FORM 10-KSBSECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549

|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|x | Annual report under
  Section 13 or 15(d) of the Securities Exchange Act of 1934 for the year ended
  December 31, 2006     
|  |                                                                                                                             
|  | Or                                                                                                                          
|  |                                                                                                                             
|o | Transition report under
  section 13 or 15(d) of the Securities Act of 1934 for the transition period from
  _____ to _____.

|                                                             
|-------------------------------------------------------------
|Commission
  File Number: 0-27554                            
|Conmed Healthcare Management, Inc.                           
|(Name
  of small business issuer as specified in its charter)

|                                                        |  |                         
|------------------------------------------------------- |  | ------------------------
|Delaware                                                |  | 42-1297992              
|                                                        |  |                         
|(State
  or other jurisdiction of                       |  | (IRS
  Employer         
|incorporation
  or organization)                        |  | Identification
  Number)
|                                                        |  |                         
|9375 Chesapeake St., Suite 203                          |  |                         
|La Plata, MD                                            |  | 20646                   
|                                                        |  |                         
|(Address
  and zip code of principal executive offices) |  | (Zip
  code)            

|                                                                     
|---------------------------------------------------------------------
|301-609-8460                                                         
|                                                                     
|(Issuers
  telephone number)                                        
|                                                                     
|Securities
  registered under Section 12(b) of the Exchange Act: None
|                                                                     
|Securities
  registered under Section 12(g) of the Exchange Act:     
|                                                                     
|Common Stock, $.0001 par value                                       
|                                                                     
|(Title
  of class)                                                   

Check
whether the Issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.YES o  NO x

Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to the filing requirements for at least the past 90 days.
YESx  NO o

Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x

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

Issuers
net revenues for its most recent fiscal year: $0

The
aggregate market value of the voting and non-voting common stock held by
non-affiliates, based upon the closing sale price of the common stock on March
27, 2007 as reported by Reuters, Ltd., was approximately $10,566,731. Shares of
common stock held by each officer and director and by each person who owns 5%
or more of the outstanding common stock have been excluded in that such persons
may be deemed to be affiliates.

The
number of shares outstanding of each of the issuers classes of common stock,
as of the latest practicable date:

|                                 |  |                                              
|-------------------------------- |  | ---------------------------------------------
|Class                            |  | Number of Shares Outstanding
  March 28, 2007
|                                 |  |                                              
|Common
  Stock, $.0001 par value |  | 11,800,026                                   
|                                 |  |                                              
|                                 |  |                                              

Transitional
Small Business Disclosure Format (Check one): YES o  NO x

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CONMED HEALTHCARE MANAGMENT, INC. 
2006 FORM 10-KSB ANNUAL REPORT

TABLE OF CONTENTS

|         |                                                                                                                                            |     
|-------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                                                            | Page
|         |                                                                                                                                            |     
|         | PART I.                                                                                                                                    |     
|         |                                                                                                                                            |     
|ITEM 1.  | Description
  of Business                                                                                                                  | 1   
|         |                                                                                                                                            |     
|ITEM 2.  | Description of Property                                                                                                                    | 11  
|         |                                                                                                                                            |     
|ITEM 3.  | Legal
  Proceedings.                                                                                                                       | 11  
|         |                                                                                                                                            |     
|ITEM 4.  | Submission
  of Matters to a Vote of Security Holders                                                                                      | 11  
|         |                                                                                                                                            |     
|         | PART II.                                                                                                                                   |     
|         |                                                                                                                                            |     
|ITEM 5.  | Market for
  Common Equity and Related Stockholder Matters                                                                                 | 12  
|         |                                                                                                                                            |     
|ITEM 6.  | Managements
  Discussion and Analysis or Plan of Operation                                                                                | 12  
|         |                                                                                                                                            |     
|ITEM 7.  | Financial
  Statements                                                                                                                     | 15  
|         |                                                                                                                                            |     
|ITEM 8.  | Changes In
  and Disagreements With Accountants on Accounting
  and Financial Disclosure                                                   | 28  
|         |                                                                                                                                            |     
|ITEM 8A. | Controls
  and Procedures                                                                                                                  | 28  
|         |                                                                                                                                            |     
|ITEM 8B. | Other
  Information                                                                                                                        | 28  
|         |                                                                                                                                            |     
|         | PART III                                                                                                                                   |     
|         |                                                                                                                                            |     
|ITEM 9   | Certain
  Relationships and Related Transactions, and Director Independence.                                                               | 29  
|         |                                                                                                                                            |     
|ITEM 10. | Executive
  Compensation                                                                                                                   | 31  
|         |                                                                                                                                            |     
|ITEM 11. | Security
  Ownership of Certain Beneficial Owners and Management
  and Related Stockholder Matters                                         | 31  
|         |                                                                                                                                            |     
|ITEM 12. | Directors,
  Executive Officers, Promoters , Control Persons and Corporate Governance;
  Compliance With Section 16(a) of the Exchange Act | 33  
|         |                                                                                                                                            |     
|ITEM 13. | Exhibits                                                                                                                                   | 34  
|         |                                                                                                                                            |     
|ITEM 14. | Principal
  Accountant Fees and Services                                                                                                   | 35  
|         |                                                                                                                                            |     
|         | SIGNATURES                                                                                                                                 | 36  

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PART I.

|        |                        
|------- | -----------------------
|ITEM 1. | DESCRIPTION OF BUSINESS

GENERAL

Prior
to October 1998, Pace Health Management Systems, Inc. (Pace, or the Company,
or we, or us) developed and marketed advanced patient care management
software systems that enabled healthcare providers to standardize the delivery
of care, maximize resource utilization and improve clinical outcomes.

On
October 7, 1998, the Company completed the sale of substantially all of its
assets to, and the assumption of certain of its liabilities by, Minnesota
Mining and Manufacturing Company (3M) (the Transaction). The sale was made
pursuant to an Asset Purchase Agreement dated June 30, 1998, as amended, as
described in Companys definitive proxy statement dated September 14, 1998. The
Transaction was approved by the holders of both the common stock and the
preferred stock at a special meeting of shareholders held on October 7, 1998.

The
purchase price of the Transaction was approximately $5.9 million, including
$4.75 million in cash, of which $750,000 was originally placed in escrow to
secure the Companys indemnification obligations under the Asset Purchase
Agreement, plus the assumption of substantially all of the Companys
liabilities other than $2.1 million in line of credit balances, which were paid
off from proceeds at closing. Subsequent to the closing of the Transaction, the
Company agreed that $25,000 of the amount in escrow could be paid to 3M as part
of a purchase price adjustment contemplated by the Asset Purchase Agreement,
leaving an escrow balance of $725,000.

In
July 1999, the Company received proceeds from the restricted escrow account
totaling approximately $525,000. In December 2000, the Company received final
proceeds from the restricted escrow account totaling $104,953. A like amount
was also paid to 3M in final settlement and as an adjustment to the purchase
price.

Following
the Transaction, the Company has no ongoing operations and no revenues and has
minimal operating expenses. As of December 31, 2006, the Company had no
employees. The Companys December 31, 2006 balance sheet reflects current
assets of $1,204,803 million and current liabilities of $367,639.

RECENT DEVELOPMENTS

For a complete description of the transactions
described
below, please see the current reports on Forms 8-K filed on February 1, 2007,
March 19, 2007, and March 20, 2007.

On
August 2, 2006, Pace entered into a Stock Purchase Agreement (Agreement) with
CONMED, Inc., a Maryland corporation (CONMED) and all of the stockholders of
CONMED (the CONMED Stockholders), pursuant to which Pace agreed to purchase
all the issued and outstanding capital stock of CONMED from the CONMED
Stockholders (the Acquisition). The Acquisition was consummated on January
26, 2007. In a simultaneous transaction, Pace completed a private placement
(Private Placement) of approximately $15,000,000 worth of units of Series B
Convertible Preferred Stock and warrants, of which approximately $8,000,000
were paid directly to the CONMED Stockholders as consideration for the sale of
CONMEDs capital stock, and the remainder was retained for the Companys
working capital purposes.

CONMED
has provided correctional healthcare services since 1984 and was formed as a corporation
on June 10, 1987 in the State of Maryland for the purpose of providing
healthcare services exclusively to county detention centers located in
Maryland. As CONMED developed, it accepted more contracts for additional
services including pharmacy and out-of-facility healthcare expenses. In 2000,
CONMED served more than 50% of the county detention healthcare services market
in Maryland. In 2003, CONMED elected to seek contracts outside of Maryland and
by 2006; it had secured contracts in Kansas, Virginia and Washington.
Currently, CONMED is in contract with and services 17 detention centers and
facilities at the county level in the United States. For the fiscal year ended
December 31, 2006, CONMED had net revenues from medical services provided to correctional
institutions of $16,776,724. For the fiscal year ended December 31, 2005,
CONMED had net revenues from medical services provided to correctional
institutions of $11,669,332. As a result of the Acquisition, CONMED became a
wholly-owned subsidiary of Pace, and the business of CONMED became Paces
primary business.

1

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On
January 26, 2007, Pace sold to certain accredited investors 150 units, each
unit consisting of (i) 100 shares of its Series B Convertible Preferred Stock
(Series B Preferred Stock), (ii) a common stock purchase warrant entitling
the holder to purchase up to 10,000 shares of its Common Stock at an exercise
price equal to $0.30 per share and (iii) a common stock purchase warrant
entitling the holder to purchase up to 3,333 shares of its Common Stock at an
exercise price equal to $2.50 per share (such units are the Units), in a
private offering pursuant to exemption from registration under Section 4(2) of
the Securities Act of 1933, as amended and Rule 506 of Regulation D promulgated
thereunder. Each Unit was sold for $100,000, for an aggregate purchase price of
$15,000,000. The proceeds from the sale of the Units were used by Pace to
purchase all the issued and outstanding capital stock of CONMED and to provide
us with working capital following the purchase.

In
connection with the sale of the Units, Pace retained Maxim Group LLC, an NASD
member broker-dealer as its exclusive placement agent. Maxim received the
following compensation: (i) a cash fee of 10% of the gross proceeds (for an
aggregate of $1,500,000) and (ii) a warrant to purchase 5% of the common stock
that is issuable upon conversion of the Units, at an exercise price equal to
$2.75 per share of common stock.

On
January 15, 2007, Paces Board of Directors approved a plan of recapitalization
(Plan of Recapitalization), which it subsequently submitted for shareholder
approval. At a special meeting held on March 13, 2007, the shareholders
approved the following:

| |   |                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | conversion
  of the existing Pace Series A Preferred Stock into 4,584,196 shares of our
  common stock (immediately after the 1 for 20 reverse stock split) in exchange
  for conversion of, and waiver of remaining accrued and unpaid dividends and
  liquidation rights, on the Series A Preferred Stock;
| |   |                                                                                                                                                                                                                                                                                                             
| |  | a reverse
  split of 1 share for each 20 shares of common stock;                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                             
| |  | the change
  of our name to Conmed Healthcare Management, Inc.;                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                             
| |  | our
  reincorporation into the State of Delaware via a merger with a wholly owned
  subsidiary. The merger was effected on March 14, 2007 and we are now a
  Delaware corporation and CONMED is our wholly-owned operating subsidiary;                                                                      
| |   |                                                                                                                                                                                                                                                                                                             
| |  | the election
  of Richard Turner, John Pappajohn and Edward B. Berger as our directors; and                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                             
| |  | the adoption
  of the 2007 Stock Option Plan                                                                                                                                                                                                                                                                

The
merger referred to above was effected March 14, 2007. At the same time,
pursuant to their terms, all of Paces Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock converted into shares of our
common stock. We currently have no preferred stock outstanding.

In
addition, on March 13, 2007, the Board of Directors increased the number of
directors by one and appointed Terry E. Branstad to fill the vacancy.

RISK FACTORS

An investment in our securities is extremely
risky. You should carefully consider the following risks, in addition to the
other information presented in this Annual Report on Form 10-K before deciding
to buy or exercise our securities. If any of the following risks actually
materialize, our business and prospects could be seriously harmed, the price
and value of our securities could decline and you could lose all or part of
your investment.

Risks related to Our
Business

RISKS ASSOCIATED WITH INTERNAL EXPANSION.
Our growth is generally dependent upon CONMEDs ability to obtain contracts to
provide medical services to inmates in county correctional and detention
facilities. The growth rate of our business depends on a number of factors,
including crime rates and sentencing patterns in various jurisdictions and our
ability to integrate new facilities into its management structure. We may have
to obtain sufficient capital resources in order to compete effectively in the
industry. We cannot assure you that any contract will, in fact, be awarded.
Further, we cannot assure you that we will be able to obtain contracts to
manage the medical services in new facilities or retain existing contracts upon
their expiration.

2

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WE PROVIDE CONTRACTED BUSINESS SERVICES. IN ANY
CONTRACT BUSINESS, IT IS POSSIBLE A CONTRACT WILL BE LOST OR NOT RENEWED.
CONMEDs top three clients, Sedgwick County Detention Center, Baltimore County
Detention Center and Howard County Detention Center, generated approximately
forty-two percent (42%) of its total revenues for the year ended December 31,
2006. These same clients generated approximately twenty-four percent (24%) of
our direct profit per contract. If a contracted detention facility,
particularly one of our primary detention facilities terminates its contract,
which generally may be effective upon ninety (90) days written notice, our
business and financial performance may be seriously harmed.

MOST OF OUR CONTRACTS ARE FOR SHORT-TERMS, AND MAY NOT
BE EXTENDED. CONMEDs detention center medical services contracts
are typically short-term, ranging from one to three years, with renewal or
extension options in favor of the contracting governmental agency. Including
extension options, we have one major contract and several smaller contracts
subject to renewal in 2007, which accounted for approximately 12% and 6% of
revenue for the year ended December 31, 2006, respectively. We cannot assure
you that these or any other contracts will be renewed or that extension options
will be exercised. Additionally, the contracting governmental agency typically
may terminate a facility contract without cause by giving us adequate written
notice. We customarily incur significant development and start-up costs in
establishing its services within the new facilities, and the termination or
non-renewal of a contract would require an immediate write-off of any
unamortized costs associated with the contract, and could have a material
adverse effect upon our financial condition, results of operations and
liquidity.

WE ARE CURRENTLY NEGOTIATING A $5.6 MILLION CONTRACT
TO PROVIDE MEDICAL SERVICES. IF WE DO NOT FINALIZE THE TERMS OF THIS AGREEMENT,
OUR FINANCIAL PERFORMANCE COULD BE NEGATIVELY AFFECTED.CONMED is
currently providing medical services to the Baltimore County Detention Center
on an interim transition basis. We have entered into final negotiations for a
new nine year contract with an annual revenue value equal to approximately $5.6
million and an aggregate revenue value equal to approximately $54 million.
Baltimore County Detention Center accounted for approximately 10% of total
revenue for the year ended December 31, 2006. If CONMED does not finalize the
terms of this Baltimore County contract, and does not gain Baltimore County as one
of their contracted site facilities, CONMEDs future business and financial
performance may be seriously harmed.

