|   | x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934. |
|--------|---|----------------------------------------------------------------------------------------------|

|   | o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934. |
|--------|---|-----------------------------------------------------------------------------------------------|

| Delaware                                                      |   | 42-1297992                           |
|---------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction ofincorporation or organization) |   | (I.R.S. Employer Identification No.) |

| 7250 Parkway Dr., Suite 400Hanover, MD   |   |  21076 |
|------------------------------------------|--------|-------------|
| (Address of principal executive offices) |   | (Zip Code)  |

| (410) 567-5520                                             |
|------------------------------------------------------------|
| (Registrant’s telephone number, including area code) |

| Large Accelerated filer o                                         | Accelerated filer o              |
|----------------------------------------------------------------------------------|--------------------------------------------|
|                                                                             |                                       |
| Non-Accelerated filer o                                                | Smaller reporting company x |
| (Do not check if a smaller reporting company) |                                       |

|                                                                    |   | Number of Shares Outstanding |
|-------------------------------------------------------------------------|--------|---------------------------------------------|
| Class                                                                   |   | May 11, 2011                      |
| Common Stock, $0.0001 par value per share |   | 12,846,288                                  |

----

|                                                                                                | Page    |
|-----------------------------------------------------------------------------------------------------|---------|
| PART I.FINANCIAL INFORMATION                                                                        |    |
|                                                                                                |    |
| ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)                                                            | 1  |
|                                                                                                |    |
| Consolidated Balance Sheets                                                                         |    |
| March 31, 2011 and December 31, 2010                                                                | 1       |
|                                                                                                |    |
| Consolidated Statements of Operations                                                               |    |
| For the three months ended March 31, 2011 and 2010                                                  | 2       |
|                                                                                                |    |
| Consolidated Statements of Cash Flows                                                               |    |
| For the three months ended March 31, 2011 and 2010                                                  | 3       |
|                                                                                                |    |
| Consolidated Statements of Shareholders’ Equity                                               |    |
| For the three months ended March 31, 2011                                                           | 4       |
|                                                                                                |    |
| Notes to Consolidated Financial Statements                                                          | 5       |
|                                                                                                |    |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 10      |
|                                                                                                |    |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                  | 15      |
|                                                                                                |    |
| ITEM 4. CONTROLS AND PROCEDURES                                                                     | 15      |
|                                                                                                |    |
| PART II.OTHER INFORMATION                                                                           |    |
|                                                                                                |    |
| ITEM 1. LEGAL PROCEEDINGS                                                                           | 16      |
|                                                                                                |    |
| ITEM 1A. RISK FACTORS                                                                               | 16      |
|                                                                                                |    |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                 | 16      |
|                                                                                                |    |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                             | 16      |
|                                                                                                |    |
| ITEM 4. RESERVED                                                                                    | 16      |
|                                                                                                |    |
| ITEM 5. OTHER INFORMATION                                                                           | 16      |
|                                                                                                |    |
| ITEM 6. EXHIBITS                                                                                    | 16      |
|                                                                                                |    |
| SIGNATURES                                                                                          | 17      |

----

| ITEM 1. | FINANCIAL STATEMENTS |
|---------|----------------------|

|                                                                                                                                                                            |   | March 31, 2011(unaudited) |        |   | December 31,2010 |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------|-------------|--------|------------------|--------|
| ASSETS                                                                                                                                                                          |   |                      |        |   |             |   |
| CURRENT ASSETS                                                                                                                                                                  |   |                      |        |   |             |   |
| Cash and cash equivalents                                                                                                                                                       |   | $                         | 13,984,226  |   |             | $      | 13,270,089 |   |
| Accounts receivable                                                                                                                                                             |   |                      | 2,373,422   |   |             |   | 2,698,867 |   |
| Prepaid expenses                                                                                                                                                                |   |                      | 918,307     |   |             |   | 1,158,660 |   |
| Deferred taxes                                                                                                                                                                  |   |                      | 156,000     |   |             |   | 144,000 |   |
| Total current assets                                                                                                                                                            |   |                      | 17,431,955  |   |             |   | 17,271,616 |   |
| PROPERTY AND EQUIPMENT, NET                                                                                                                                                     |   |                      | 760,570     |   |             |   | 686,116 |   |
| DEFERRED TAXES                                                                                                                                                                  |   |                      | 1,274,000   |   |             |   | 1,321,000 |   |
| OTHER ASSETS                                                                                                                                                                    |   |                      |        |   |             |   |   |   |
| Service contracts acquired, net                                                                                                                                                 |   |                      | 361,750     |   |             |   | 466,500 |   |
| Non-compete agreements, net                                                                                                                                                     |   |                      | 180,225     |   |             |   | 216,892 |   |
| Goodwill                                                                                                                                                                        |   |                      | 6,263,705   |   |             |   | 6,263,705 |   |
| Deposits                                                                                                                                                                        |   |                      | 31,274      |   |             |   | 56,475 |   |
| Total other assets                                                                                                                                                              |   |                      | 6,836,954   |   |             |   | 7,003,572 |   |
|                                                                                                                                                                            |   | $                         | 26,303,479  |   |             | $      | 26,282,304 |   |
|                                                                                                                                                                            |   |                      |        |   |             |   |   |   |
| LIABILITIES AND SHAREHOLDERS’ EQUITY                                                                                                                                      |   |                      |        |   |             |   |   |   |
| CURRENT LIABILITIES                                                                                                                                                             |   |                      |        |   |             |   |   |   |
| Accounts payable                                                                                                                                                                |   | $                         | 1,469,477   |   |             | $      | 1,812,817 |   |
| Accrued expenses                                                                                                                                                                |   |                      | 4,419,537   |   |             |   | 4,619,613 |   |
| Taxes payable                                                                                                                                                                   |   |                      | 216,862     |   |             |   | 368,162 |   |
| Deferred revenue                                                                                                                                                                |   |                      | 669,786     |   |             |   | 599,033 |   |
| Total current liabilities                                                                                                                                                       |   |                      | 6,775,662   |   |             |   | 7,399,625 |   |
| DERIVATIVE FINANCIAL INSTRUMENTS                                                                                                                                                |   |                      | 817,343     |   |             |   | 692,696 |   |
| SHAREHOLDERS’ EQUITY                                                                                                                                                      |   |                      |        |   |             |   |   |   |
| Preferred stock, no par value; authorized 5,000,000 shares; zero shares issued and outstanding as of March 31, 2011 and December 31, 2010                                       |   |                      | —     |   |             |   | — |   |
| Common stock, $0.0001 par value, authorized 40,000,000 shares; issued and outstanding 12,846,288 and 12,835,319 shares as of March 31, 2011 and December 31, 2010, respectively |   |                      | 1,285       |   |             |   | 1,284 |   |
| Additional paid-in capital                                                                                                                                                      |   |                      | 39,117,737  |   |             |   | 38,991,145 |   |
| Accumulated deficit                                                                                                                                                             |   |                      | (20,408,548 | )      |             |   | (20,802,446 | ) |
| Total shareholders' equity                                                                                                                                                      |   |                      | 18,710,474  |   |             |   | 18,189,983 |   |
|                                                                                                                                                                            |   | $                         | 26,303,479  |   |             | $      | 26,282,304 |   |

