both the First Republic Bank term note and revolving line of credit are subject to certain financial covenants including a minimum ratio of earnings before interest, taxes, depreciation and amortization to debt service and a limit on annual capital expenditures. As of September 30, 2006 CPOC was in compliance with these financial covenants. The Term Note is being guaranteed by CPOC. The term note and the revolver are also being personally guaranteed, subject to certain limits, by certain officers and minority limited partners of CPOC. The Company is not paying any compensation to the individuals providing these guaranties.

The Company and its subsidiaries lease its pharmacy, real estate advisory services and certain pharmacy equipment under non-cancelable operating lease agreements. Certain leases contain renewal options and provide that the Company pay taxes, insurance, maintenance and other operating expenses. Total rent expense for operating leases was approximately $386,000 for the three months ended September 30, 2006.

Future minimum lease payments under non-cancelable operating leases for the twelve months ending September 30, are as follows:

On September 25, 2006, the Chapter 7 trustee for the bankruptcy estate of Quantum North America, Inc. sought to enforce two default judgments against the Company for alleged preferential and fraudulent transfers to the Company's predecessor, ASD Systems, Inc. in the aggregate amount of approximately $150,000, plus interest and attorneys fees. The transfers at issue occurred in 2000. The adversary proceedings filed in the bankruptcy case were styled: David Gottlieb v. ASD Systems, Inc.; Adv. Nos. 1:02-ap-02131-GM and 1:02-ap-01948. The Company believes that the judgments should be set aside as void since the service of the underlying complaints was defective and neither ASD Systems nor the Company were afforded the opportunity to defend. If the default judgments are set aside, the Company intends to defend the claims based on several available defenses. The Company anticipates that the hearing to consider the enforceability of the judgments will be in December 2006.

Under the Company’s 2002 Equity Incentive Plan, it can issue up to 2,000,000 shares of restricted stock to employees and non-employee directors pursuant to restricted stock agreements. Under the restricted stock agreements, the restricted shares will vest annually over a three-year period, or such other restriction period as the Company’s Board of Directors may approve.

Deferred compensation equivalent to the market value of restricted common shares at date of issuance is reflected in stockholders’ equity and is being amortized to operating expense over three years. Deferred compensation expense included in the accompanying condensed consolidated statements of operations amounted to $33,000 and $23,000 for the three month periods ended September 30, 2006 and 2005, respectively, and $51,000 and $58,000 for the nine month periods ended September 30, 2006 and 2005, respectively. The Company has not recognized any tax benefit related to this deferred compensation expense due to the existence of its federal tax net operating loss carryforward. During the three month period ended September 30, 2006, the Company issued 22,178 shares of restricted common stock to non-employee directors in lieu of paying cash for quarterly directors’ fees. The fair value of these shares was $13,750 based on the share price of the shares on the date of grant. This amount is also equal to the cash amount that would have been paid for the director’s fees, and is included in selling, general and administrative expense for the three months ended September 30, 2006. The Company has deferred compensation expense of approximately $30,000 at September 30, 2006 which will be recognized over the weighted average remaining life of the unvested restricted shares of approximately 20 months.

The Company’s Long-Term Incentive Plan (the “Plan”), approved in May 1999 and last amended in October 2000, provides for the issuance to qualified participants options to purchase up to 2,500,000 of common stock. As of September 30, 2006 and December 31, 2005 respectively, options to purchase 490,000 and 915,000 shares of common stock were outstanding under the Plan.

The exercise price of the options is determined by the administrators of the Plan, but cannot be less than the fair market value of the Company’s common stock on the date of the grant. Options vest ratably over periods of one to six years from the date of the grant. The options have a maximum life of ten years. The exercise price and the market price of the options were the same on the date of grant and thus there is no intrinsic value related to the outstanding options.

Following is a summary of the activity of the Plan:

In September 2006, the Board of Directors of the Company elected to vest 43,334 of previously unvested share of the former Chief Financial Officer Gary W. Boyd, in consideration for consulting services to be provided over the next year to advise on financial and accounting matters.

Had compensation cost been recognized consistent with SFAS No. 123R, the Company’s net loss attributable to common stockholders and net loss per share would have been adjusted to the pro forma amounts indicated below for the three and nine month periods ended September 30, 2005: