**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
  **WASHINGTON,
        D.C. 20549**
  **FORM
        10-QSB**
  **QUARTERLY
        REPORT UNDER SECTION 13 OR 15(d)**
 **OF
        THE SECURITIES EXCHANGE ACT OF 1934**
  For
                  the quarter ended:
              
              Commission
                  File Number:March
                  31, 2007
              
              0-27554
  **Conmed
        Healthcare Management, Inc** **.**
 (Exact
        name of small business issuer as specified in its charter)
  Delaware
              
              42-1297992(State
                  or other jurisdiction of incorporation or organization)
              
              (IRS
                  Employer Identification Number)
  9375
                  Chesapeake Street
                Suite
                  203
                La
                  Plata, MD 20646(Address
                  and zip code of principal executive
                  offices)
  (301)
                  609-8460(Issuer’s
                  telephone -number, including area
                  code)
  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 preceding 12 months
        (or
        for such shorter period that the registrant was required to file such reports),
        and (2) has been subject of the filing requirements for at least the past
        90
        days.
 YES x NO o
  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
  State
        the
        number of shares outstanding of each of the issuer’s classes of common stock, as
        of the latest practicable date:
  Number
                  of Shares OutstandingClass
              May
                  15, 2006Common
                  Stock, $0.0001 par value per share
              11,800,026
  Transitional
        Small Business Disclosure Format (Check one):    YES o NO x
 
 
  **CONMED
        HEALTHCARE MANAGEMENT, INC.**
 
 **TABLE
        OF CONTENTS**
 
 **PART
        I.**  **FINANCIAL
        INFORMATION**
  **Page**ITEM
                  1. FINANCIAL STATEMENTS (UNAUDITED)Consolidated
                  Balance SheetsMarch
                  31, 2007 and December 31, 2006
              1Consolidated
                  Statements of OperationsJanuary
                    26, 2007 to March 31, 2007, January 1, 2007 to January 25, 2007
                  and
                    Three Months Ended March 31, 2007
              2Consolidated
                  Statements of Cash FlowsJanuary
                    26, 2007 to March 31, 2007, January 1, 2007 to January 25, 2007
                  and
                    Three Months Ended March 31, 2007
              3Notes
                  to Consolidated Financial Statements
              4ITEM
                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION
              18ITEM
                  3. CONTROLS AND PROCEDURES
              24
 
 **PART
        II.**  **OTHER
        INFORMATION**
 ITEM
                  1. LEGAL PROCEEDINGS
              25ITEM
                  2. UNREGISTERED SALES OF EQUITY SECURITIES
              25ITEM
                  3. DEFAULT UPON SENIOR SECURITIES
              25ITEM
                  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
              25ITEM
                  5. OTHER INFORMATION
              26ITEM
                  6. EXHIBITS
              26SIGNATURES
              27
  i
  **PART
        1. FINANCIAL INFORMATION**
 
 ITEM
        1.FINANCIAL
        STATEMENTS
 
 **CONMED
        HEALTHCARE MANAGEMENT, INC.**
 **CONSOLIDATED
        BALANCE SHEETS**
 
 **SUCCESSOR
                  March 31, 2007 (unaudited)**
              
              **PREDECESSOR
                  December 31,**
                **2006****ASSETS**CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              6,918,673
              
              $
              122,269Accounts
                  receivable
              
              
              1,080,279
              
              
              1,304,193Claims
                  against escrow
              
              
              338,484
              
              
              --Prepaid
                  expenses
              
              
              110,720
              
              
              226,629**Total
                  current assets**
              
              
              8,448,156
              
              
              1,653,091PROPERTY
                  AND EQUIPMENT, NET
              
              
              43,874
              
              
              45,861OTHER
                  ASSETSService
                  contracts acquired, net
              
              
              4,055,000
              
              
              --Non-compete
                  agreements, net
              
              
              951,000
              
              
              --Goodwill
              
              
              5,627,779
              
              
              --Deposits
              
              
              2,424
              
              
              2,424**Total
                  other assets**
              
              
              10,636,203
              
              
              2,424$
              19,128,233
              
              $
              1,701,376**LIABILITIES
                  AND SHAREHOLDERS’ EQUITY**CURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              985,923
              
              $
              580,507Accrued
                  expenses
              
              
              844,221
              
              
              987,979Taxes
                  payable
              
              
              48,000Deferred
                  revenue
              
              
              187,232
              
              
              103,673Notes
                  payable, current portion
              
              
              7,436
              
              
              7,326**Total
                  current liabilities**
              
              
              2,072,812
              
              
              1,679,485NOTES
                  PAYABLE, LONG-TERM
              
              
              11,335
              
              
              13,236DEFERRED
                  TAXES
              
              
              1,287,000
              
              
              ---SHAREHOLDERS’
                  EQUITYPreferred
                  stock no par value; authorized 5,000,000 shares; issued and outstanding
                  zero shares as of March 31, 2007
              
              
              --
              
              
              --Common
                  stock, $0.0001 par value, authorized 40,000,000 shares; issued
                  and
                  outstanding 11,800,026 shares as of March 31, 2007
              
              
              1,180
              
              
              300Additional
                  paid-in capital
              
              
              35,419,920
              
              
              --Retained
                  earnings (deficit)
              
              
              (19,664,014
              )
              
              8,355**Total
                  shareholders' equity**
              
              
              15,757,086
              
              
              8,655$
              19,128,233
              
              $
              1,701,376*See
                  Notes to Financial Statements*


1
  **CONMED
        HEALTHCARE MANAGEMENT, INC.**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS (UNAUDITED)** ****
 
 **SUCCESSORFor
                  the PeriodJanuary 26, 2007 toMarch 31, 2007**
              
              **PREDECESSOR****For the Period January 1, 2007 to January 25,
                  2007**
              
              **PREDECESSOR****For the Three Months Ended March 31, 2006****Service
                  Contract Revenue**
              
              $
              4,046,374
              
              $
              1,504,565
              
              $
              3,537,174OPERATING
                  EXPENSES:Salaries,
                  wages and employee benefits
              
              
              2,528,071
              
              
              894,558
              
              
              2,121,403Medical
                  expenses
              
              
              1,174,537
              
              
              439,206
              
              
              1,119,032Other
                  operating expenses
              
              
              406,436
              
              
              85,833
              
              
              320,508Depreciation
                  and amortization
              
              
              499,243
              
              
              1,698
              
              
              15,628**Total
                  operating expenses**
              
              
              4,608,287
              
              
              1,421,295
              
              
              3,576,571**Operating
                  income (loss)**
              
              
              (561,913
              )
              
              83,270
              
              
              (39,397
              )INTEREST
                  INCOME (EXPENSE)Interest
                  income
              
              
              59,750
              
              
              287
              
              
              1,289Interest
                  (expense)
              
              
              (178
              )
              
              (93
              )
              
              (4,965
              )**Total
                  interest income (expense)**
              
              
              59,572
              
              
              194
              
              
              (3,676
              )**Income
                  (loss) before income taxes**
              
              
              (502,341
              )
              
              83,464
              
              
              (43,073
              )Income
                  tax benefit
              
              
              (123,000
              )
              
              --
              
              
              --**Net
                  income (loss )**
              
              $
              (379,341
              )
              $
              83,464
              
              $
              (43,073
              )LOSS
                  PER COMMON SHAREBasic
                  and diluted
              
              $
              (0.11
              )WEIGHTED
                  AVERAGE SHARES OUTSTANDINGBasic
                  and diluted
              
              
              3,439,757*See
                  Notes to Financial Statements*
 
 2
  **CONMED
        HEALTH****CARE
        MANAGEMENT, INC.**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (UNAUDITED)**
  **SUCCESSORFor
                  the PeriodJanuary 26, 2007 toMarch 31,
                  2007**
              
              **PREDECESSOR
                  For the Period January 1, 2007 to January 25,
                  2007**
              
              **PREDECESSOR
                  For the Three Months Ended March 31, 2006**CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  income (loss)
              
              $
              (379,341
              )
              $
              83,464
              
              $
              (43,073
              )Adjustments
                  to reconcile net income to net cash provided by operating
                  activitiesDepreciation
              
              
              5,243
              
              
              1,698
              
              
              15,628Amortization
              
              
              494,000
              
              
              --
              
              
              --Stock
                  based compensation
              
              
              188,990
              
              
              --
              
              
              --Increase
                  in deferred taxes
              
              
              (171,000
              )
              
              --
              
              
              --Changes
                  in working capital components(Increase)
                  decrease in accounts receivable
              
              
              29,360
              
              
              197,327
              
              
              (194,711
              )(Increase)
                  in claims against escrow
              
              
              (338,484
              )
              