----

|                                  |   | For the ThreeMonths EndedMarch 31, 2011 |       |   | For the ThreeMonths EndedMarch 31, 2010 |   |
|---------------------------------------|--------|------------------------------------------------------------------|------------|--------|------------------------------------------------------------------|--------|
|                                  |   |                                                             |       |   |                                                             |   |
| Service contract revenue              |   | $                                                                | 16,311,093 |   |                                                             | $      | 14,751,971 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| HEALTHCARE EXPENSES:                  |   |                                                             |       |   |                                                             |   |   |   |
| Salaries, wages and employee benefits |   |                                                             | 9,295,969  |   |                                                             |   | 8,215,300 |   |
| Medical expenses                      |   |                                                             | 3,419,644  |   |                                                             |   | 3,139,742 |   |
| Other operating expenses              |   |                                                             | 606,931    |   |                                                             |   | 494,713 |   |
| Total healthcare expenses             |   |                                                             | 13,322,544 |   |                                                             |   | 11,849,755 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| Gross profit                          |   |                                                             | 2,988,549  |   |                                                             |   | 2,902,216 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| Selling and administrative expenses   |   |                                                             | 2,027,966  |   |                                                             |   | 2,003,131 |   |
| Depreciation and amortization         |   |                                                             | 172,471    |   |                                                             |   | 319,529 |   |
| Total operating expenses              |   |                                                             | 2,200,437  |   |                                                             |   | 2,322,660 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| Operating income                      |   |                                                             | 788,112    |   |                                                             |   | 579,556 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| OTHER INCOME (EXPENSE)                |   |                                                             |       |   |                                                             |   |   |   |
| Interest income                       |   |                                                             | 28,530     |   |                                                             |   | 18,069 |   |
| (Loss) on fair value of derivatives   |   |                                                             | (129,744   | )      |                                                             |   | (43,684 | ) |
| Total other income (expense)          |   |                                                             | (101,214   | )      |                                                             |   | (25,615 | ) |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| Income before income taxes            |   |                                                             | 686,898    |   |                                                             |   | 553,941 |   |
| Income tax expense                    |   |                                                             | 293,000    |   |                                                             |   | 270,300 |   |
| Net income                            |   | $                                                                | 393,898    |   |                                                             | $      | 283,641 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| EARNINGS PER COMMON SHARE             |   |                                                             |       |   |                                                             |   |   |   |
| Basic                                 |   | $                                                                | 0.03       |   |                                                             | $      | 0.02 |   |
| Diluted                               |   | $                                                                | 0.03       |   |                                                             | $      | 0.02 |   |
|                                  |   |                                                             |       |   |                                                             |   |   |   |
| WEIGHTED-AVERAGE SHARES OUTSTANDING   |   |                                                             |       |   |                                                             |   |   |   |
| Basic                                 |   |                                                             | 12,839,656 |   |                                                             |   | 12,629,572 |   |
| Diluted                               |   |                                                             | 14,347,571 |   |                                                             |   | 14,205,098 |   |

----

|                                                                                                                           |   | For the ThreeMonths EndedMarch 31, 2011 |       |   | For the ThreeMonths EndedMarch 31, 2010 |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------|------------|--------|------------------------------------------------------------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES                                                                                           |   |                                                             |       |   |                                                             |   |
| Net income                                                                                                                     |   | $                                                                | 393,898    |   |                                                             | $      | 283,641 |   |
| Adjustments to reconcile net income to net cash provided by operating activities                                               |   |                                                             |       |   |                                                             |   |   |   |
| Depreciation                                                                                                                   |   |                                                             | 74,804     |   |                                                             |   | 69,418 |   |
| Amortization                                                                                                                   |   |                                                             | 97,667     |   |                                                             |   | 250,111 |   |
| Amortization of long-term customer agreement                                                                                   |   |                                                             | 43,750     |   |                                                             |   | — |   |
| Stock-based compensation                                                                                                       |   |                                                             | 104,829    |   |                                                             |   | 159,431 |   |
| Loss on fair value of derivatives                                                                                              |   |                                                             | 129,744    |   |                                                             |   | 43,684 |   |
| Deferred income taxes                                                                                                          |   |                                                             | 35,000     |   |                                                             |   | (5,000 | ) |
| Changes in working capital components                                                                                          |   |                                                             |       |   |                                                             |   |   |   |
| (Increase) decrease in accounts receivable                                                                                     |   |                                                             | 325,445    |   |                                                             |   | (593,799 | ) |
| Decrease in prepaid expenses                                                                                                   |   |                                                             | 240,353    |   |                                                             |   | 247,868 |   |
| Decrease in deposits                                                                                                           |   |                                                             | 25,201     |   |                                                             |   | — |   |
| Increase (decrease) in accounts payable                                                                                        |   |                                                             | (343,340   | )      |                                                             |   | 216,127 |   |
| Increase (decrease) in accrued expenses                                                                                        |   |                                                             | (200,076   | )      |                                                             |   | 604,425 |   |
| (Decrease) in income taxes payable                                                                                             |   |                                                             | (151,300   | )      |                                                             |   | (340,217 | ) |
| Increase (decrease) in deferred revenue                                                                                        |   |                                                             | 70,753     |   |                                                             |   | (87,826 | ) |
| Net cash provided by operating activities                                                                                      |   |                                                             | 846,728    |   |                                                             |   | 847,863 |   |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| Purchase of property and equipment                                                                                             |   |                                                             | (149,258   | )      |                                                             |   | (65,240 | ) |
| Asset purchase                                                                                                                 |   |                                                             | —    |   |                                                             |   | (147,268 | ) |
| Net cash (used in) investing activities                                                                                        |   |                                                             | (149,258   | )      |                                                             |   | (212,508 | ) |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| Proceeds from exercise of warrants and stock options                                                                           |   |                                                             | 16,667     |   |                                                             |   | — |   |
| Net cash provided by financing activities                                                                                      |   |                                                             | 16,667     |   |                                                             |   | — |   |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| Net increase in cash and cash equivalents                                                                                      |   |                                                             | 714,137    |   |                                                             |   | 635,355 |   |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| CASH AND CASH EQUIVALENTS                                                                                                      |   |                                                             |       |   |                                                             |   |   |   |
| Beginning                                                                                                                      |   |                                                             | 13,270,089 |   |                                                             |   | 11,056,143 |   |
| Ending                                                                                                                         |   | $                                                                | 13,984,226 |   |                                                             | $      | 11,691,498 |   |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| NON-CASH INVESTING AND FINANCING ACTIVITIES WERE AS FOLLOWS:                                                                   |   |                                                             |       |   |                                                             |   |   |   |
| Reclassification of warrants from derivative financial instruments to additional paid-in capital upon exercise, at fair value. |   | $                                                                | 5,097      |   |                                                             | $      | — |   |
|                                                                                                                           |   |                                                             |       |   |                                                             |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION                                                                               |   |                                                             |       |   |                                                             |   |   |   |
| Income taxes paid                                                                                                              |   | $                                                                | 409,300    |   |                                                             | $      | 615,837 |   |

----

|                                   |   | PreferredStock |    |   | CommonStock |   |    | Additional Paid-in Capital |   |   | AccumulatedDeficit |   |   | Total  |        |
|----------------------------------------|--------|----------------|---------|--------|-------------|--------|---------|--------------------------------------|--------|--------|--------------------|--------|--------|--------|-------------|
| Balance at December 31, 2010           |   | $              | — |   |        | $      | 1,284   |                                 |   | $      | 38,991,145         |   |   | $      | (20,802,446 | ) |   | $ | 18,189,983 |   |
| Net Income                             |   |           | — |   |        |   | — |                                 |   |   | —            |   |   |   | 393,898     |   |   |   | 393,898 |   |
| Stock option expense                   |   |           | — |   |        |   | — |                                 |   |   | 104,829            |   |   |   | —     |   |   |   | 104,829 |   |
| Exercise of warrants and stock options |   |           | — |   |        |   | 1       |                                 |   |   | 21,763             |   |   |   | —     |   |   |   | 21,764 |   |
| Balance at March 31, 2011              |   | $              | — |   |        | $      | 1,285   |                                 |   | $      | 39,117,737         |   |   | $      | (20,408,548 | ) |   | $ | 18,710,474 |   |

----

| NOTE 1. | Basis of Presentation |
|---------|-----------------------|

| NOTE 2. | New Accounting Standards |
|---------|--------------------------|

| NOTE 3. | Common Stock Options |
|---------|----------------------|

| NOTE 4. | Common Stock Warrants |
|---------|-----------------------|

----

|                                         |   | Pre-AcquisitionWarrants |    |   | InvestorWarrants@ $0.30per share |   |    | InvestorWarrants@ $2.50per share |   |   | PlacementAgentWarrant |   |   | ConsultantWarrant @$3.72 pershare |    |   | ConsultantWarrants@ $1.85 pershare |   |    | Total  |   |
|----------------------------------------------|--------|-------------------------|---------|--------|--------------------------------------------|--------|---------|--------------------------------------------|--------|--------|-----------------------|--------|--------|---------------------------------------------|---------|--------|----------------------------------------------|--------|---------|--------|--------|
| Exercise price                               |   | $                       | 0.30    |   |                                       | $      | 0.30    |                                       |   | $      | 2.50                  |   |   | $                                           | 2.75    |   |                                         | $      | 3.72    |   |   | $ | 1.85 |   |   | $ | 1.46 |   |
| Warrants outstanding as of December 31, 2010 |   |                    | — |   |                                       |   | 813,000 |                                       |   |   | 496,667               |   |   |                                        | 300,000 |   |                                         |   | 20,000  |   |   |   | 80,000 |   |   |   | 1,709,667 |   |
| Warrants exercised                           |   |                    | — |   |                                       |   | — |                                       |   |   | 6,667                 |   |   |                                        | 27,500  |   |                                         |   | — |   |   |   | — |   |   |   | 34,167 |   |
| Warrants outstanding as of March 31, 2011    |   |                    | — |   |                                       |   | 813,000 |                                       |   |   | 490,000               |   |   |                                        | 272,500 |   |                                         |   | 20,000  |   |   |   | 80,000 |   |   |   | 1,675,500 |   |