OUR CONTRACTS ARE SUBJECT TO GOVERNMENTAL FUNDING.
CONMEDs detention center medical services contracts are subject to either
annual or bi-annual governmental appropriations. Failure by a governmental
agency to receive such appropriations could result in termination of the
contract by such agency or a reduction of the fee payable to us. In addition,
even if funds are appropriated, delays in payments may occur which could have a
material adverse effect on our financial condition, results of operations and
liquidity.

OUR
INABILITY TO OBTAIN REQUIRED PERFORMANCE AND/OR PAYMENT BONDS MAY LIMIT OUR
ABILITY TO MAINTAIN EXISTING CONTRACTS AND ACQUIRE ADDITIONAL CONTRACTS.
In order to expand CONMEDs business and obtain new facilities contracts, as
well as maintain certain existing contracts, CONMED will need to obtain bonds
in certain counties for which CONMED provides its services. In order to obtain
such bonds, or renew existing bonds, CONMED will be required to fulfill certain
financial requirements and standards. To the extent CONMED is unable to fulfill
the necessary financial requirements and standards, CONMED may not be able acquire
new facilities contracts and could lose its existing contracts, all of which
could negatively impact our business operations and financial condition.

WE ARE UNCERTAIN AS TO OCCUPANCY LEVELS AT CERTAIN
FACILITIES WE SERVICE. A small portion of our revenues are generated
under detention center medical services contracts that specify an offset for
populations under a specified number. Under such a per diem rate structure, a
decrease in occupancy levels could cause a decrease in the facilities needs
for medical services, and therefore, could cause a decrease in revenue and
profitability, and may have some adverse effect on our overall financial
condition, results of operations and liquidity.

DISTURBANCES AT FACILITIES WE SERVICE WOULD IMPACT US
NEGATIVELY. An escape, riot, epidemic, catastrophic or other
disturbance that seriously impacts the health of a large number of inmates at
one of CONMEDs facilities could have a material adverse effect on our
financial condition, results of operations and liquidity. As a result of a
disturbance inmates may suffer multiple injuries for which the cost of care may
have a temporary but significant effect on profitability. Approximately 78% of
CONMEDs healthcare services revenues for the year ended December, 2006 are
operated under caps which provide limits on the cost of exposure; however,
multiple events with significant costs may exceed budget targets.

The
remaining 22% of CONMEDs correctional healthcare services revenues from
continuing operations contain no limits on CONMEDs exposure for treatment
costs related to catastrophic illnesses or injuries to inmates. Although CONMED
attempts to

3

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compensate for
the increased financial risk when pricing contracts that do not contain catastrophic
limits and has not had any catastrophic illnesses or injuries to inmates that
exceeded its insurance coverage in the past, We cannot assure you that CONMED
will not experience a catastrophic illness or injury of a patient that exceeds
its coverage in the future. The occurrence of severe individual cases outside
of those catastrophic limits could render contracts unprofitable and could have
a material adverse effect on CONMEDs financial condition and results of
operations.

WE
MAY BE SUBJECT TO LITIGATION CLAIMS RESULTING FROM OR RELATING TO INMATE
DEATHS. Prisoners may die while in a correctional
facility due to various reasons, including, without limitation, natural causes
and suicide. Consequently, CONMED may be exposed to potential liability arising
from or relating to such deaths. Such occurrences may have a negative impact on
CONMEDs business operations.

WE
MAY INCUR SIGNIFICANT START-UP AND OPERATING COSTS ON NEW CONTRACTS BEFORE
RECEIVING RELATED REVENUES, WHICH MAY IMPACT OUR CASH FLOWS AND NOT BE
RECOUPED.When
we are awarded a contract to provide medical services to a facility, we may
incur significant start-up and operating expenses, including the cost of
purchasing equipment and staffing the facility, before we receive any payments
under the contract. These expenditures could result in a significant reduction
in our cash reserves and may make it more difficult for us to meet other cash
obligations. In addition, a contract may be terminated prior to its scheduled
expiration and as a result we may not recover these expenditures or realize any
return on our investment.

WE
UTILIZE THIRD PARTY ADMINISTRATORS (TPA) AND PROVIDER NETWORKS TO OBTAIN
OUT-OF-FACILITY CARE IN VARIOUS MARKETS. SHOULD THOSE NETWORKS BECOME INACCESSIBLE
OUR COSTS FOR PROVIDING THOSE SERVICES WOULD RISE 15-20%.
Our current profit margin is in part due to our ability to reduce
out-of-facility costs that are defined by contracted networks. Our costs are
typically 17% less than the stated charges for these services. It is important
to note that healthcare providers for the general public utilize these same
programs. It is unlikely the environment will change, causing the return of
payments based on healthcare providers charges without discounts. The trend
over the past ten years has been one of deeper discounting against these
charges. If the trend reversed or slowed, it would negatively impact our
operating margins and could have a material adverse effect on us.

CHANGES IN STATE AND FEDERAL REGULATIONS COULD
RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS. CONMED is subject to
extensive regulation by both the federal government and the states in which it
conducts its business. There are numerous healthcare and other laws and
regulations that CONMED is required to comply with in the conduct of its
business. These laws may be materially changed in the future or new or
additional laws or regulations may be adopted with which CONMED will be
required to comply. The cost of compliance with current and future applicable
laws, rules and regulations may be significant.

These
state and federal laws and regulations that affect CONMEDs business and
operations include, but are not necessarily limited to:

| |  |   |                                                                                                                   
| |  | - | ------------------------------------------------------------------------------------------------------------------
| |  |  | healthcare
  fraud and abuse laws and regulations, which prohibit illegal referral and
  other payments;          
| |  |   |                                                                                                                   
| |  |  | Employee
  Retirement Income Security Act of 1974 and related regulations, which
  regulate many healthcare plans;
| |  |   |                                                                                                                   
| |  |  | pharmacy
  laws and regulations;                                                                                  
| |  |   |                                                                                                                   
| |  |  | privacy and
  confidentiality laws and regulations;                                                               
| |  |   |                                                                                                                   
| |  |  | civil
  liberties protection laws and regulations;                                                                
| |  |   |                                                                                                                   
| |  |  | state and
  national correctional healthcare auditing bodies;                                                     
| |  |   |                                                                                                                   
| |  |  | various
  licensure laws, such as nursing and physician licensing bodies;                                         
| |  |   |                                                                                                                   
| |  |  | drug pricing
  legislation; and                                                                                   
| |  |   |                                                                                                                   
| |  |  | Medicare and
  Medicaid reimbursement regulations.                                                                

CONMED
believes it is operating its business in substantial compliance with all
existing legal requirements material to the operation of its business. There are,
however, significant uncertainties regarding the application of many of these
legal requirements to

4

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its business,
and there cannot be any assurance that a regulatory agency charged with
enforcement of any of these laws or regulations will not interpret them
differently or, if there is an enforcement action, that CONMEDs interpretation
would prevail. In addition, there are numerous proposed healthcare laws and
regulations at the federal and state levels, many of which could materially
affect CONMEDs ability to conduct its business or adversely affect its results
of operations.

For
example, the State of Maryland Board of Nursing has requested that CONMED
provide 24 hour, 365 day per year nursing coverage in order to be compliant
with newly approved state regulations regarding nursing standards. To be
compliant with this change would require several of the smaller facilities to
significantly increase the level of staffing from part-time medics to full-time
nursing positions. The costs for this increase would be outside the scope of
the current contracts. In order to be compliant, CONMED will need to secure
contract extensions for the higher level of staffing.

CONMED
is currently in discussion with the Maryland Sheriffs, Maryland Association of
Counties, Maryland Correctional Administrators Association and the Department
of Health and Mental Hygiene to develop a workable matrix of staffing that will
fit the needs and budgets of small county detention centers. Considerable
progress has been made toward reaching a negotiated resolution; however, we
cannot assure you that we will succeed in developing such a workable matrix of
staffing.

WE
ARE SUBJECT TO HIPAA, THE FAILURE WITH WHICH TO COMPLY COULD ADVERSELY AFFECT
CONMEDS BUSINESS. On August 21, 1996, Congress passed
the Health Insurance Portability and Accountability Act of 1996 (HIPAA). This
legislation required the Secretary of the Department of Health and Human
Services to adopt national standards for electronic health transactions and the
data elements used in such transactions. The Secretary has adopted safeguards
to ensure the integrity and confidentiality of such health information.
Violation of the standards is punishable by fines and, in the case of wrongful
disclosure of individually identifiable health information, imprisonment.
Although CONMED intends to comply with all applicable laws and regulations
regarding medical information privacy, failure to do so could have an adverse
effect on CONMEDs business.

OUR
ABILITY TO SECURE NEW CONTRACTS TO PROVIDE HEALTHCARE AND MEDICAL SERVICES TO
CORRECTIONAL AND DETENTION FACILITIES DEPENDS ON MANY FACTORS OUTSIDE OUR
CONTROL.Our growth is generally dependent upon our
ability to obtain new contracts to provide healthcare medical services to
correctional and detention facilities. This possible growth depends on a number
of factors we cannot control, including crime rates and sentencing patterns in
various jurisdictions and acceptance of privatization. The demand for our
services could be adversely affected by the relaxation of enforcement efforts,
leniency in conviction and sentencing practices or through the
decriminalization of certain activities currently proscribed by our criminal
laws. For instance, any changes with respect to drugs and controlled substances
or illegal immigration could affect the number of persons arrested, convicted
and sentenced, thereby potentially reducing demand for correctional facilities
to house them, and thus, reduce the number of inmates receiving medical
services. Legislation has been proposed in numerous jurisdictions that could
lower minimum sentences for some non-violent crimes and make more inmates
eligible for early release based on good behavior. Also, sentencing
alternatives under consideration could put some offenders on probation with
electronic monitoring who would otherwise be incarcerated. Similarly,
reductions in crime rates could lead to reductions in arrests, convictions and
sentences requiring incarceration at correctional facilities.

In
January 2005, the Supreme Court declared the federal sentencing guidelines,
previously considered mandatory, as unconstitutional, stating they violate
defendants rights under the Sixth Amendment to be tried by a jury. The Supreme
Court advised that federal judges should continue to use the federal sentencing
guidelines as suggestions rather than mandatory guidelines. Although it is too
early to predict the impact, if any, on our business, the ruling could lead to
federal sentences becoming more varied which could lead to a reduction in the
length of sentences at correctional facilities.

GOVERNMENT
AGENCIES MAY INVESTIGATE AND AUDIT OUR CONTRACTS AND, IF ANY IMPROPRIETIES ARE
FOUND, WE MAY BE REQUIRED TO REFUND REVENUES WE HAVE RECEIVED, REQUIRED TO
FOREGO ANTICIPATED REVENUES, AND SUBJECT TO PENALTIES AND SANCTIONS.
Certain governmental agencies have the authority to audit and investigate our
contracts. As part of that process, government agencies may review our performance
of the contract, our pricing practices, our cost structure and our compliance
with applicable laws, regulations and standards. For contracts that actually or
effectively provide for reimbursement of expenses, if an agency determines we
have improperly allocated costs to a specific contract, we may not be
reimbursed for those costs, and we could be required to refund the amount of
any such costs that have been reimbursed. If a government audit asserts
improper or illegal activities by us, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of contracts,
forfeitures of profits, suspension of payments, fines and suspension or
disqualification from doing business with certain government entities.

5

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THERE
ARE LARGE COMPETITORS IN THE HEALTHCARE INDUSTRY THAT COULD CHOOSE TO COMPETE
AGAINST US REDUCING OUR PROFIT MARGINS. Existing
national correctional healthcare contract companies, localized and regional
contracting companies, hospitals and integrated Health Systems are potential
competitors of CONMED. These companies include well-established companies which
may have greater financial, marketing and technological resources than CONMED,
such as PHS, CMS and Wexford Health. Increased price competition could reduce
CONMEDs profit margins and have a material adverse effect on us.

THERE
ARE BARRIERS TO ENTRY INTO THE CORRECTIONAL HEALTHCARE SERVICES MARKET WHICH
COULD BE OVERCOME RESULTING IN GREATER COMPETITION.
The barriers to entrance to compete for contracts are typically 5 years
experience providing the same services and demonstrated financial stability.
Although a new startup company would be unable to meet the experience criteria,
it would be possible for an investor to purchase an existing experienced
company, add capital and quickly become competitive on a national scale.

WE
ARE DEPENDENT ON GOVERNMENT APPROPRIATIONS. Our cash
flow is subject to the receipt of sufficient funding of, and timely payment by,
contracting governmental entities. If the appropriate governmental agency does
not receive sufficient appropriations to cover its contractual obligations, it
may terminate our contract or delay or reduce payment to us. Any delays in
payment, or the termination of a contract, could have an adverse effect on our
cash flow and financial condition. In addition, as a result of, among other
things, recent economic developments, federal, state and local governments have
encountered, and may encounter, unusual budgetary constraints. As a result, a
number of state and local governments are under pressure to control additional
spending or reduce current levels of spending. Accordingly, we may be requested
in the future to reduce our existing per diem contract rates or forego
prospective increases to those rates. In addition, it may become more difficult
to renew our existing contracts on favorable terms or otherwise.

OUR INABILITY TO REACT EFFECTIVELY TO CHANGES IN THE
HEALTHCARE INDUSTRY COULD ADVERSELY AFFECT OUR OPERATING RESULTS.In
recent years, the healthcare industry has undergone significant change driven
by various efforts to reduce costs, including potential national healthcare
reform, trends toward managed care, cuts in Medicare reimbursements, and
horizontal and vertical consolidation within the healthcare industry. Proposed
changes to the U.S. healthcare system may increase governmental involvement in
healthcare and ancillary health services, and otherwise change the way payers,
networks and providers conduct business. Healthcare organizations may react to
these proposals and the uncertainty surrounding them by reducing or delaying
purchases of cost control mechanisms and related services that we provide.
Other legislative or market-driven changes in the healthcare system that we
cannot anticipate could also materially adversely affect our business. Our
inability to react effectively to these and other changes in the healthcare
industry could adversely affect its operating results. We cannot predict
whether any healthcare reform efforts will be enacted and what effect any such
reforms may have on us or our customers. Our inability to react effectively to
changes in the healthcare industry may result in a material adverse effect on
our business.

THE
CONTINUED SERVICES AND LEADERSHIP OF OUR SENIOR MANAGEMENT IS CRITICAL TO OUR
ABILITY TO MAINTAIN GROWTH AND ANY LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT
ITS BUSINESS. The future of the business of CONMED
depends to a significant degree on the skills and efforts of our senior
executives, in particular, Dr. Richard Turner, our President and Chief
Executive Officer, Ronald Grubman, our Executive Vice President of Strategic
Development and Howard Haft, MD, MMM, CPE, our Executive Vice President and
Chief Medical Officer. If CONMED loses the services of any of our senior
executives, and especially if any of our executives joins a competitor or forms
a competing company, our business and financial performance could be seriously
harmed.

We
have executed employment agreements with Mr. Grubman, Dr. Haft and Dr. Turner,
effective as of the closing of the Acquisition, which include, except for Dr.
Turners employment agreement, noncompetition clauses that expire three (3)
years after termination of employment, or during the period that such employee
is an owner of any of our issued and outstanding stock. If, for any reason, we
lose any of our executive officers skills, knowledge of the industry, contacts
and expertise, it could result in a setback to our operating plan.

AS
A PUBLIC COMPANY WE INCUR SUBSTANTIAL ADDITIONAL COSTS AND MAY BE UNABLE TO
OPERATE PROFITABLY. Prior to the consummation of the Plan of Recapitalization,
CONMED was a privately held company. As a result of becoming a publicly-traded
company, CONMED will incur significant additional costs. These costs include,
among other things, the payment of a salary to CONMEDs Chief Executive
Officer, Dr. Richard Turner and additional legal and accounting costs incurred
as a result of becoming a public company, and the additional compliance,
reporting, corporate governance requirements and investor relations activities
which this entails. Furthermore, CONMED may not be able to successfully put in
place the financial, administrative and managerial structures necessary to
operate as a public company, or the development of such structures may require

6

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a significant
amount of managements time and other resources including financial resources,
which could hinder CONMEDs ability to operate profitably.

OUR
REVENUE MARGINS MAY DECREASE DUE TO FIXED REVENUE BASE.
CONMEDs existing contracts are primarily structured as fixed fee contracts.
The costs of inmate healthcare may fluctuate from what was anticipated by
CONMED due to several variables, including increases in inmate population and
increased inmate illness. Such additional costs may not be easily passed
through under those contracts containing a fixed fee structure, and therefore,
CONMED may not always have sufficient revenue to cover such increased costs. As
a result, CONMEDs revenue margins may fall. If CONMEDs revenue margins
decrease more than 1 or 2 percentage points, CONMEDs ability to perform under
its contracts may be limited, which could negatively impact CONMEDs business
operations and financial performance.

WE
MAY BE UNSUCCESSFUL IN THE HIRING AND RETENTION OF SKILLED PERSONNEL.
The future growth of CONMEDs business depends on successful hiring and
retention of skilled personnel, and CONMED may be unable to hire and retain the
skilled personnel it needs to succeed. Qualified personnel are in great demand
throughout the healthcare industry, thus it is difficult to predict the
availability of qualified personnel or the compensation levels required to hire
and retain them. CONMED faces stiff competition for staffing, which may
increase its labor costs and reduce profitability. CONMED competes with other
healthcare and service providers in recruiting qualified management and staff
personnel for the day-to-day operations of its business, including nurses and
other healthcare professionals. In some markets, the scarcity of nurses and
other medical support personnel has become a significant operating issue to
healthcare businesses. This scarcity may require CONMED to enhance wages and
benefits to recruit and retain qualified nurses and other healthcare
professionals. Because a significant percentage of CONMEDs existing contracts
are structured as fixed fee contracts, CONMED has a limited ability to pass
along increased labor costs to existing customers. The failure of CONMED to
attract and retain sufficient skilled personnel at economically reasonable
compensation levels may limit CONMEDs ability to perform under its contracts,
which could lead to the loss of existing contracts or its ability to gain new
contracts, and may impair CONMEDs ability to operate and expand its business,
as well as harm its financial performance.

WE
MAY EXPERIENCE UNBUDGETED INCREASES IN COSTS RELATED TO THE PROVISION OF
HEALTHCARE. Currently, CONMED predicts the costs of
healthcare based on prior experience and projected increases. The projections
for future increases are based on historical trends and expected increases
related to the development of new healthcare initiatives, treatments and disease
states. For example recent increases in the use of high cost psychiatric
medications have triggered increases in the projected costs of those
medications in the bid process. However, mid cycle increases, such as those
associated with the need to use a more expensive antibiotic for a drug
resistant infection, or the development of a standard treatment for Hepatitis
C, for example, would produce significant cost overruns in pharmacy budgeted
expenses.

WE
ARE SUBJECT TO NECESSARY INSURANCE COSTS.Workers
compensation, employee health, medical professional and general liability
insurance represent significant costs to us. Because we significantly
self-insure for workers compensation, employee health, medical professional
and general liability risks, our insurance expense is dependent on claims
experience, our ability to control our claims experience, and in the case of
workers compensation and employee health, rising health care costs in general.
Further, additional terrorist attacks, such as those on September 11, 2001, and
concerns over corporate governance and corporate accounting scandals, could
make it more difficult and costly to obtain liability and other types of
insurance. Unanticipated additional insurance costs could adversely impact our
results of operations and cash flows, and the failure to obtain or maintain any
necessary insurance coverage could have a material adverse effect on us.

WE MAY BE ADVERSELY AFFECTED BY INFLATION.
Many of our medical services contracts provide for fees that increase by only
small amounts during their terms. If, due to inflation or other causes, our
operating expenses, such as wages and salaries of our employees, insurance,
medical, and food costs, increase at rates faster than increases, if any, in
our contract fees, then our profitability would be adversely affected.

WE MAY EXPERIENCE LIABILITY SUITS.
Our medical services to correctional and detention facilities exposes us to
potential third-party claims or litigation by inmates or other persons for adverse
outcomes (medical malpractice) as well as suits related to infringement of
their 8th amendment rights (deliberate indifference). It is likely
that as we grow it will be exposed to additional healthcare liability issues.
CONMED currently maintains medical professional liability insurance to cover
potential losses, in the amounts of $1,000,000 per incident, $3,000,000 per
physician or location aggregate, and $5,000,000 in the aggregate. Such
insurance is expensive, subject to various coverage exclusions and deductibles
and may not be obtainable in the future on terms acceptable to us, or at all. A
successful claim against us in excess of our insurance coverage could
materially harm our business.

7

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WE
FACE RISKS ASSOCIATED WITH ACQUISITIONS. We intend to
grow through internal expansion and through selective acquisitions. We cannot
assure you that we will be able to identify, acquire or profitably manage
acquired operations or that operations acquired will be profitable or achieve
levels of profitability that justify the related investment. Acquisitions
involve a number of special risks, including possible adverse short-term
effects on our operating results, diversion of managements attention from
existing business, dependence on retaining, hiring and training key personnel,
risks associated with unanticipated problems or legal liabilities, and
amortization of acquired intangible assets, any of which could have a material
adverse effect on our financial condition, results of operations and liquidity.

WE
DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
FUTURE.We currently intend to retain all future
earnings, if any, to finance our current and proposed business activities and
do not anticipate paying any cash dividends on our Common stock in the
foreseeable future. We may also incur indebtedness in the future that may
prohibit or effectively restrict the payment of cash dividends on our common
stock. If we determine that we will pay dividends to the holders of our common
stock, there is no assurance or guarantee that such dividends will be paid on a
timely basis.

THE
LIABILITY OF OUR OFFICERS AND DIRECTORS IS LIMITED. As
part of the Plan of Recapitalization, we reincorporated as a Delaware
corporation and we provide our officers and directors indemnification to the
fullest extent allowed under the Delaware General Corporation Law. We also
carry directors and officers liability insurance. In addition, we plan to
enter into an indemnification agreement with our officers and directors in 2007
which will provide for expanded indemnification rights for such individuals. As
a result of the foregoing, stockholders may be unable to recover damages
against our officers and directors for actions taken by them which constitute
negligence, gross negligence or a violation of their fiduciary duties and may
otherwise discourage or deter our stockholders from suing our officers or
directors even though such actions, if successful, might otherwise benefit us
and our stockholders.

WE MAY NOT BE ABLE TO COMPLY WITH THE SARBANES-OXLEY
ACT. The enactment of the Sarbanes-Oxley Act in July 2002 created a
significant number of new corporate governance requirements and additional
requirements may be enacted in the future. Since the common stock is currently
quoted on the OTC Bulletin Board, we are not currently subject to a number of
such governance requirements. Although we expect to implement the requisite
changes to become compliant with existing requirements, and new requirements
when they do apply to us, we may not be able to do so, or to do so in a timely
manner. If we do not come into compliance with the Sarbanes-Oxley governance
requirements, we may not be able to list our securities on either AMEX or
Nasdaq markets in the event we ever attempt to do so.

CERTAIN
STOCKHOLDERS CAN EXERT CONTROL OVER US AND MAY NOT MAKE DECISIONS THAT FURTHER
THE BEST INTERESTS OF ALL STOCKHOLDERS. Our officers,
directors and principal stockholders (greater than 5% stockholders) together
own a majority of our issued and outstanding common stock. Consequently, these
stockholders, if they act individually or together, may exert a significant
degree of influence over our management and affairs and over matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, this concentration of
ownership may delay or prevent a change of control of us and might affect the
market price of our common stock, even when a change of control may be in the
best interest of all stockholders. Furthermore, the interests of this
concentration of ownership may not always coincide with our interests or the
interests of other stockholders, and accordingly, they could cause us to enter
into transactions or agreements which we would not otherwise consider.

OUR
ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAKE IT HARDER FOR US TO BE ACQUIRED
WITHOUT THE CONSENT AND COOPERATION OF OUR BOARD OF DIRECTORS AND MANAGEMENT.
Provisions of our organizational documents and Delaware law may deter or
prevent a takeover attempt, including a takeover attempt in which the potential
purchaser offers to pay a per share price greater than the current market price
of our common stock. Under the terms of our certificate of incorporation, our
board of directors has the authority, without further action by the
stockholders, to issue shares of preferred stock in one or more series and to
fix the rights, preferences, privileges and restrictions of such shares. The
ability to issue shares of preferred stock could tend to discourage takeover or
acquisition proposals not supported by our current board of directors. In
addition, we are subject to Section 203 of the Delaware General Corporation
Law, which restricts business combinations with some stockholders once the
stockholder acquires 15% or more of our common stock.

Risks Related to Our Securities

TRADING
IN OUR COMMON STOCK OVER THE LAST 12 MONTHS HAS BEEN LIMITED, SO INVESTORS MAY
NOT BE ABLE TO SELL AS MANY OF THEIR SHARES AS THEY WANT AT PREVAILING PRICES.
Shares of our common stock are traded on the OTC Bulletin Board. Approximately
827 shares, as adjusted for the 1 for 20 reverse stock split,

8

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were traded on
an average daily trading basis for the twelve (12) months ended December 31,
2006. If limited trading in our common stock continues, it may be difficult for
investors once and if the securities are registered, to sell the securities
acquired by them. Also, the sale of a large block of our common stock could
depress the market price of our common stock to a greater degree than a company
that typically has a higher volume of trading of its securities.

THE
MARKET PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE, WHICH MAY LEAD TO
LAWSUITS AGAINST US. Our common stock is currently
traded on the OTC Bulletin Board under the symbol CMCH. The quotation of our
common stock on the OTC Bulletin Board does not assure that a meaningful,
consistent and liquid trading market currently exists, and in recent years such
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of many companies like ours. Our common
stock is thus subject to this volatility. Sales of substantial amounts of our
common stock, or the perception that such sales might occur, could adversely
affect prevailing market prices of our common stock.

The
trading price of our common stock could also be subject to wide fluctuations in
response to quarter-to-quarter variations in our operating results,
announcements of new contracts, cancellations of existing contracts or new
acquisitions by us or our competitors, changes in financial estimates by
securities analysts or other events or factors. When the market price of a
companys stock drops significantly, stockholders often institute securities
class action lawsuits against that company. A lawsuit against us could cause us
to incur substantial costs and could divert the time and attention of our
management and other resources.

AN
ACTIVE AND VISIBLE TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP.
We cannot predict whether an active market for our common stock will develop in
the future. In the absence of an active trading market:

| |  |   |                                                                                                                     
| |  | - | --------------------------------------------------------------------------------------------------------------------
| |  |  | investors
  may have difficulty buying and selling or obtaining market quotations;                                  
| |  |   |                                                                                                                     
| |  |  | market
  visibility for our common stock may be limited; and                                                        
| |  |   |                                                                                                                     
| |  |  | a lack of
  visibility for our common stock may have a depressive effect on the market
  price for our common stock.

The
OTC Bulletin Board is an unorganized, inter-dealer, over-the-counter market
that provides significantly less liquidity than NASDAQ, and quotes for stocks
included on the OTC Bulletin Board are not listed in the financial sections of newspapers,
as are those for the NASDAQ Stock Market. The trading price of the common stock
is expected to be subject to significant fluctuations in response to variations
in quarterly operating results, changes in analysts earnings estimates,
announcements of innovations by us or our competitors, general conditions in
the industry in which we operate and other factors. These fluctuations, as well
as general economic and market conditions, may have a material or adverse
effect on the market price of our common stock.

OUR
COMMON STOCK IS SUBJECT TO, AND OUR ADDITIONAL FINANCING REQUIREMENTS COULD
RESULT IN, DILUTION TO EXISTING STOCKHOLDERS.Our
common stock is subject to dilution from shares reserved for issuance.
Additional financings which we may require have and may in the future be
obtained through one or more transactions which have diluted or will dilute
(either economically or in percentage terms) the ownership interests of our
stockholders. Further, we may not be able to secure such additional financing
on terms acceptable to us, if at all. We have the authority to issue additional
shares of common stock and preferred stock, as well as additional classes or
series of ownership interests or debt obligations which may be convertible into
any one or more classes or series of ownership interests. The issuance of
additional warrants or options, and the exercise of such warrants or options,
may also cause further dilution of the ownership interests of our stockholders.

PENNY
STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR
COMMON STOCK. The Commission has adopted regulations
which generally define a penny stock to be any equity security that has a
market price of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. As a result, our common stock,
which qualifies as penny stock, is subject to rules that impose additional
sales practice requirements on broker-dealers who sell such securities to
persons other than established customers and accredited investors (generally
those with assets in excess of $1,000,000 or annual income exceeding $200,000,
or $300,000 together with their spouse). For transactions covered by these
rules, the broker-dealer must make a special suitability determination for the
purchase of such securities and have received the purchasers written consent
to the transaction prior to the purchase. Additionally, for any transaction
involving a penny stock, unless exempt, the rules require the delivery, prior
to the transaction, of a risk disclosure document mandated by the Commission
relating to the penny stock market. The broker-dealer must also disclose the
commission payable to both the broker-dealer and the registered representative,
current quotations for the securities and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealers
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.

9

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Consequently,
the penny stock rules may restrict the ability of broker-dealers to sell our
securities and may affect the ability of investors to sell our securities in
the secondary market and the price at which such purchasers can sell any such
securities.

Stockholders
should be aware that, according to the Commission, the market for penny stocks
has suffered in recent years from patterns of fraud and abuse. Such patterns
include:

| |  |   |                                                                                                                                                                                                                              
| |  | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Control of
  the market for the security by one or a few broker-dealers that are often
  related to the promoter or issuer;                                                                                                  
| |  |   |                                                                                                                                                                                                                              
| |  |  | Manipulation
  of prices through prearranged matching of purchases and sales and false and
  misleading press releases;                                                                                                      
| |  |   |                                                                                                                                                                                                                              
| |  |  | Boiler
  room practices involving high pressure sales tactics and unrealistic price
  projections by inexperienced sales persons;                                                                                          
| |  |   |                                                                                                                                                                                                                              
| |  |  | Excessive
  and undisclosed bid-ask differentials and markups by selling broker-dealers;
  and                                                                                                                               
| |  |   |                                                                                                                                                                                                                              
| |  |  | The
  wholesale dumping of the same securities by promoters and broker-dealers
  after prices have been manipulated to a desired level, along with the
  inevitable collapse of those prices with consequent investor losses.

Purchasers
of penny stocks may have certain legal remedies available to them in the event
the obligations of the broker-dealer from whom the penny stock was purchased
violates or fails to comply with the above obligations or in the event that
other state or federal securities laws are violated in connection with the
purchase and sale of such securities. Such rights include the right to rescind
the purchase of such securities and recover the purchase price paid for them.
Application of these penny stock regulations to our common stock could
adversely affect the market liquidity of the shares, which in turn may affect
the ability of holders of our common stock to resell the stock.

ADDITIONAL
AUTHORIZED SHARES OF OUR COMMON STOCK AVAILABLE FOR ISSUANCE MAY ADVERSELY
AFFECT THE MARKET. We are authorized to issue
40,000,000 shares of common stock and 5,000,000 shares of preferred stock. As
of March 27, 2007, there are 11,800,026 shares of common stock and no shares of
preferred stock issued and outstanding. However, the total number of shares of
common stock issued and outstanding does not include shares reserved for
issuance upon the exercise of outstanding options or warrants or shares
reserved for issuance under our 2007 Stock Option Plan (the Stock Option
Plan).  In addition, under most
circumstances, our board of directors has the right, without stockholder
approval, to issue authorized but unissued and nonreserved shares of our common
stock. If all of these shares were issued, it would dilute the existing
stockholders and may depress the price of our common stock.

As
of March 27, 2007, we have outstanding warrants to purchase 1,500,000 shares of
common stock, exercisable at $0.30 per share, and expiring 5 years from the
grant date, and warrants to purchase 500,000 shares of common stock,
exercisable at $2.50 per share, expiring 5 years from the grant date all of
which were issued to investors in the private placement. Further, we issued
warrants to purchase 300,000 shares of common stock to the placement agent in
the private placement, at an exercise price equal to $2.75 per share expiring 5
years from the grant date and warrants to purchase 250,000 shares of common
stock exercisable at $0.30 per share as converted, expiring October 24, 2010
were issued by Pace in 2005. In addition, the Board of Directors and our
stockholders have approved the Stock Option Plan which reserves up to 1,600,000
shares of our common stock for issuance under its terms, all of which have been
authorized for issuance at exercise prices of $2.01 and $3.30 per share, which
the board deemed to be the fair value at the time such options were awarded.

Our
board of directors has the authority, without stockholder approval, to create
and issue additional stock options, warrants and one or more series of
preferred stock and to determine the voting, dividend and other rights of the
holders of such preferred stock. Depending on the rights, preferences and
privileges granted when the preferred stock is issued, it may have the effect
of delaying, deferring or preventing a change in control without further action
by the stockholders, may discourage bids for our common stock at a premium over
the market price of the common stock and may adversely affect the market price
of and voting and other rights of the holders of our common stock. As indicated
above, no shares of preferred stock are currently outstanding.

To
the extent shares of our common stock or preferred stock are issued, or options
or warrants are exercised, investors in our securities will experience further
dilution and the presence of such derivative securities may make it more
difficult to obtain any future financing. In addition, in the event any future
financing should be in the form of, or be convertible into or exchangeable for,
equity securities, upon the issuance of such equity securities, investors may
experience additional dilution.

10

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SHARES
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
From time to time, certain of our stockholders may be eligible to sell all or
some of their shares of our common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, subject to certain
limitations. 285,804 of our shares of common stock have been issued for more
than two years and are eligible for sale in compliance with Rule 144, without
regard to the volume limitations thereunder, except for any shares held by our
affiliates within the meaning of Rule 144.

In
general, pursuant to Rule 144, a stockholder (or stockholders whose shares are
aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of securities which
does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume of the class during the four
calendar weeks prior to such sale. Rule 144 also permits, under certain
circumstances, the sale of securities, without any limitation, by a
non-affiliate of ours that has satisfied a two-year holding period. Any
substantial sale of our common stock pursuant to Rule 144 or pursuant to any
resale prospectus may have an adverse effect on the market price of our
publicly traded securities.

ITEM 2.          DESCRIPTION OF PROPERTY

As
of December 31, 2006, prior to the acquisition of Conmed, the Company did not
have any office facilities.

ITEM 3.          LEGAL PROCEEDINGS

As
of December 31, 2006, prior to the acquisition of Conmed, the Company was not
party to any material legal proceedings.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

No
matters were submitted to a vote of the shareholders of the Company in the
fourth quarter of 2006.

11

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PART II.

|        |                                                         
|------- | --------------------------------------------------------
|ITEM 5. | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

From
May 19, 1998 until March 14, 2007, our common stock was been quoted on the OTC
Bulletin Board under the symbol PCES. From March 15, 2007 onward, our common
stock has been quoted on the OTC Bulletin Board under the symbol CMCH. From
our initial public offering on April 27, 1995 through May 18, 1998, our common
stock was traded on The NASDAQ Small Cap Market.

The
following table sets forth the range of high and low sales prices of our common
stock by quarter over the last two years. These quotations reflect inter-dealer
prices, without retail markup, markdown, or commission and may not reflect
actual transactions. Share prices are adjusted to reflect the 1-for-20 reverse
stock split approved by the shareholders on March 13, 2007, as part of the Plan
of Recapitalization.

|              |  |  |       |  |  |      | 
|------------- |  |  | ----- |  |  | ---- | 
|Quarter ended |  |  | High  |  |  | Low  | 
|              |  |  |       |  |  |      | 
|3/31/05       |  |  | 5.40  |  |  | 1.60 | 
|6/30/05       |  |  | 4.00  |  |  | 2.20 | 
|9/30/05       |  |  | 3.00  |  |  | 2.00 | 
|12/31/05      |  |  | 3.00  |  |  | 2.00 | 
|3/31/06       |  |  | 10.00 |  |  | 2.00 | 
|6/30/06       |  |  | 7.20  |  |  | 3.00 | 
|9/30/06       |  |  | 8.00  |  |  | 3.20 | 
|12/31/06      |  |  | 4.40  |  |  | 3.60 | 

On
March 26, 2007, the high and low closing prices of our Common Stock was
$3.55 and $3.50 respectively.

In
January 2007, holders of the Series A Preferred Stock of Pace, our predecessor
in interest, converted 50% of the accrued but unpaid dividends on their Series
A Preferred Stock into an aggregate of 130,000 shares of Paces Common Stock as
adjusted for the 1 for 20 reverse stock split.

On
March 14, 2007, all existing Pace Series A Preferred Stock of Pace was
converted into 4,584,196 shares of our common stock (immediately after the 1
for 20 reverse stock split) in exchange for conversion of and waiver of
remaining accrued and unpaid dividends and liquidation rights on the Series A
Preferred Stock.

As
of March 22, 2007, there were 72 shareholders of record of our common stock.

Dividend Policy

We
have declared no cash dividends since inception with respect to the Common
Stock, and have no plan to declare a dividend in the near future. The Board had
not declared any cash dividends with respect to the preferred stock of Pace
outstanding prior to the consummation of the Plan of Recapitalization. The payment
by us of dividends, if any, in the future, rests within the sole discretion of
our board of directors. The payment of dividends will depend upon our earnings,
our capital requirements and our financial condition, as well as other relevant
factors.

|        |                                                          
|------- | ---------------------------------------------------------
|ITEM 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The
following discussion and analysis of our financial condition and plan of
operations contains forward-looking statements, including information about
possible or assumed results of our financial conditions, operations, plans,
objectives and performance that involve risk, uncertainties and assumptions.
Forward-looking statements are subject to many risks and uncertainties which
could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Thus, the actual

12

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results may
differ materially from those anticipated in such forward-looking statements.
For example, when we indicate that we expect to increase our product sales and
potentially establish additional license relationships, these are
forward-looking statements. The words expect, anticipate, estimate or similar
expressions are also used to indicate forward-looking statements.

CRITICAL ACCOUNTING POLICIES

Effective
January 1, 2006, Conmed adopted the provisions of Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standard (SFAS)
No. 123 (revised), Share-Based Payment (SFAS 123R) using a modified version
of prospective application. Prior to the adoption of SFAS 123R, Conmed
accounted for share-based payments to employees using the intrinsic value
method under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Under the provisions of APB 25, restricted
stock awards were accounted for using variable plan accounting whereby
compensation expense or benefit was recorded each period from the date of grant
to the measurement date based on the fair value of Conmeds common stock at the
end of each period. Stock option awards were accounted for using fixed plan
accounting whereby Conmed recognized no compensation expense for stock option
awards because the exercise price of options granted was equal to the fair
value of the common stock at the date of grant.

Under
the modified prospective applications, the provisions of SFAS 123R apply to new
awards and to awards outstanding on January 1, 2006 and subsequently modified,
repurchased or cancelled. Under the modified prospective approach, compensation
expense recognized in the second quarter of 2006 included compensation costs
for all share-based payments granted prior to, but not yet vested as of January
1, 2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share-based
payments granted subsequent to January 1, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123R. Prior periods
were not restated to reflect the impact of adopting the new standard.

As
a result of all stock-based compensation being fully vested as of December 31,
2005, there is no effect on income before taxes, net income and basic and
diluted earnings per share for the year ended December 31, 2006.

Deferred
offering and acquisition costs: Costs incurred in connection with the proposed
mergers and related securities offering described in Item 1. Description of
Business  Recent Developments have been capitalized and will be included in
the acquisition price or netted against the proceeds of the securities
offering.

RESULTS OF OPERATIONS

REVENUES:
Following the Transaction, the Company has no ongoing operations or revenues.

GENERAL
AND ADMINISTRATIVE EXPENSES: General and administrative expenses include
bookkeeping costs, legal fees, expenses associated with shareholder relations
and SEC reporting requirements, and insurance. General and administrative
expenses were $466,686 and $119,394 in 2006 and 2005, respectively,
representing an increase of 290.9%, due mainly to an increase in auditing,
consulting, and administrative fees, as well as costs and fees incurred in
connection with the negotiation of the Agreement and related transactions with Conmed,
Inc. The increase in consulting fees was a result of the services of Richard W.
Turner and Thomas W. Fry enlisted to facilitate the Acquisition.

INTEREST
INCOME: Interest income was $67,230 and $47,963 in 2006 and 2005, respectively,
representing an increase of 40.2%. This increase is due mainly to an increase
in money market and certificate of deposit interest rates.

PROVISION
FOR INCOME TAXES: No provision for income tax benefit has been recorded due to
the Company recording a valuation allowance on the deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

Since
inception in 1987 through 1994, the Companys primary source of funding for
working capital needs, capital expenditures and its operating losses was from
the sale of common and convertible preferred stock. During this time, the
Company completed numerous private placements, receiving approximately $7.8
million in aggregate net proceeds. In 1995, the Company completed its initial
public offering by selling 1,300,000 shares of common stock at $5.00 per share
for net proceeds to the Company of approximately $5.5 million. Additionally, in
September 1996, PACE sold 900,000 shares of common stock at $3.25 per share
providing net proceeds of approximately $2.8 million. In the third and fourth
quarters of 1997, the Company sold 2,250,000 shares of convertible preferred
stock at $1.00 per share representing total proceeds of $2,250,000. In the
first quarter of 1998, the Company sold

13

---



an additional
625,000 shares of convertible participating preferred stock at $1.00 per share
representing proceeds of $625,000. .

The
Company recorded net losses of $399,456 and $71,431 with cash used in
operations of $269,898 and $69,601 for 2006 and 2005, respectively.

Net
cash used in investing activities for the years ended December 31, 2006 and
2005 was $635,002 and none respectively.

Net
cash used in financing activities for the years ended December 31, 2006 and
2005 was $125,000 and none, respectively.

As
of December 31, 2006, the Company had liabilities of $367,639, and cash and
cash equivalents of $691,058. As of December 31, 2006, prior to the acquisition
of Conmed, the Company has no ongoing operations and no revenues and has
minimal operating expenses. As of December 31, 2006, the Company had no
employees.

In
January 26, 2007 we completed the Private Placement of approximately
$15,000,000 worth of units of Series B Convertible Preferred Stock and warrants
less approximately $2,175,000 in fees and expenses, of which approximately
$8,000,000 were paid directly to the CONMED stockholders as consideration for
the sale of CONMEDs capital stock. The remainder of the funds are being held
following the Private Placement and Acquisition for working capital needs and
may be deposited in interest bearing or non-interest bearing accounts, or
invested in government obligations, certificates of deposit, commercial paper,
money market accounts or similar investments, which may not be insured.
Proceeds not immediately required for the purposes described above will be
invested principally in U.S. Government securities, short-term certificates of
deposit, money market funds or other short-term interest bearing investments.

In
connection with the Private Placement the Company agreed to use its best
efforts to register the resale of the Common Stock to be issued upon conversion
of the Series B Preferred Stock and exercise of the related warrants not later
than April 2, 2007. In the event such registration is not effective on or
before June 1, 2007 (the Effective Date), the Company will pay a cash penalty
equal to 1% per month, or $150,000 of the gross proceeds received from the sale
of the Units (or the ratable portion thereof for a partial month), for each
month following the Effective Date that there shall fail to be an effective
registration statement for the Common Stock, up to a maximum of 10%, or
$1,500,000.

RECENTLY ISSUED ACCOUNTING STANDARDS

In
June, the FASB issued FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income
Taxes. This interpretation applies to all tax positions accounted
for in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48
clarifies the application of SFAS No. 109 by defining the criteria that an
individual tax position must meet in order for the position to be recognized
within the financial statements and provides guidance on measurement,
de-recognition, classification, interest and penalties, accounting in interim periods
disclosure and transition for tax positions. This interpretation is effective
for fiscal years beginning after December 15, 2006, with earlier adoption
permitted. We are currently evaluating the impact that the adoption of this
interpretation will have on our financial position, results of operation and
cash flows.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This statement defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. It clarifies that
fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in
the market in which the reporting entity transacts. This statement does not
require any new fair value measurements, but rather, it provides enhanced
guidance to other pronouncements that require or permit assets or liabilities
to be measured at fair value. This statement is effective for fiscal years beginning
after November 15, 2007, with earlier adoption permitted. We are currently
evaluating the impact that the adoption of this statement will have on our
financial position, results of operation and cash flows.

14

---



|        |                     
|------- | --------------------
|ITEM 7. | FINANCIAL STATEMENTS

CONTENTS

|                                                        |   
|------------------------------------------------------- | --
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 16
|                                                       
|FINANCIAL
  STATEMENTS                                  |   
|Balance Sheets                                          | 17
|Statements of Operations                                | 18
|Statements of Shareholders Equity                      | 19
|Statements of Cash Flows                                | 20
|Notes to Financial Statements                           | 21

15

---



REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors 
Conmed Healthcare Management, Inc. 
Des Moines, Iowa

We have audited the
accompanying balance sheets of Conmed Healthcare Management, Inc. as of
December 31, 2006 and 2005, and the related statements of operations,
shareholders equity and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the
financial statements referred to above present fairly, in all material
respects, the financial position of Conmed Healthcare Management, Inc. as of
December 31, 2006 and 2005, and the results of its operations and its cash
flows for the years then ended in conformity with U.S. generally accepted
accounting principles.

As described in Note 1 of
the financial statements, the Company changed its method of accounting for
stock-based compensation in 2006.

McGladrey & Pullen, LLP 
Des Moines, Iowa 
March 25, 2007

16

---



CONMED HEALTHCARE MANAGEMENT, INC.

BALANCE SHEETS DECEMBER 31, 2006 AND 2005

|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                                                                 |  | 2006 |             | 2005 |  
|Assets                                                                                                                                                                                                           |  |      |             |      |  
|Current Assets                                                                                                                                                                                                   |  |      |             |      |   |             |  
|Cash and cash equivalents                                                                                                                                                                                        |  | $    | 691,058     |      | $ | 1,738,958   |  
|Interest receivable                                                                                                                                                                                              |  |      | 458         |      |   | 12,386      |  
|Prepaid expenses                                                                                                                                                                                                 |  |      | 13,287      |      |   | 6,257       |  
|Cash held in escrow                                                                                                                                                                                              |  |      | 500,000     |      |   |            |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Total current assets                                                                                                                                                                                             |  | $    | 1,204,803   |      | $ | 1,757,601   |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Other Assets, deferred acquisition and offering costs                                                                                                                                                            |  |      | 517,458     |      |   |            |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Total Assets                                                                                                                                                                                                     |  | $    | 1,722,261   |      | $ | 1,757,601   |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Liabilities and shareholders equity                                                                                                                                                                             |  |      |             |      |   |             |  
|Current Liabilities                                                                                                                                                                                              |  |      |             |      |   |             |  
|Accounts payable                                                                                                                                                                                                 |  | $    | 367,639     |      | $ | 3,523       |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Total current liabilities                                                                                                                                                                                        |  |      | 367,639     |      |   | 3,523       |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Shareholders equity                                                                                                                                                                                             |  |      |             |      |   |             |  
|Preferred stock, no par value, authorized
4,000,000 shares: issued
  none                                                                                                                                        |  |      |            |      |   |            |  
|Convertible participating preferred stock,
Series A, no par value;
  authorized 4,000,000 shares; issued and outstanding 2,875,000 shares
  (liquidation preference of; 2006 $5,475,000 2005 $5,187,500 (Note 6) |  |      | 2,875,000   |      |   | 2,875,000   |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Common stock, .0001; authorized 40,000,000
shares; issued and outstanding
  285,804 shares                                                                                                                       |  |      | 29          |      |   | 29          |  
|Additional paid-in capital                                                                                                                                                                                       |  |      | 17,748,593  |      |   | 17,748,593  |  
|Accumulated deficit                                                                                                                                                                                              |  |      | (19,269,000 | )    |   | (18,869,544 | )
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Total stockholders equity                                                                                                                                                                                       |  |      | 1,354,622   |      |   | 1,754,078   |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  
|Total liabilities and stockholders
equity                                                                                                                                                                       |  | $    | 1,722,261   |      | $ | 1,757,601   |  
|                                                                                                                                                                                                                 |  |      |             |      |   |             |  

See Notes to Financial Statements.

17

---



CONMED HEALTHCARE MANAGEMENT, INC.

STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2006 AND 2005

|                                                                             |  |      |          |      |   |          |  
|---------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                                             |  | 2006 |          | 2005 |  
|                                                                             |  |      |          |      |  
|Net revenues                                                                 |  | $    |         |      | $ |         |  
|                                                                             |  |      |          |      |   |          |  
|General and administrative expenses (Note 7)                                 |  |      | 466,686  |      |   | 119,394  |  
|                                                                             |  |      |          |      |   |          |  
|(Loss) from operations                                                       |  |      | (466,686 | )    |   | (119,394 | )
|Other income                                                                 |  |      |          |      |   |          |  
|Interest income                                                              |  |      | 67,230   |      |   | 47,963   |  
|                                                                             |  |      |          |      |   |          |  
|(Loss) before income taxes                                                   |  |      | (399,456 | )    |   | (71,431  | )
|                                                                             |  |      |          |      |   |          |  
|Provision for income taxes (Note 4)                                          |  |      |         |      |   |         |  
|                                                                             |  |      |          |      |   |          |  
|Net (loss)                                                                   |  |      | (399,456 | )    |   | (71,431  | )
|Preferred dividends in arrears                                               |  |      | (287,500 | )    |   | (287,500 | )
|                                                                             |  |      |          |      |   |          |  
|Net (Loss) available to common shareholders                                  |  | $    | (686,956 | )    | $ | (358,931 | )
|                                                                             |  |      |          |      |   |          |  
|                                                                            
|(Loss)
  per share (Note 3)                                                  |  |      |          |      |   |          |  
|Basic                                                                        |  | $    | (2.40    | )    | $ | (1.26    | )
|                                                                             |  |      |          |      |   |          |  
|Fully diluted                                                                |  | $    | (2.40    | )    | $ | (1.26    | )
|                                                                             |  |      |          |      |   |          |  
|Weighted average number of common and common equivalent shares
  outstanding |  |      | 285,804  |      |   | 285,804  |  
|                                                                             |  |      |          |      |   |          |  

See Notes to Financial Statements.

18

---



CONMED HEALTHCARE MANAGEMENT, INC.

STATEMENTS OF SHAREHOLDERS EQUITY 
YEARS ENDED DECEMBER 31, 2006 AND 2005

|                           |  |                   |           |                |  |                                |    |                       |  |       |            |  |   |             |   |  
|-------------------------- |  | ----------------- | --------- | -------------- |  | ------------------------------ | -- | --------------------- |  | ----- | ---------- |  | - | ----------- | - | -
|                           |  | Preferred
  Stock |           | Common
  Stock |  | Additional
  Paid-In
  Capital |    | Accumulated
  Deficit |  | Total |           
|                           |  |                   |           |                |  |                                |    |                       |  |       |           
|Balance, December 31, 2004 |  |                   | 2,875,000 |                |  |                                | 29 |                       |  |       | 17,738,593 |  |   | (18,798,113 | ) |  
|Net (loss)                 |  |                   |          |                |  |                                |   |                       |  |       |           |  |   | (71,431     | ) |  
|Warrant compensation       |  |                   |          |                |  |                                |   |                       |  |       | 10,000     |  |   |            |   |  
|                           |  |                   |           |                |  |                                |    |                       |  |       |            |  |   |             |   |  
|Balance, December 31, 2005 |  |                   | 2,875,000 |                |  |                                | 29 |                       |  |       | 17,748,593 |  |   | (18,869,544 | ) |  
|Net (loss)                 |  |                   |          |                |  |                                |   |                       |  |       |           |  |   | (399,456    | ) |  
|                           |  |                   |           |                |  |                                |    |                       |  |       |            |  |   |             |   |  
|Balance, December 31, 2006 |  | $                 | 2,875,000 |                |  | $                              | 29 |                       |  | $     | 17,748,593 |  | $ | (19,269,000 | ) | $
|                           |  |                   |           |                |  |                                |    |                       |  |       |            |  |   |             |   |  

See Notes to Financial Statements.

19

---



CONMED HEALTHCARE MANAGEMENT, INC.

STATEMENTS OF CASH FLOWS 
YEARS ENDED DECEMBER 31, 2006 AND 2005

|                                                                                  |  |      |            |      |   |           |  
|--------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | --------- | -
|                                                                                  |  | 2006 |            | 2005 |  
|                                                                                  |  |      |            |      |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                              |  |      |            |      |   |           |  
|Net (Loss)                                                                        |  | $    | (399,456   | )    | $ | (71,431   | )
|Adjustments to reconcile net (loss) to net cash
(used in) operating
  activities: |  |      |            |      |   |           |  
|Warrant compensation                                                              |  |      |           |      |   | 10,000    |  
|Change in working capital components:                                             |  |      |            |      |   |           |  
|(Increase) decrease in interest
receivable                                        |  |      | 11,928     |      |   | (12,386   | )
|(Increase) decrease in prepaid
expenses                                           |  |      | (7,030     | )    |   | 693       |  
|Increase in accounts payable                                                      |  |      | 124,660    |      |   | 3,523     |  
|                                                                                  |  |      |            |      |   |           |  
|Net
  cash (used in) operating activities                                         |  |      | (269,898   | )    |   | (69,601   | )
|                                                                                  |  |      |            |      |   |           |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                              |  |      |            |      |   |           |  
|Increase in deferred acquisition
costs                                            |  |      | (153,002   | )    |   |          |  
|(Increase) in cash held in escrow                                                 |  |      | (500,000   | )    |   |          |  
|                                                                                  |  |      |            |      |   |           |  
|Net
  cash (used in) investing activities                                         |  |      | (635,002   | )    |   |          |  
|                                                                                  |  |      |            |      |   |           |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                              |  |      |            |      |   |           |  
|Deferred financing costs                                                          |  |      | (125,000   | )    |   |          |  
|                                                                                  |  |      |            |      |   |           |  
|                                                                                 
|(Decrease) in cash and cash
equivalents                                           |  |      | (1,047,900 | )    |   | (69,601   | )
|                                                                                  |  |      |            |      |   |           |  
|                                                                                 
|Cash and cash equivalents                                                         |  |      |            |      |   |           |  
|Beginning                                                                         |  |      | 1,738,958  |      |   | 1,808,559 |  
|                                                                                  |  |      |            |      |   |           |  
|Ending                                                                            |  | $    | 691,058    |      | $ | 1,738,958 |  
|                                                                                  |  |      |            |      |   |           |  
|Supplemental disclosure of non cash financing and investing
  activities,         |  |      |            |      |   |           |  
|Warrant compensation                                                              |  |      |           |      |   | 10,000    |  
|                                                                                  |  |      |            |      |   |           |  
|Deferred acquisition costs included in accounts
payable                           |  |      | 83,671     |      |   |          |  
|                                                                                  |  |      |            |      |   |           |  
|Deferred financing costs included in accounts
payable                             |  |      | 155,785    |      |   |          |  
|                                                                                  |  |      |            |      |   |           |  

See
Notes to Financial Statements.

20

---



CONMED HEALTHCARE MANAGEMENT, INC.

NOTES TO
FINANCIAL STATEMENTS

|        |                                                       
|------- | ------------------------------------------------------
|NOTE 1. | NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature
of business: Prior to the sale of the majority of its assets, the Company was
in the business of developing, marketing and supporting advanced clinical
software that automates the recording, storage and management of patient care
information. The software provided complete care management solutions to
physicians, nurses and other clinicians in multiple settings at the point of
care. The Company has no ongoing operations and has minimal operating expenses.
The Company presently has no employees.

A
summary of the Companys significant accounting policies is as follows:

Accounting estimates and assumptions: The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.

Recapitalization:
On March 13, 2007, the shareholders of the Company approved a Plan of
Recapitalization the (Plan) and implemented the following:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Reincorporate
  the Company into the state of Delaware pursuant to the Merger Agreement.
  Created a subsidiary (the Merger Sub) under the laws of the State of
  Delaware and merged into the Merger Sub. All of the liabilities and assets of
  the Company existing prior to the reincorporation were transferred, assumed
  and assigned to the Delaware entity. The certificate of incorporation and
  bylaws of the Delaware entity became the Companys new Certificate of
  Incorporation and Bylaws, and reflect the Plan. Other than with respect to
  the amount of shares authorized for issuance by Merger Sub, the number of directors
  on the board of Merger Sub and the name of Merger Sub, the certificate of
  incorporation of Merger Sub is substantially similar to the Companys current
  articles of incorporation.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Change in
  name. Changed the name of the Company from Pace
  Health Management Systems, Inc. to Conmed Healthcare Management, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Reverse
  Stock Split. Enacted a reverse stock split on a 1
  for 20 basis thereby reducing the number of outstanding shares to 415,804
  share of common stock from the 8,316,074 shares of common stock outstanding
  at that time.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Change in
  authorized shares. Increased the number of
  authorized common shares to 40,000,000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | Conversion
  of Series A Preferred Stock. Converted the Series A
  Preferred Stock (and the waiver of all accrued and unpaid dividends and
  liquidation rights on the Series A Preferred Stock after conversion of 50% of
  such accrued and unpaid dividends into shares of Common Stock in connection
  with the transactions contemplated by the Plan of Reorganization) into 4,584,196
  shares of Common Stock on a post reverse split basis.                                                                                                                                                                                                                                                                                                                                                                                            

A
summary of the Companys significant accounting policies is as follows:

Accounting
estimates and assumptions: The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America 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.

Cash
equivalents: The Company considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. At December 31, 2006, cash equivalents consisted of an
interest-bearing money market account and a certificate of deposit at a
commercial bank.

Cash
held in escrow: Cash is being held in escrow as part
of the business combination discussed in Note 8.

21

---



Fair
value of financial instruments: The Companys
financial instruments consist primarily of cash and accounts payable. Unless otherwise
disclosed, the fair value of short-term financial instruments approximates
their recorded value due to the short-term nature of investments.

Stock
compensation: Effective January 1, 2006, the Company
adopted SFAS No. 123(R), Shared-Based Payments, using the modified
prospective transition method. Prior to that date the Company accounted for
stock option awards under APB Opinion No. 25. In accordance with SFAS No.
123(R), compensation expense for stock-based awards is recorded over the
vesting period at the fair value of the award at the time of grant. The
recording of such compensation began on January 1, 2006 for shares not yet
vested as of that date and for all new grants subsequent to that date. At
December 31, 2006 and 2005 all stock options were either exercised or expired.
The exercise price of options granted under the Companys incentive plans is
equal to the fair market value of the underlying stock at the grant date.

Deferred
offering and acquisition costs:Costs incurred in
connection with the proposed mergers and related securities offering described
in Note 6 have been capitalized and will be included in the acquisition price
or netted against the proceeds of the securities offering. In the event the
transactions do not occur, such related amounts will be expensed.

Income
taxes: Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their
tax bases. Deferred tax assets are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.

Basic
and diluted loss per share: The Company has adopted
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share,
which requires the Company to present basic and diluted income (loss) per share
amounts. Basic loss per share is based on the weighted average number of common
shares outstanding during the period. Diluted income (loss) per share is based
on the weighted average number of common shares and dilutive potential common
shares outstanding during the period. Dilutive potential common shares consist
of stock options and warrants (using the treasury stock method) and convertible
preferred stock (using the if-converted method).

New
Accounting Pronouncements:In June, the FASB issued
FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes.
This interpretation applies to all tax positions accounted for in accordance
with SFAS No. 109, Accounting for Income Taxes. FIN 48
clarifies the application of SFAS No. 109 by defining the criteria that an
individual tax position must meet in order for the position to be recognized
within the financial statements and provides guidance on measurement,
de-recognition, classification, interest and penalties, accounting in interim
periods disclosure and transition for tax positions. This interpretation is
effective for fiscal years beginning after December 15, 2006, with earlier
adoption permitted. The Company is currently evaluating the impact that the
adoption of this interpretation will have on its financial position, results of
operation and cash flows.

In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.
This statement defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair value measurements. It clarifies that
fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants in
the market in which the reporting entity transacts. This statement does not
require any new fair value measurements, but rather, it provides enhanced
guidance to other pronouncements that require or permit assets or liabilities
to be measured at fair value. This statement is effective for fiscal years
beginning after November 15, 2007, with earlier adoption permitted. The Company
is currently evaluating the impact that the adoption of this statement will
have on its financial position, results of operation and cash flows.

Presentation
of share and per share information. All common stock
share and per share information has been adjusted to reflect the 1 for 20
reverse stock split effective on March 14, 2007.

22

---



|        |                                  
|------- | ---------------------------------
|NOTE 2. | COMMON STOCK WARRANTS AND OPTIONS

Common stock warrants

Existing
Warrants @ $0.30 per share

On
October 24, 2005, Pace our predecessor in interest, issued 37,500 warrants to
purchase common stock, as adjusted for the 1 for 20 reverse stock split. Of
these warrants, 30,000 were issued to John Pappajohn and the remaining 7,500
warrants were issued to his designees. The warrants were issued as compensation
for past services rendered and all warrants were immediately vested. The
warrants have an exercise price of $10.00, which exceeded the market price of
the Companys common stock at the time of issuance. The value of the warrants
was separately estimated at $0.20 per share or $10,000 based on the
Black-Scholes valuation of the call option associated with a five year warrant.
As part of the private placement subsequent to December 31, 2006, Mr. Pappajohn
relinquished the 30,000 warrants that were issued to him, and the remaining
7,500 warrants issued to his designees were adjusted to 250,000 warrants
(post-Plan of Recapitalization) to purchase common stock exercisable at $0.30
per share, expiring October 23, 2010.

Investor
Warrants @ $0.30 per share

In
connection with the private placement, each investor received a warrant to
purchase up to a number of shares of common stock equal to 25% of such
investors subscription amount divided by the conversion price of the Series B
Preferred Stock, with an exercise price equal to $0.30. We issued to investors
warrants to purchase an aggregate of 1,500,000 shares of common stock,
exercisable at $0.30 per share, expiring five years from March 13, 2007.

Investor
Warrants @ $2.50 per share

In
connection with the private placement, each investor received a warrant to
purchase up to a number of shares of common stock equal to 8.3% of such
investors subscription amount divided by the conversion price of the Series B
Preferred Stock, with an exercise price equal to $2.50 per share. We issued to
investors warrants to purchase an aggregate of 500,000 shares of common stock,
exercisable at $2.50 per share, expiring five years from March 13, 2007.

Placement
Agent Warrants @ $2.75 per share

In
connection with the private placement we issued to the Maxim Group LLC a
warrant to purchase 300,000 shares of common stock, or 5% of the common stock
issuable upon conversion of the Series B Preferred Stock, at an exercise price
equal to $2.75 per share and expiring five years from the date of grant.

In
sum, we have outstanding warrants to purchase an aggregate of 2,550,000 shares
of common stock, and we have reserved shares of its common stock for issuance
in connection with the potential exercise thereof.

Common stock options

The
Board of Directors has adopted, and our stockholders have approved, the 2007
Stock Option Plan (the 2007 Plan). The 2007 Plan provides for the grant of
1,600,000 (Post Plan of Recapitalization) incentive stock options, nonqualified
stock options, restricted stock, stock bonuses and stock appreciation rights.
The 2007 Plan is administered by the Board of Directors which has the authority
and discretion to determine: (1) the persons to whom the options will be
granted; when the options will be granted; the number of shares subject to each
option; the price at which the shares subject to each option may be purchased;
and when each option will become exercisable.

On
January 26, 2007, the Board of Directors approved and authorized the issuance
from the 2007 Plan of 1,503,000 incentive stock options to certain employees of
Conmed at the closing of the Acquisition and Private Placement, exercisable at
a price per share of $2.01 (which the Board determined to be the fair market
value at the time of such award) and expiring 10 years from the grant date,
such issuance subject to the 2007 Plan. On March 13 2007, the Board authorized the
issue to each Mr. Berger and Mr. Branstad, non-employee directors,
non-qualified stock options to purchase 40,000 share of common stock at an
exercise price of $3.30 vesting over three years and contingent upon continued
service on the Board plus 17,000 options to purchase common shares to other
employees of the company.

23

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|        |                   
|------- | ------------------
|NOTE 3. | EARNINGS PER SHARE

The following
table sets forth the computation of basic and diluted (loss) per-share:(Share and
per-share data adjusted to reflect the 1 for 20 reverse stock split effective
March 14, 2007)

| |                                                              |  |           |          |             |  |                                 |  |   |       |  
| | ------------------------------------------------------------ |  | --------- | -------- | ----------- |  | ------------------------------- |  | - | ----- | -
| |                                                              |  | Numerator |          | Denominator |  | Per-Share
  Amount
  Net (loss) | 
| |                                                              |  |           |          |             |  |                                 | 
| | YEAR ENDED DECEMBER 31,
2006                                 |  |           |          |             |  |                                 |  |   |       |  
| | Net (loss)                                                   |  | $         | (399,456 | )           |  |                                 |  |   |       |  
| | Dividends in
  arrears included in the calculation           |  |           | (287,500 | )           |  |                                 |  |   |       |  
| |                                                              |  |           |          |             |  |                                 |  |   |       |  
| | Basic earnings
  per share, available to common stockholders |  | $         | (686,956 | )           |  | 285,804                         |  | $ | (2.40 | )
| |                                                              |  |           |          |             |  |                                 |  |   |       |  
| |                                                              |  |           |          |             |  |                                 |  |   |       |  
| | YEAR ENDED DECEMBER 31,
2005                                 |  |           |          |             |  |                                 |  |   |       |  
| | Net (loss)                                                   |  | $         | (71,431  | )           |  |                                 |  |   |       |  
| | Dividends in
  arrears included in the calculation           |  |           | (287,500 | )           |  |                                 |  |   |       |  
| |                                                              |  |           |          |             |  |                                 |  |   |       |  
| | Basic earnings
  per share, available to common stockholders |  | $         | (358,931 | )           |  | 285,804                         |  | $ | (1.26 | )
| |                                                              |  |           |          |             |  |                                 |  |   |       |  

The following
contingently issuable shares were not included in diluted earnings per common
share as they would have an antidilutive effect upon earnings per common share:
(Share and per-share data adjusted to reflect the 1 for 20 reverse stock split
effective March 14, 2007)

|                                                                                           |  |                    |  |      |         |  | 
|------------------------------------------------------------------------------------------ |  | ------------------ |  | ---- | ------- |  | 
|                                                                                           |  | As of December 31, | 
|                                                                                           |  | 2006               |  | 2005 |        
|                                                                                           |  |                    |  |      |        
|Shares issuable upon conversion of Series A
  
  convertible participating preferred stock |  | 547,500            |  |      | 518,750 |  | 
|Common stock warrants outstanding                                                          |  | 37,500             |  |      | 37,500  |  | 

In
January 2007, holders of the Series A Preferred Stock of Pace, our predecessor
in interest, converted 50% of the accrued but unpaid dividends on their Series
A Preferred Stock into an aggregate of 130,000 shares of Paces Common Stock as
adjusted for the 1 for 20 reverse stock split.

On
March 14, 2007, all existing Pace Series A Preferred Stock of Pace was
converted into 4,584,196 shares of our common stock (immediately after the 1
for 20 reverse stock split) in exchange for conversion of and waiver of
remaining accrued and unpaid dividends and liquidation rights on the Series A Preferred Stock.

24

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|       |                   
|------ | ------------------
|NOTE 4 | INCOME TAX MATTERS

Approximate
deferred taxes consist of the following components

|                                                |  |                    |           |      |  |           | 
|----------------------------------------------- |  | ------------------ | --------- | ---- |  | --------- | 
|                                                |  | As of December 31, |          
|                                                |  | 2006               |           | 2005 | 
|                                                |  |                    |           |      | 
|Deferred tax assets                             |  |                    |           |      |  |           | 
|Net operating loss carryforwards                |  |                    | 6,587,000 |      |  | 6,562,000 | 
|Research and
  development credit carryforwards |  |                    | 391,000   |      |  | 391,000   | 
|Warrants                                        |  |                    | 4,000     |      |  | 4,000     | 
|                                                |  |                    |           |      |  |           | 
|                                                |  |                    | 6,982,000 |      |  | 6,957,000 | 
|Less
  valuation allowance                      |  |                    | 6,982,000 |      |  | 6,957,000 | 
|                                                |  |                    |           |      |  |           | 
|                                                |  |                    |          |      |  |          | 
|                                                |  |                    |           |      |  |           | 

The
Company recorded a valuation allowance of $6,982,000 and $6,957,000, against
deferred tax assets at December 31, 2006 and 2005, respectively, to reduce the
total to an amount that management believes will ultimately be realized.
Realization of deferred tax assets is dependent upon sufficient future taxable
income during the period that deductible temporary differences and
carryforwards are expected to be available to reduce taxable income. The net
change in the valuation allowance for deferred tax assets was an
increase(decrease) of $25,000 and $(176,000) during 2006 and 2005,
respectively.

The
provision for income taxes differs from the approximate amount of income tax
benefit determined by applying the U.S. Federal income tax rate to pretax loss,
due to the following:

|                                                                                                  |  |                                    |         |      |   |          |  
|------------------------------------------------------------------------------------------------- |  | ---------------------------------- | ------- | ---- | - | -------- | -
|                                                                                                  |  | For the years ended
  December 31, |        
|                                                                                                  |  | 2006                               |         | 2005 |  
|                                                                                                  |  |                                    |         |      |  
|Computed federal income tax (benefit)                                                             |  | $                                  | 136,000 |      | $ | (26,000  | )
|Other, primarily computed state income tax
  benefit                                              |  |                                    | 20,000  |      |   | (2,000   | )
|Permanent difference related to expired
  warrants and expiration of operating loss carryforwards |  |                                    | 131,000 |      |   | 204,000  |  
|Change in the valuation allowance                                                                 |  |                                    | 25,000  |      |   | (176,000 | )
|                                                                                                  |  |                                    |         |      |   |          |  
|                                                                                                  |  |                                    |        |      |   |         |  
|                                                                                                  |  |                                    |         |      |   |          |  

At
December 31, 2006, the Company has approximately $16,905,000 of net operating
loss carryforwards to offset future federal taxable income. This net operating
loss carryforward will become unusable as a result of the change in control, if
unused, expire in the years 2007 through 2026.

|        |                             
|------- | ----------------------------
|NOTE 5. | CONCENTRATION OF CREDIT RISK

The
Company maintains cash in bank deposit accounts that, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts.

|        |                                                                      
|------- | ---------------------------------------------------------------------
|NOTE 6. | CONVERTIBLE PARTICIPATING PREFERRED STOCK AND VOTING RIGHTS, SERIES A

The
Convertible Participating Preferred Stock, Series A must be converted into fully paid and
non-assessable shares of Common Stock by the Company upon the earlier of (i)
the closing of a Qualified Public Offering, or (ii) the affirmative vote of the
holders of a majority of the outstanding Convertible Participating Preferred
Stock for a mandatory conversion. A Qualified Public Offering is a public
offering of the shares of the Company in which (a) a minimum of $10 million is
raised in such offering by the Company, or (b) the per share purchase price is
at least $4.00 and (c) the offering is underwritten on a firm basis by a
recognized underwriter.

25

---



Each
share of Convertible Participating Preferred Stock shall be convertible into
fully paid and nonassessable shares of Common Stock at a rate of two shares of
Common Stock for each share of Convertible Participating Preferred Stock,
subject to adjustment when Common Stock has been proportionately adjusted. The
initial Conversion Price shall be equal to $1.00 per share divided by the
Conversion Rate. Upon conversion, all accumulated and unpaid dividends to the
conversion date on the Convertible Participating Preferred Stock so converted
shall also be converted into fully paid and nonassessable shares of Common
Stock at the rate of $0.50 of accumulated and unpaid dividends for each share
of Common Stock.

The
holders of the Convertible Participating Preferred Stock are entitled to an
annual $0.10 cumulative dividend per share payable in cash and shall become due
and payable when, as and if declared by the Board of Directors or the
conversion of the Convertible Preferred Stock. Accumulated undeclared dividends
in arrears were approximately $2,600,000 and $2,312,500 at December 31, 2006
and 2005, respectively and $0.90 and $0.80 per share respectively.

Convertible
Participating Preferred Stock is entitled to two votes per share (reflecting
its 2-for-1 conversion feature), and Common Stock is entitled to one vote per
share.

|        |                           
|------- | --------------------------
|NOTE 7. | RELATED PARTY TRANSACTIONS

During
2006 and 2005, the Company accrued $4,167 on a monthly basis, plus direct
expenses, to Equity Dynamics, Inc., an entity wholly owned by John Pappajohn, a
Director of the Company, for administrative services that include among other
things; accounting, investor relations, and SEC reporting. In addition to these
administrative expenses the Company also reimbursed Equity Dynamics, Inc. for
expenses related to the negotiation and consummation of the ConMed transaction.
Such accruals related to Equity Dynamics, Inc. totaled $82,300 and $50,500 in
2006 and 2005, respectively. Accounts payable to Equity Dynamics, Inc. as of
December 31, 2006 and 2005 was $5,796 and $1,868, respectively.

On
October 24, 2005, the Company issued 37,500 warrants to purchase common stock.
Of these warrants, 30,000 were issued to John Pappajohn and the remaining 7,500
warrants were issued to his designees. The warrants were issued as compensation
for past services rendered and all warrants were immediately vested. The
warrants have an exercise price of $10.00, which exceeded the market price of
the Companys common stock at the time of issuance. The value of the warrants
was separately estimated at $0.20 per share or $10,000 based on the
Black-Scholes valuation of the call option associated with a five year warrant.
(These figures are adjusted to reflect the 1 for 20 reverse stock split of
effective March 14, 2007)

|        |                  
|------- | -----------------
|NOTE 8. | SUBSEQUENT EVENTS

For
a complete description of the transactions described below please see the
current reports on Form 8-K filed on February 1, 2007, March 19, 2007 and March
20, 2007.

Acquisition

On
August 2, 2006, the Company entered into a Stock Purchase Agreement (
Agreement ) with CONMED, Inc., a Maryland corporation ( CONMED ) and all of
the stockholders of CONMED (the  CONMED Stockholders ), pursuant to which
Pace agreed to purchase all the issued and outstanding capital stock of CONMED
from the CONMED Stockholders (the  Acquisition ). The Company previously
reported the execution of the Agreement in a Form 8-K filed on August 8, 2006,
and its extension in a Form 8-K filed on January 17, 2007.