              --
              
              
              --(Increase)
                  decrease in prepaid expenses
              
              
              284,498
              
              
              30,687
              
              
              (6,250
              )Increase
                  (decrease) in accounts payable
              
              
              (267,138
              )
              
              258,562
              
              
              258,156Increase
                  (decrease) in accrued expenses
              
              
              664,045
              
              
              (469,320
              )
              
              81,468Increase
                  in taxes payable
              
              
              48,000
              
              
              --
              
              
              --Increase
                  (decrease) in deferred revenue
              
              
              112,714
              
              
              (29,155
              )
              
              10,284**Net
                  cash provided by operating activities**
              
              
              670,887
              
              
              73,263
              
              
              121,502CASH
                  FLOWS FROM INVESTING ACTIVITIESPurchase
                  of property and equipment
              
              
              (4,954
              )
              
              --
              
              
              (7,446
              )Acquisition
                  of Conmed, Inc., net of cash acquired
              
              
              (7,557,508
              )
              
              --
              
              
              --**Net
                  cash used in investing activities**
              
              
              (7,562,462
              )
              
              --
              
              
              (7,446
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESBorrowings
                  on line of credit
              
              
              --
              
              
              --
              
              
              350,000Payments
                  on line of credit
              
              
              --
              
              
              --
              
              
              (350,000
              )Payments
                  in loans payable
              
              
              (1,197
              )
              
              (594
              )
              
              (4,215
              )Net
                  proceeds from Private Placement
              
              
              13,149,140
              
              
              --
              
              
              --Distributions
                  to shareholders
              
              
              --
              
              
              --
              
              
              (375,000
              )**Net
                  cash provided by (used in) financing activities**
              
              
              13,147,943
              
              
              (594
              )
              
              (379,215
              )**Net
                  increase (decrease) in cash and cash equivalents**
              
              
              6,256,368
              
              
              72,669
              
              
              (265,159
              )CASH
                  AND CASH EQUIVALENTSBeginning
              
              
              662,305
              
              
              122,269
              
              
              487,029Ending
              
              $
              6,918,673
              
              $
              194,938
              
              $
              221,870NON-CASH
                  INVESTING AND FINANCING ACTIVITIES WERE AS FOLLOWS:Escrow
                  payments on Acquisition in prior periods
              
              $
              500,000
              
              $
              --
              
              $
              --Acquisition
                  expenses paid in prior periods
              
              
              239,935
              
              
              --
              
              
              --Private
                  Placement expenses paid in prior periods
              
              
              148,651
              
              
              --
              
              
              --$
              888,586
              
              $
              --
              
              $
              --SUPPLEMENTAL
                  DISCLOUSURE OF CASH FLOW INFORMATIONCash
                  payments for interest
              
              $
              178
              
              $
              93
              
              $
              271
  *See
        Notes to Financial Statements*
  3
 **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
 NOTE
        1.Nature
        of
        Business
 
 *Nature
        of business:*
 Prior
        to
        the January 26, 2007, the Company formerly known as Pace Health Management
        Systems, Inc. traded under the symbol “PCES”, was classified as a public shell,
        had no ongoing operations, minimal operating expenses and no employees.
 
 On
        January 26, 2007 the Company acquired Conmed, Inc. (“Conmed, Inc.”) a provider
        of correctional healthcare services (the “Acquisition”). Conmed, Inc. 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, Inc. developed, it accepted more contracts for additional
        services including pharmacy and out-of-facility healthcare expenses. In 2000,
        Conmed, Inc. served more than 50% of the county detention healthcare services
        market in Maryland. In 2003, Conmed, Inc. elected to seek contracts outside
        of
        Maryland and by 2006; it had secured contracts in Kansas, Virginia and
        Washington. Currently, Conmed, Inc. is in contract with and services 18
        detention centers and facilities at the county level in the United States.
        For
        the fiscal year ended December 31, 2006, Conmed, Inc had net revenues from
        medical services provided to correctional institutions of $16,776,724. As
        a
        result of the Acquisition, Conmed, Inc. is a wholly-owned subsidiary of the
        Company and the business of Conmed, Inc. is now our primary business.
 