|                                         |   | Pre-AcquisitionWarrants |    |   | InvestorWarrants@ $0.30per share |   |    | InvestorWarrants@ $2.50per share |   |   | PlacementAgentWarrant |   |   | ConsultantWarrant @$3.72 pershare |    |   | ConsultantWarrants@ $1.85 pershare |   |    | Total  |   |
|----------------------------------------------|--------|-------------------------|---------|--------|--------------------------------------------|--------|---------|--------------------------------------------|--------|--------|-----------------------|--------|--------|---------------------------------------------|---------|--------|----------------------------------------------|--------|---------|--------|--------|
| Exercise price                               |   | $                       | 0.30    |   |                                       | $      | 0.30    |                                       |   | $      | 2.50                  |   |   | $                                           | 2.75    |   |                                         | $      | 3.72    |   |   | $ | 1.85 |   |   | $ | 1.35 |   |
| Warrants outstanding as of December 31, 2009 |   |                    | 223,000 |   |                                       |   | 813,000 |                                       |   |   | 496,667               |   |   |                                        | 300,000 |   |                                         |   | 20,000  |   |   |   | 80,000 |   |   |   | 1,932,667 |   |
| Warrants exercised                           |   |                    | — |   |                                       |   | — |                                       |   |   | —               |   |   |                                        | — |   |                                         |   | — |   |   |   | — |   |   |   | — |   |
| Warrants outstanding as of March 31, 2010    |   |                    | 223,000 |   |                                       |   | 813,000 |                                       |   |   | 496,667               |   |   |                                        | 300,000 |   |                                         |   | 20,000  |   |   |   | 80,000 |   |   |   | 1,932,667 |   |

----

| NOTE 5. | Fair Value of Warrants |
|---------|------------------------|

| Black-Scholes assumptions |   | March 31, 2011 |   |   | December 31, 2010 |   |
|---------------------------|--------|----------------|--------|--------|-------------------|--------|
| Expected life (years)     |   |           | 0.7    |   |              |   | 0.9 |   |
| Expected volatility       |   |           | 36.58  | %      |              |   | 29.86 | % |
| Risk-free interest rate   |   |           | 0.3    | %      |              |   | 0.3 | % |
| Expected dividend yield   |   |           | 0.0    | %      |              |   | 0.0 | % |

| Black-Scholes assumptions |   | March 31, 2011 |   |   | December 31, 2010 |   |
|---------------------------|--------|----------------|--------|--------|-------------------|--------|
| Expected life (years)     |   |           | 0.7    |   |              |   | 0.9 |   |
| Expected volatility       |   |           | 36.58  | %      |              |   | 29.86 | % |
| Risk-free interest rate   |   |           | 0.3    | %      |              |   | 0.3 | % |
| Expected dividend yield   |   |           | 0.0    | %      |              |   | 0.0 | % |

|                                                                          |   | InvestorWarrants @$0.30 pershare |    |   | InvestorWarrants @$2.50 pershare |   |    | Total  |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------|---------|--------|--------------------------------------------|--------|---------|--------|--------|
| Warrants outstanding subject to fair value accounting as of December 31, 2010 |   |                                       | 131,430 |   |                                       |   | 496,667 |   |   |   | 628,097 |   |
| Warrants exercised                                                            |   |                                       | — |   |                                       |   | 6,667   |   |   |   | 6,667 |   |
| Warrants amended                                                              |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Warrants outstanding subject to fair value accounting as of March 31, 2011    |   |                                       | 131,430 |   |                                       |   | 490,000 |   |   |   | 621,430 |   |