The
Company paid to CONMED a non-refundable cash deposit of $250,000 upon execution
of the Agreement, which was released to the CONMED stockholders upon expiration
of the original agreement on October 31, 2006. Thereafter, an amendment to the
Stock Purchase Agreement was executed on January 12, 2007 to extend the closing
date to January 31, 2007. As a result of such extension, and upon execution of such
amendment, Pace paid to CONMED an additional non-refundable cash deposit of
$250,000 (the  Additional Cash Deposit ), which was deducted from the
$8,000,000 cash payment paid to the CONMED stockholders at the closing of the
Acquisition.

On
January 26, 2007 the Acquisition was completed and under the terms of the
Agreement and Acquisition, Pace paid to the CONMED Stockholders consideration
consisting of: (i) $8,000,000 in cash, minus the Additional Cash Deposit (as
defined above) and (ii) 8,000 shares of Paces Series C Convertible Preferred
Stock.

26

---



Conversion of Series A Preferred Stock Outstanding Dividends

On
January 15, 2007, holders of Paces Series A Preferred Stock converted 50% of
the accrued but unpaid dividends on their Series A Preferred Stock into an
aggregate of 2,600,000 shares of Common Stock. All the holders of Series A
Preferred Stock agreed to waive the remaining accrued and unpaid dividends on
their shares of Series A Preferred Stock at the consummation of the Plan of
Recapitalization.

Private Placement

On
January 26, 2007, in a simultaneous transaction the Company completed a private
placement ( Private Placement ) of $15,000,000 of units
of Series B Convertible Preferred Stock and warrants, of which approximately
$8,000,000 were paid directly to the CONMED stockholders as consideration for
the sale of CONMEDs capital stock.

The
Company sold to certain accredited investors 150 units, each unit consisting
of (i) 100 shares of its Series B Convertible Preferred Stock ( Series B
Preferred Stock ), (ii) a common stock purchase warrant entitling the holder
to purchase up to 10,000 shares of its Common Stock at an exercise price equal
to $0.30 per share and (iii) a common stock purchase warrant entitling the
holder to purchase up to 3,333 shares of its Common Stock at an exercise price
equal to $2.50 per share (such units, the  Units), in a private offering
pursuant to exemption from registration under Section 4(2) of the Securities
Act of 1933, as amended and Rule 506 of Regulation D promulgated thereunder.
Each Unit was sold for $100,000, for an aggregate purchase price of
$15,000,000. The proceeds from the sale of the Units were used to purchase all
the issued and outstanding capital stock of CONMED and to provide working
capital following such purchase.

In
connection with the sale of the Units, the Company retained Maxim Group LLC, a
NASD member broker-dealer as its exclusive placement agent (the Placement
Agent). The Placement Agent received the following compensation: (i) a cash
fee of 10% of the gross proceeds delivered at each Closing (an aggregate of
$1,500,000) and (ii) a warrant to purchase 5% of the common stock that is
issuable upon conversion of the Units, at an exercise price equal to $2.75 per
share of common stock. In addition, the Company reimbursed the Placement Agent
for its accountable expenses in the amount of $50,000, as well as any filing fees
associated with Blue Sky filings, in an amount of $5,000.

Plan of Recapitalization

On
March 13, 2007 the Company held a special meeting of it shareholders to
approved a plan of recapitalization (the Plan), which became effective as of
the close of business on March 14, 2007.

After
approval of the Plan by its shareholders, the Company effected and implemented
the following:

|  |                                                                                                                                                                                                                                                                              
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a reverse
  split of 1 share for each 20 shares of common stock;                                                                                                                                                                                                             
|  |                                                                                                                                                                                                                                                                              
| | a change in
  name from Pace Health Management Systems, Inc. to Conmed Healthcare
  Management, Inc.;                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                              
| | conversion
  of Paces existing Series A Preferred Stock into 4,584,196 shares of Conmed
  common stock (immediately after the 1 for 20 reverse stock split) in exchange
  for conversion and waiver of remaining accrued and unpaid dividends plus
  liquidation rights; and
|  |                                                                                                                                                                                                                                                                              
| | reincorporation
  in the state of Delaware via a merger into Conmed, which was Paces wholly
  owned subsidiary.                                                                                                                                                             

As
a result of the Plan, in addition to the Series A Preferred Stock, all
outstanding Series B Preferred Stock and Series C Preferred Stock converted
into shares of common stock. As a result of the reverse split and the
conversion of all the outstanding preferred stock, the total number of Conmed
common stock outstanding is approximately 11,800,026. No preferred shares are
outstanding.

A
certificate of merger and articles of merger were filed with the Secretary of
State of the States of Delaware and Iowa, respectively, on March 13, 2007, and
each became effective as of the close of business on March 14, 2007.

Stock Options

On
January 26, 2007, the Board approved and authorized the issuance of 1,503,000
employee stock options upon closing of the Acquisition, exercisable at a price
per share equal to $2.01 per share post Plan of Recapitalization, and expiring
10 years from the

27

---



grant date,
pursuant to the 2007 Stock Option Plan which reserves up to 1,600,000 shares of
the Companys Common Stock for issuance. Such issuance was subject to
shareholder approval of the Plan of Recapitalization and the 2007 Stock Option
Plan which took place on March 13, 2007. In addition on March 13, 2007, the
Board approved and authorized the issuance of 97,000 stock options to employees
and directors of the Company at an exercise price of $3.30 per share and
expiring 10 years from date of grant.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|ITEM 8. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
  FINANCIAL DISCLOSURE

None

|         |                        
|-------- | -----------------------
|ITEM 8A. | CONTROLS AND PROCEDURES

The
Company maintains disclosure controls and procedures designed to ensure that
the information the Company must disclose in its filings with the Securities
and Exchange Commission is recorded, processed, summarized and reported on a
timely basis. The Companys director and acting chief executive and financial
officer has reviewed and evaluated the Companys disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended (the Exchange Act) as of the end of the
period covered by this report (the Evaluation Date). Based on such
evaluation, he has concluded that, as of the Evaluation Date, the Companys
disclosure controls and procedures are effective in bringing to his attention
on a timely basis information relating to the Company required to be included
in the Companys periodic filings under the Exchange Act.

There
have not been any changes in the Companys internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that
occurred during the Companys most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Companys internal
control over financial reporting.

|         |                  
|-------- | -----------------
|ITEM 8B. | OTHER INFORMATION

None

28

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PART III.

|        |                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------
|ITEM 9. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS , CONTROL PERSONS AND
  CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY

Our
Directors are elected at the Annual Meeting of Stockholders and hold office
until their successors are elected and qualified. Our officers are appointed
annually by the Board of Directors and serve at the pleasure of the Board.
There are no family relationships between any of our officers or directors.

Our
directors and executive officers as of March 27, 2007
are as follows:

|                      |  |     |  |                                                                                         
|--------------------- |  | --- |  | ----------------------------------------------------------------------------------------
|Name                  |  | Age |  | Position                                                                                
|                      |  |     |  |                                                                                         
|Richard Turner, PH.D. |  | 60  |  | President,
  Chief Executive Officer and Director
  (Parent and Operating Subsidiary)   
|                      |  |     |  |                                                                                         
|Howard M. Haft, MD    |  | 57  |  | Executive
  Vice President and Chief Medical Officer
  (Parent and Operating Subsidiary)
|                      |  |     |  |                                                                                         
|John Pappajohn        |  | 78  |  | Chairman of
  the Board of Directors and Director
  (Parent and Operating Subsidiary)   
|                      |  |     |  |                                                                                         
|Edward B. Berger      |  | 77  |  | Director
  (Parent)                                                                     
|                      |  |     |  |                                                                                         
|Terry E. Branstad     |  | 61  |  | Director
  (Parent)                                                                     
|                      |  |     |  |                                                                                         
|Thomas W. Fry         |  | 62  |  | Chief
  Financial Officer and Secretary
  (Parent and Operating Subsidiary)             

Richard Turner, Ph.D., President, Chief
Executive Officer and Director of Parent and Operating Subsidiary

Dr.
Turner is currently our President, Chief Executive Officer and a Director.
Prior to consulting for Pace, our predecessor in interest, in May of 2006, Dr.
Turner served as President and Chief Executive officer of EyeTel Imaging since
January 2004. Prior to January 2004, Dr. Turner previously served as President
and Chief Executive Officer of BEI Medical Systems (BEI Medical), a company
engaged in the development and marketing of a minimally invasive endometrial ablation
system. BEI Medical was sold to Boston Scientific for approximately $95 million
in 2002. Previously, President of the Healthcare Group for the Cooper
Companies, Dr. Turner has held executive leadership positions in the medical
industry for approximately 25 years, including President and Director of
CooperLaserSonics, Inc., President of CooperVision,Inc., President and Chief
Executive Officer/Director of Pancretec, Inc. (sold to Abbott Labs, Inc.) and
President of Kay Laboratories (sold to Baxter, Inc.). Dr. Turner graduated from
Old Dominion University with a Bachelor of Science degree, earned his M.B.A.
from Pepperdine University and earned his PhD from Berne University.

Howard Haft, MD - Executive Vice President
and Chief Medical Officer of Parent and Operating Subsidiary

Dr.
Haft is a founder of CONMED and acted as Director and Chief Medical Officer of
CONMED from 1984 to January 2007. He also serves as the President of the
Maryland Healthcare Associates and Georgetown Affiliate Multispecialty Group
Practice. He serves on the Board of Directors of Apollo Medical Corporation
that provides practice management services to Maryland

29

---



Healthcare
Associates. He also serves as President of the Maryland Foundation for Quality
Healthcare, a not for profit corporation providing healthcare education to the
underprivileged of Maryland. Dr. Haft holds a Medical Degree from Penn State
University, Residency in Internal Medicine from Brown University, a Masters in
Medical Management from Tulane University, and is recognized as a Certified
Physician Executive by the American College of Physician Executives. He is
Board Certified in Internal Medicine and Emergency Medicine.

John Pappajohn - Chairman of the Board of
Directors of Parent and Operating Subsidiary

Mr.
Pappajohn was a Director of Pace Health Management Systems, Inc., our
predecessor in interest, since 1995. Since 1969, Mr. Pappajohn has been the
President and principal stockholder of Equity Dynamics, Inc., a financial
consulting firm, and the sole owner of Pappajohn Capital Resources, a venture
capital firm, both located in Des Moines, Iowa. He also serves as a director
for the following public companies: Allion Healthcare, Inc., American
CareSource Holdings, Inc., Healthcare Acquisition Corp., MC Informatics, Inc.,
and Careguide, Inc. Mr. Pappajohn has been an active private equity investor in
healthcare companies for more than 30 years and has served as a director of
more than 40 public companies. Mr. Pappajohn received his B.S.C. from the
University of Iowa.

Edward B. Berger -Director of Parent

Mr.
Berger, one of our directors, is the President and CEO
of Berger Equities Inc., director and Chairman of the Audit
and Nominating Committees of Healthcare Acquisition Corp., a public
company, and a director of Compass Bank of Tucson, AZ, and American
CareSource Holdings, Inc., both of which are public companies. Mr. Berger
has extensive healthcare experience: past President and CEO of Palo
Verde Hospital; past President and member of the Board of Trustees of
Kino Community Hospital; past member of the Long Range Planning Committee
of Tucson Medical Center, all in Tucson, AZ. Mr. Berger is currently an
Adjunct Professor in Political Science at Pima Community College and is the
Retiring Chairman of the MBA Advisory Council, Eller Graduate School of
Management at the University of Arizona. He has been admitted to practice law
before the U.S. Supreme Court, U.S. Court of Appeals for the 9th Circuit and
the U.S. District Court-Arizona. He is admitted to the New York Bar, the
Arizona Bar and the District of Columbia Bar. Mr. Berger received his Juris
Doctor degree from New York Law School. We currently expect that Mr. Berger
will be a member of both our Audit Committee and our Compensation Committee.

Terry E. Branstad -Director of Parent

Governor
Branstad served as Governor of the State of Iowa from January 1983 to January
1999. After leaving the governors office in 1999, he established Branstad and
Associates, L.C., located in West Des Moines, and became a partner in the firm
of Kaufman, Patee, Branstad & Miller, a public policy firm based in
Washington, D.C. Since August 2003 he has been the President of Des Moines
University. Governor Branstad also serves as a director of the Iowa Health
System, Cementech, Advanced Analytical Technologies, Inc. and Liberty Bank FSB,
all private companies. He is a public member of the American Institute of
Certified Public Accountants Board. He served as a director of Featherlite,
Inc., a public company, from 1999 until 2006, when it was acquired. He was a
partner in general law practice in Lake Mills, Iowa, from 1974 through 1982.
Governor Branstad earned an undergraduate degree from the University of Iowa in
1969 and a law degree from Drake University in Des Moines in 1974.

Thomas W. Fry, Chief Financial Officer and
Secretary of Parent and Operating Subsidiary

Prior
to joining Pace, our predecessor in interest, in September of 2006, Mr. Fry
served as Chief Financial Officer of Vasomedical, Inc. from September 2003 to
September 2006 and as Vice President, Finance and Administration of BEI Medical
Systems Company, Inc. from September 1997 until December 2002. From October
1992 until November 1997, Mr. Fry was Vice President, Finance and Administration
of its predecessor company of the same name, which merged into BEI Medical
Systems Company, Inc. in November 1997. Mr. Fry has held various executive
financial positions for approximately 27 years, including Corporate Controller
of Disctronics Ltd. from 1989 to 1992, Controller and Chief Financial Officer
of Cavitron, Inc./CUSA a subsidiary of Cooper LaserSonics and Pfizer, a medical
device, engineering and manufacturing company, from 1986 to 1989, and Manager
of Profit Planning and Manufacturing Controller of Chesebrough-Ponds
International, from 1979 to 1986. Prior to that time, Mr. Fry was employed by
Chesebrough-Ponds and GTE in various accounting and financial management
positions. Mr. Fry graduated from Southeast Missouri State University with a
Bachelor of Science degree, and earned his M.B.A. from Pace University.

30

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Director
Independence

We
believe that both Edward B. Berger and Terry E. Branstad qualify as independent
directors as that term is defined in Section 301 of the Sarbanes-Oxley Act of
2002 and Rule 10A(3)(b)(1) of the Securities Exchange Act, as amended.

Audit Committee and
Compensation Committee

During
fiscal 2007, our Board of Directors intends to create and establish an Audit
Committee and a Compensation Committee on our behalf.

Our
Board of Directors held five meetings during 2006.

COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT

Section
16(a) of the Securities Exchange Act of 1934 requires the Companys executive
officers and directors, and persons who own more than ten percent of a
registered class of the Companys equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the SEC). Executive officers, directors and greater than 10% shareholders
are required by SEC regulation to furnish the Company with copies of all
Section 16(a) forms they file. Based solely on its review of the copies of such
forms received by it, the Company believes that, during fiscal year 2006, all executive
officers, directors and greater than ten-percent beneficial owners complied
with the applicable filing requirements.

|         |                       
|-------- | ----------------------
|ITEM 10. | EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

For
the years indeed December 31, 2006 and 2005, directors receive no compensation
for serving on the Board of Directors other than reimbursement of reasonable
expenses incurred in attending meetings.

On
October 24, 2005, the Company issued 37,500 warrants to purchase common stock,
as adjusted by the 1 for 20 reverse stock split. Of these warrants, 30,000 were
issued to John Pappajohn, and 7,500 were issued to his designees. The warrants
were issued as compensation for past services rendered and all warrants were
immediately vested. However, as part of the Plan of Recapitalization Mr.
Pappajohn relinquished the 30,000 warrants.

EXECUTIVE COMPENSATION

The
Companys Chief Executive Officer did not receive any compensation during the
years ended December 31, 2005 through December 31, 2006. In addition, there
were no other persons who served as executive officers of the Company during
the year ended December 31, 2006 whose total annual salary and bonus for the
year exceeded $100,000.

STOCK OPTIONS/SARS/LTIPS

There
were no stock options, stock appreciation rights or restricted stock units
granted to the Chief Executive Officer during the year ended December 31, 2006.
There were no payments made on any long-term incentive plans during the year ended
December 31, 2006. The Chief Executive Officer did not exercise any options
during fiscal 2006 and did not hold any options as of December 31, 2006.

|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|ITEM 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
  RELATED SHAREHOLDER MATTERS

The
following table sets forth the names and beneficial ownership of our Common
Stock owned as of March 27, 2007, by: (i) each of our directors, (ii) all our
directors and executive officers as a group, and, to the best of our knowledge,
(iii) all holders of 5%

31

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or more of the
outstanding shares of our Common Stock. Unless otherwise noted, the address of
all the individuals and entities named below is care of Conmed Healthcare
Management, Inc., 9375 Chesapeake Street, Suite 203, La Plata, Maryland 20646:

|                                                      |  |                             |           |            |  |      |  
|----------------------------------------------------- |  | --------------------------- | --------- | ---------- |  | ---- | -
|                                                      |  | Number of
  Shares (Common) |           | % of Class | 
|                                                      |  |                             |           |            | 
|                                                      |  |                             |           |            |  |      |  
|DIRECTORS
  AND OFFICERS (1)                          |  |                             |           |            |  |      |  
|                                                      |  |                             |           |            |  |      |  
|John
  Pappajohn (2)                                  |  |                             | 2,508,342 |            |  | 21.3 | %
|Richard
  Turner (3)                                  |  |                             | 100,000   |            |  | *    |  
|Edward B.
  Berger (5)                                |  |                             |          |            |  | *    |  
|Terry E.
  Branstad (5)                               |  |                             |          |            |  | *    |  
|Howard M.
  Haft (4)                                  |  |                             | 533,334   |            |  | 4.5  | %
|Thomas W.
  Fry (5)                                   |  |                             |          |            |  | *    |  
|All directors and named executive officers as a group |  |                             | 3,141,675 |            |  | 24.4 | %
|                                                      |  |                             |           |            |  |      |  
|5% OR MORE
  SHAREHOLDERS:                            |  |                             |           |            |  |      |  
|                                                      |  |                             |           |            |  |      |  
|Edgewater
  Private Equity Fund, L.P.                 |  |                             | 845,715   |            |  | 7.2  | %
|Gainesborough,
  LLC                                  |  |                             | 893,544   |            |  | 7.6  | %
|Lehman
  Brothers (7)                                 |  |                             | 2,000,000 |            |  | 16.9 | %
|Pinnacle (7)                                          |  |                             | 2,000,000 |            |  | 16.9 | %
|                                                      |  |                             |           |            |  |      |  
|All 5% or more shareholders                           |  |                             | 5,739,259 |            |  | 48.6 | %
|                                                      |  |                             |           |            |  |      |  




* Less than 1%
of the Companys common stock


(1)
Beneficial ownership is determined in accordance with Rule 13d-3(a) of the
Securities Exchange Act of 1934 and generally includes voting or investment
power with respect to securities. Except as indicated by footnotes and subject
to community property laws, where applicable, the person named above has sole
voting and investment power with respect to all shares of the common stock
shown as beneficially owned by him or her.

(2)
Includes 100,000 shares of common stock held by Halkis, Ltd, and 109,917 shares
of common stock held by the John and Mary Pappajohn Scholarship Foundation,
both affiliates of Mr. Pappajohn. Mr. Pappajohns address is 2116 Financial
Center, Des Moines, Iowa 50309.

(3)
Dr. Turner is a director and our President and CEO following our acquisition of
CONMED. Dr. Turners beneficial ownership includes options to purchase 100,000
shares of common stock issued under the 2007 Stock Option Plan that may be acquired
within 60 days of March 28, 2007. Dr. Turners beneficial ownership excludes
900,000 shares of common stock issued under the 2007 Stock Option Plan

(4)
Dr. Haft is a founder of CONMED and an officer following our acquisition of CONMED. The beneficial ownership of Dr. Haft excludes
options to purchase 83,333 shares of common stock issued under the 2007 Stock Option Plan that may be acquired more than 60 days
after March 28, 2007.

(5)
Mr. Berger and Mr. Branstad are directors following our acquisition of CONMED
and the effectiveness of the Plan of Recapitalization. Mr. Bergers beneficial
ownership excludes options to purchase 40,000 shares of common stock issued
under the 2007 Stock Option Plan that may be acquired more than 60 days after
March 28, 2007.

32

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(6)
Mr. Fry is our CFO and Secretary following our acquisition of CONMED. Mr. Frys
beneficial ownership excludes 118,000 shares of common stock issued under the
2007 Stock Option Plan that may be acquired more than 60 days after March 28,
2007.

(7)
Lehman Brothers and Pinnacles beneficial ownership each excludes 500,000
warrants to purchase common stock at $0.30 per share as well as warrants to
purchase 166,667 shares common stock at $2.50 per share, because the terms of
the warrants provide that the warrant holder is not entitled to receive shares
upon exercise of the warrant if such receipt would cause the warrant holder to
be deemed to beneficially own in excess of 9.9% of the outstanding shares of
our common stock on the date of issuance of such shares

|         |                                                                            
|-------- | ---------------------------------------------------------------------------
|ITEM 12. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
  INDEPENDENCE

During
2006 and 2005, the Company accrued $4,167 on a monthly basis, plus direct
expenses, to Equity Dynamics, Inc., an entity wholly owned by John Pappajohn, a
Director of the Company, for administrative services that include among other
things; accounting, investor relations, and SEC reporting. In addition to these
administrative expenses the Company also reimbursed Equity Dynamics, Inc. for
expenses related to the negotiation and consummation of the ConMed transaction.
Such accruals related to Equity Dynamics, Inc. totaled $82,300 and $50,500 in
2006 and 2005, respectively. Accounts payable to Equity Dynamics, Inc. as of
December 31, 2006 and 2005 was $5,796 and $1,868, respectively.

On
October 24, 2005, Pace issued 37,500 warrants to purchase common stock. Of
these warrants, 30,000 were issued to John Pappajohn and the remaining 7,500
warrants were issued to his designees. The warrants were issued as compensation
for past services rendered and all warrants immediately vested. The warrants
had an exercise price of $10.00, which exceeded the market price of common
stock at the time of issuance. The value of the warrants was separately
estimated at $0.20 per share or $10,000 based on the Black-Scholes valuation of
the call option associated with a five year warrant. As part of the Plan of
Recapitalization, Mr. Pappajohn relinquished the 30,000 warrants that were
issued to him, and the remaining 7,500 warrants issued to his designees were
adjusted to 250,000 warrants to purchase common stock of a post reverse stock split
basis, exercisable at $0.30 per share.

We
believe that directors Berger and Branstad qualify as independent directors as
that term is defined in Section 301 of the Sarbanes-Oxley Act of 2002 and Rule
10A(3)(b)(1) of the Securities Exchange Act as amended.

33

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|         |         
|-------- | --------
|ITEM 13. | EXHIBITS

(a) The
following exhibits are filed as a part of this report.

| |       |                                                                                                                                                                   
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1   | Agreement
  and Plan of Merger dated February 14, 2007 (1)                                                                                                        
| |       |                                                                                                                                                                   
| | 3.1   | Certificate
  of Incorporation of Conmed Healthcare Management, Inc. (1)                                                                                          
| |       |                                                                                                                                                                   
| | 3.1.1 | Certificate
  of Merger (Delaware) filed March 13, 2007 (2)                                                                                                       
| |       |                                                                                                                                                                   
| | 3.1.2 | Articles of
  Merger (Iowa) filed March 13, 2007 (2)                                                                                                              
| |       |                                                                                                                                                                   
| | 3.2   | Bylaws of
  Conmed Healthcare Management, Inc. (2)                                                                                                                
| |       |                                                                                                                                                                   
| | 4.1   | Form of
  Common Stock Certificate                                                                                                                                
| |       |                                                                                                                                                                   
| | 4.2   | Form of October
  2005 Stock Purchase Warrant (3)                                                                                                                 
| |       |                                                                                                                                                                   
| | 4.3   | Form of
  Investor Warrant ($.30) (4)                                                                                                                             
| |       |                                                                                                                                                                   
| | 4.4   | Form of
  Investor Warrant ($2.50) (4)                                                                                                                            
| |       |                                                                                                                                                                   
| | 10.1  | Stock
  Purchase Agreement by and among Pace Health Management Systems, Inc. ConMed,
  Inc and the ConMed Stockholders set forth therein, dated August 2, 2006 (5)
| |       |                                                                                                                                                                   
| | 10.7  | Side letter
  by and among Pace Health Management Systems, Inc. ConMed, Inc and the ConMed
  Stockholders set forth therein, dated as of January 12, 2007 (6)     
| |       |                                                                                                                                                                   
| | 10.8  | Form of
  Subscription Agreement dated January 26, 2007, with Registration Rights, by
  and among Pace and certain investors in the Private Placement (4)         
| |       |                                                                                                                                                                   
| | 10.9  | Placement
  Agency Agreement dated January 16, 2007, by and between Pace and Maxim Group
  LLC (4)                                                                
| |       |                                                                                                                                                                   
| | 10.10 | Form of
  Securities Purchase Agreement dated January 26, 2007, by and among Pace and
  certain investors in the Private Placement (4)                            
| |       |                                                                                                                                                                   
| | 10.11 | Form of
  Registration Rights Agreement dated January 26, 2007 by and among Pace and
  certain investors in the Private Placement (4)                             
| |       |                                                                                                                                                                   
| | 10.12 | 2007 Stock
  Option Plan (1)                                                                                                                                      
| |       |                                                                                                                                                                   
| | 21.1  | Subsidiaries of the Company                                                                                                                                       
| |       |                                                                                                                                                                   
| | 31.1  | Section 302
  Certification by Director and Chief Executive Officer                                                                                               
| |       |                                                                                                                                                                   
| | 31.2  | Section 302
  Certification by Chief Financial Officer                                                                                                            
| |       |                                                                                                                                                                   
| | 32.1  | Section 906
  Certification by Director and Chief Executive Officer                                                                                               
| |       |                                                                                                                                                                   
| | 32.2  | Section 906
  Certification by Chief Financial Officer                                                                                                            

|    |                                                                                     
|--- | ------------------------------------------------------------------------------------
|(1) | Incorporated
  by reference to the Companys Schedule 14A filed on February 27, 2007
|    |                                                                                     
|(2) | Incorporated
  by reference to the Companys Form 8-K dated March 19, 2007          
|    |                                                                                     
|(3) | Incorporated
  by reference to the Companys Form 10-KSB dated March 31, 2006       
|    |                                                                                     
|(4) | Incorporated
  by reference to the Companys Form 8-K dated February 1, 2007        
|    |                                                                                     
|(5) | Incorporated
  by reference to the Companys Form 8-K dated August 8, 2006          
|    |                                                                                     
|(6) | Incorporated
  by reference to the Companys Form 8-K dated January 17, 2007        

34

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|         |                                       
|-------- | --------------------------------------
|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES

During the
period covering the fiscal years ended December 31, 2006 and 2005, McGladrey
& Pullen, LLP and its affiliate, RSM McGladrey, Inc. performed the
following professional services:

|                         |  |                                       |        |      |   |        | 
|------------------------ |  | ------------------------------------- | ------ | ---- | - | ------ | 
|                         |  | For the
  years ended 
  December 31, |       
|                         |  | 2006                                  |        | 2005 |  
|                         |  |                                       |        |      |  
|Audit Fees
  (1)         |  | $                                     | 36,500 |      | $ | 26,000 | 
|Audit
  related fees (2) |  |                                       | 8,000  |      |   |       | 
|Tax Fees (3)             |  |                                       | 700    |      |   | 660    | 

|    |                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit fees
  consist of fees for professional services rendered for the audit of the
  Companys financial statements, review of the 10-KSB filing, and review of
  financial statements included in the Companys quarterly reports.
|    |                                                                                                                                                                                                                                      
|(2) | Other fees
  relate to work performed on proposed acquisition and private placement
  memorandum.                                                                                                                                    
|    |                                                                                                                                                                                                                                      
|(3) | Tax fees
  consist of compliance fees for the preparation of federal and state tax
  returns.                                                                                                                                        

Fees for
professional services rendered by the Companys principal accountants are
pre-approved by the Companys Director and majority shareholder.

35

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SIGNATURES

In accordance
with Section 13 or 15(d) of the Exchange Act, the registrant caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.

Conmed Healthcare Management, Inc.

|                                                                                                                                                                                    |                                                                     
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------
|March 28,
  2007                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/
  Richard W. Turner                                          
|                                                                                                                                                                                    | Richard
  Turner, President and Chief Executive Officer             
|                                                                                                                                                                                    |                                                                     
|In
  accordance with the Exchange Act, this report has been signed below by the
  following persons on behalf of the registrant and in the capacities and on
  the dates indicated.
|                                                                                                                                                                                    |                                                                     
|March 28,
  2007                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/ John
  Pappajohn                                             
|                                                                                                                                                                                    | John
  Pappajohn, Chairman of the Board of Directors                
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/
  Richard W. Turner                                          
|                                                                                                                                                                                    | Richard
  Turner,  President, Chief Executive Officer and Director  
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/
  Edward B Berger                                            
|                                                                                                                                                                                    | Edward B.
  Berger, Director                                        
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/ Terry
  E. Branstad                                          
|                                                                                                                                                                                    | Terry
  Branstad, Director                                          
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/
  Howard M. Haft                                             
|                                                                                                                                                                                    | Howard M.
  Haft, Executive Vice President and Chief Medical Officer
|                                                                                                                                                                                    |                                                                     
|                                                                                                                                                                                    | By /s/
  Thomas W. Fry                                              
|                                                                                                                                                                                    | Thomas W.
  Fry, Chief Financial Officer and Secretary              

36

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