|                                                        |   | InvestorWarrants @$0.30 pershare |    |   | InvestorWarrants @$2.50 pershare |   |    | Total  |   |
|-------------------------------------------------------------|--------|--------------------------------------------|---------|--------|--------------------------------------------|--------|---------|--------|--------|
| Fair value of warrants outstanding as of December 31, 2010  |   | $                                          | 361,537 |   |                                       | $      | 331,159 |   |   | $ | 692,696 |   |
| Realized loss on warrants                                   |   |                                       | — |   |                                       |   | 651     |   |   |   | 651 |   |
| Unrealized loss on warrants                                 |   |                                       | 28,886  |   |                                       |   | 100,207 |   |   |   | 129,093 |   |
| Fair value of warrants transferred to equity upon amendment |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Fair value of warrants exercised                            |   |                                       | — |   |                                       |   | (5,097  | )      |   |   | (5,097 | ) |
| Fair value of warrants outstanding as of March 31, 2011     |   | $                                          | 390,423 |   |                                       | $      | 426,920 |   |   | $ | 817,343 |   |

----

|                                                                          |   | InvestorWarrants @$0.30 pershare |    |   | InvestorWarrants @$2.50 pershare |   |    | Total  |   |
|-------------------------------------------------------------------------------|--------|--------------------------------------------|---------|--------|--------------------------------------------|--------|---------|--------|--------|
| Warrants outstanding subject to fair value accounting as of December 31, 2009 |   |                                       | 221,430 |   |                                       |   | 496,667 |   |   |   | 718,097 |   |
| Warrants exercised                                                            |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Warrants amended                                                              |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Warrants outstanding subject to fair value accounting as of March 31, 2010    |   |                                       | 221,430 |   |                                       |   | 496,667 |   |   |   | 718,097 |   |

|                                                        |   | InvestorWarrants @$0.30 pershare |    |   | InvestorWarrants @$2.50 pershare |   |    | Total  |   |
|-------------------------------------------------------------|--------|--------------------------------------------|---------|--------|--------------------------------------------|--------|---------|--------|--------|
| Fair value of warrants outstanding as of December 31, 2009  |   | $                                          | 615,280 |   |                                       | $      | 684,170 |   |   | $ | 1,299,450 |   |
| Realized loss on warrants                                   |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Unrealized loss on warrants                                 |   |                                       | 28,507  |   |                                       |   | 15,177  |   |   |   | 43,684 |   |
| Fair value of warrants transferred to equity upon amendment |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Fair value of warrants exercised                            |   |                                       | — |   |                                       |   | — |   |   |   | — |   |
| Fair value of warrants outstanding as of March 31, 2010     |   | $                                          | 643,787 |   |                                       | $      | 699,347 |   |   | $ | 1,343,134 |   |

| NOTE 6. | Fair Value Measurements |
|---------|-------------------------|

|                             |   | As of March 31, 2011 |    |
|----------------------------------|--------|------------------------------------------|---------|
|                             |   | Total                                    |    |   | Quoted prices inactive markets foridentical assets(Level 1) |   |   | Significant otherobservable inputs(Level 2) |   |   | Significantunobservableinputs(Level 3) |   |
| Derivative financial instruments |   | $                                        | 817,343 |   |   | $ | — |   |   | $ | — |   |   | $ | 817,343 |   |

|                             |   | As of December 31, 2010 |    |
|----------------------------------|--------|---------------------------------------------|---------|
|                             |   | Total                                       |    |   | Quoted prices inactive markets foridentical assets(Level 1) |   |   | Significant otherobservable inputs(Level 2) |   |   | Significantunobservableinputs(Level 3) |   |
| Derivative financial instruments |   | $                                           | 692,696 |   |   | $ | — |   |   | $ | — |   |   | $ | 692,696 |   |

----

|                                                |   | 2011   |    |   | 2010   |   |
|-----------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Balance as of January 1                             |   | $      | 692,696 |   |   | $      | 1,299,450 |   |
| Transfers into level 3                              |   |   | — |   |   |   | — |   |
| Transfers out of level 3                            |   |   | — |   |   |   | — |   |
| Sales of equity-linked financial instruments        |   |   | (5,097  | )      |   |   | — |   |
| Realized loss related to the change in fair value   |   |   | 651     |   |   |   | — |   |
| Unrealized loss related to the change in fair value |   |   | 129,093 |   |   |   | 43,684 |   |
| Balance as of March 31                              |   | $      | 817,343 |   |   | $      | 1,343,134 |   |

| NOTE 7. | Earnings Per Share |
|---------|--------------------|

|                                                                                |   | For the Three Months Ended |       |
|-------------------------------------------------------------------------------------|--------|----------------------------|------------|
|                                                                                |   | March 31, 2011             |       |   | March 31, 2010 |   |
| Numerator for basic and diluted earnings per share:                                 |   |                       |       |   |   |   |
| Net income                                                                          |   | $                          | 393,898    |   |   | $ | 283,641 |   |
|                                                                                |   |                       |       |   |   |   |   |   |
| Denominator:                                                                        |   |                       |       |   |   |   |   |   |
| Weighted-average basic shares outstanding                                           |   |                       | 12,839,656 |   |   |   | 12,629,572 |   |
| Assumed conversion of dilutive securities                                           |   |                       |       |   |   |   |   |   |
| Stock options                                                                       |   |                       | 580,666    |   |   |   | 442,324 |   |
| Warrants                                                                            |   |                       | 927,249    |   |   |   | 1,133,202 |   |
| Potentially dilutive common shares                                                  |   |                       | 1,507,915  |   |   |   | 1,575,526 |   |
|                                                                                |   |                       |       |   |   |   |   |   |
| Denominator for diluted earnings per share – Adjusted weighted average shares |   |                       | 14,347,571 |   |   |   | 14,205,098 |   |
|                                                                                |   |                       |       |   |   |   |   |   |
| Earnings (loss) per common share:                                                   |   |                       |       |   |   |   |   |   |
| Basic                                                                               |   | $                          | 0.03       |   |   | $ | 0.02 |   |
| Diluted                                                                             |   | $                          | 0.03       |   |   | $ | 0.02 |   |

| NOTE 8. | Income Tax Matters |
|---------|--------------------|

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| ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
|---------|---------------------------------------------------------------------------------------|

----

|                                  |   | Three Months EndedMarch 31, 2011 |       |   | Three Months EndedMarch 31, 2010 |   |
|---------------------------------------|--------|------------------------------------------------------|------------|--------|------------------------------------------------------|--------|
|                                  |   | Amount                                               |       |   | % of Revenue                               |   |   | Amount |   |   | % of Revenue |   |
| Service contract revenue              |   | $                                                    | 16,311,093 |   |                                                 |   | 100.0 | % |   | $ | 14,751,971 |   |   |   | 100.0 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| HEALTHCARE EXPENSES:                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Salaries, wages and employee benefits |   |                                                 | 9,295,969  |   |                                                 |   | 57.0 | % |   |   | 8,215,300 |   |   |   | 55.7 | % |
| Medical expenses                      |   |                                                 | 3,419,644  |   |                                                 |   | 21.0 | % |   |   | 3,139,742 |   |   |   | 21.3 | % |
| Other operating expenses              |   |                                                 | 606,931    |   |                                                 |   | 3.7 | % |   |   | 494,713 |   |   |   | 3.4 | % |
| Total healthcare expenses             |   |                                                 | 13,322,544 |   |                                                 |   | 81.7 | % |   |   | 11,849,755 |   |   |   | 80.3 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Gross profit                          |   |                                                 | 2,988,549  |   |                                                 |   | 18.3 | % |   |   | 2,902,216 |   |   |   | 19.7 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES:                   |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Selling and administrative expenses   |   |                                                 | 2,027,966  |   |                                                 |   | 12.4 | % |   |   | 2,003,131 |   |   |   | 13.6 | % |
| Depreciation and amortization         |   |                                                 | 172,471    |   |                                                 |   | 1.1 | % |   |   | 319,529 |   |   |   | 2.2 | % |
| Total operating expenses              |   |                                                 | 2,200,437  |   |                                                 |   | 13.5 | % |   |   | 2,322,660 |   |   |   | 15.7 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Operating income                      |   |                                                 | 788,112    |   |                                                 |   | 4.8 | % |   |   | 579,556 |   |   |   | 3.9 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest income                       |   |                                                 | 28,530     |   |                                                 |   | 0.2 | % |   |   | 18,069 |   |   |   | 0.1 | % |
| (Loss) on fair value of derivatives   |   |                                                 | (129,744   | )      |                                                 |   | (0.8 | )% |   |   | (43,684 | ) |   |   | (0.3 | )% |
| Total other income (expense)          |   |                                                 | (101,214   | )      |                                                 |   | (0.6 | )% |   |   | (25,615 | ) |   |   | (0.2 | )% |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income before income taxes            |   |                                                 | 686,898    |   |                                                 |   | 4.2 | % |   |   | 553,941 |   |   |   | 3.8 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Income tax expense                    |   |                                                 | 293,000    |   |                                                 |   | 1.8 | % |   |   | 270,300 |   |   |   | 1.8 | % |
|                                  |   |                                                 |       |   |                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Net income                            |   | $                                                    | 393,898    |   |                                                 |   | 2.4 | % |   | $ | 283,641 |   |   |   | 1.9 | % |

----

----

|                                                        |   | 2011   |    |   | 2010   |   |
|-------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Fair value of warrants outstanding as of January 1          |   | $      | 692,696 |   |   | $      | 1,299,450 |   |
| Realized loss on warrants                                   |   |   | 651     |   |   |   | — |   |
| Unrealized loss on warrants                                 |   |   | 129,093 |   |   |   | 43,684 |   |
| Fair value of warrants transferred to equity upon amendment |   |   | — |   |   |   | — |   |
| Fair value of warrants exercised                            |   |   | (5,097  | )      |   |   | — |   |
| Fair value of warrants outstanding as of March 31           |   | $      | 817,343 |   |   | $      | 1,343,134 |   |

----

----

|                               |   | Total  |    |   | Current |   |    | 2 – 3Years |   |   | 4 – 5 Years |   |   | Thereafter |    |
|------------------------------------|--------|--------|---------|--------|---------|--------|---------|----------------------------|--------|--------|----------------------------------|--------|--------|------------|---------|
| Equipment Leases                   |   | $      | 175,700 |   |    | $      | 66,672  |                       |   | $      | 75,936                           |   |   | $          | 33,092  |   |   | $ | — |   |
| Automobile Leases                  |   |   | 6,671   |   |    |   | 6,671   |                       |   |   | —                          |   |   |       | — |   |   |   | — |   |
| Office Space Leased                |   |   | 275,222 |   |    |   | 151,704 |                       |   |   | 123,518                          |   |   |       | — |   |   |   | — |   |
| Total Contractual Cash Obligations |   | $      | 457,593 |   |    | $      | 225,047 |                       |   | $      | 199,454                          |   |   | $          | 33,092  |   |   | $ | — |   |

| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|---------|------------------------------------------------------------|

| ITEM 4. | CONTROLS AND PROCEDURES |
|---------|-------------------------|

----

| ITEM 1. | LEGAL PROCEEDINGS |
|---------|-------------------|

| ITEM 1A. | RISK FACTORS |
|----------|--------------|

| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
|---------|-------------------------------------------------------------|

| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
|---------|---------------------------------|

| ITEM 4. | RESERVED |
|---------|----------|

| ITEM 5. | OTHER INFORMATION |
|---------|-------------------|

| ITEM 6. | EXHIBITS |
|---------|----------|

|   | 10.1 | Amendment to the Employment Letter Agreement, dated as of February 22, 2011, by and between Conmed Healthcare Management, Inc. (the “Company”) and Thomas W. Fry (incorporated by reference to the Company’s Current Report on Form 8-K filed on February 24, 2011). |
|--------|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 31.1  | Section 302 Certification of Principal Executive Officer |
|--------|------------|----------------------------------------------------------|

|   | 31.2  | Section 302 Certification of Principal Financial Officer |
|--------|------------|----------------------------------------------------------|

|   | 32.1  | Section 906 Certification of Principal Executive Officer |
|--------|------------|----------------------------------------------------------|

|   | 32.2  | Section 906 Certification of Principal Financial Officer |
|--------|------------|----------------------------------------------------------|

----

|                   | Conmed Healthcare Management, Inc.   |
|------------------------|--------------------------------------|
|                   |                                 |
| May 11, 2011 |                                 |
|                   | By /s/ Richard W. Turner             |
|                   | Richard W. Turner, Ph.D.             |
|                   | Chairman and Chief Executive Officer |
|                   | (principal executive officer)        |

| May 11, 2011 |                                                           |
|------------------------|----------------------------------------------------------------|
|                   | By /s/ Thomas W. Fry                                           |
|                   | Thomas W. Fry                                                  |
|                   | Chief Financial Officer and Secretary                          |
|                   | (principal financial officer and principal accounting officer) |

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