 On
        March
        13, 2007 the Company changed its name to Conmed Healthcare Management,
        Inc.
  *Stock
        Purchase Agreement*
 On
        August
        2, 2006, the Company entered into a Stock Purchase Agreement (“ Agreement ”)
        with Conmed, Inc., a Maryland corporation and all of the stockholders of
        Conmed,
        Inc., (the “Conmed, Inc. Stockholders ”), pursuant to which the Company agreed
        to purchase all the issued and outstanding capital stock of Conmed, Inc.
        from
        the Conmed, Inc. Stockholders. 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, Inc. a non-refundable cash deposit of $250,000 upon
        execution of the Agreement, which was released to the Conmed, Inc. 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, the Company paid to Conmed, Inc. 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, Inc.
        Stockholders at the closing of the Acquisition.
 
 On
        January 26, 2007 the Acquisition was completed and under the terms of the
        Agreement and Acquisition, the Company paid to the Conmed, Inc. Stockholders
        consideration consisting of: (i) $8,000,000 in cash, minus the Additional
        Cash
        Deposit (as defined above) and an adjustment of $80,299 representing a shortfall
        in the minimum equity requirement of Conmed, Inc. and (ii) 8,000 shares of
        Pace’s Series C Convertible Preferred Stock, which was subsequently converted
        into 800,000 shares of common stock effective March 14, 2007.
 
 The
        amounts shown in the Consolidating Statements of Operations and Cash Flows
        for
        the three months ended March 31, 2006 and the 25 day period from January
        1, 2007
        to January 25, 2007 are all Conmed Inc. pre-Acquisition amounts and hence
        are
        designated as PREDECESSOR amounts. The amounts for the 65 day period from
        January 26, 2007 to March 31, 2007 are after the Acquisition and reflect
        the
        combined activities of the Company and Conmed, Inc. from the date of Acquisition
        and, as a result, these amounts are designated as SUCCESSOR amounts. The
        March
        31, 2007 Consolidated Balance Sheet includes the consolidated amounts of
        the
        Company and Conmed Inc. as of that date and, as a result, are designated
        as
        SUCCESSOR amounts. The comparative balance sheet amounts as of December 31,
        2006
        are for Conmed Inc. pre-Acquisition and are designated as PREDECESSOR amounts.
  4
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
  *Private
        Placement*
 On
        January 26, 2007, in a transaction which closed simultaneously with the
        Acquisition, 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 was paid directly to the Conmed, Inc.
        Stockholders as consideration for the sale of Conmed Inc’s capital stock.
 
 In
        connection with the Private Placement, 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, Inc. and to provide working
        capital following such purchase.The fair
        value of the 1,500,000 and 500,000 warrants issued using the Black Scholes
        pricing model was $2,628,847 and $289,554, respectively
  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 (an aggregate of $1,500,000) and (ii) a warrant
        to
        purchase 5% of the common stock issuable upon conversion of the Units, at
        an
        exercise price equal to $2.75 per share of common stock (an aggregate of
        300,000
        shares). In addition, the Company reimbursed the Placement Agent for its
        accountable expenses in the amount of $50,000, as well filing fees associated
        with Blue Sky filings, in the amount of $5,000. The fair value of the 300,000
        and warrants issued using the Black Scholes pricing model was
        $154,940
 
 *Plan
        of Recapitalization*
 On
        March
        13, 2007, at a special shareholders meeting, the shareholders of the Company
        approved a Plan of Recapitalization the (“Plan”) and implemented the following
        effective as of the close of business on March 14, 2007:
 
 o
              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 the Company 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.
 
 o
              Change
                  in name.Changed the name of the Company from Pace Health Management Systems,
                  Inc.
                  to Conmed Healthcare Management,
                  Inc.
 
 o
              Reverse
                  Stock Split.
                  Enacted a reverse stock split on a 1 for 20 basis thereby reducing
                  the
                  number of outstanding shares to 415,830 share of common stock from
                  the
                  8,316,074 shares of common stock outstanding at that
                  time.
 
 o
              Change
                  in authorized shares.Increased the number of authorized common shares to
                  40,000,000.
 
 o
              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.
  5
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
 As
        a
        result of the approval of the Plan by the Company’s shareholders, in addition to
        the conversion of Series A Preferred Stock, the 15,000 shares of Series B
        Preferred Stock and the 8,000 shares of Series C Preferred Stock converted
        into
        6,000,000 and 800,000 shares of common stock, respectively, following the
        reverse stock split. As a result of the reverse split and the conversion
        of all
        the outstanding preferred stock, the total number of shares 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.
  NOTE
        2.Significant
        Accounting Policies
  The
        accompanying unaudited consolidated financial statements contained herein
        have
        been prepared pursuant to the rules and regulations of the Securities and
        Exchange Commission for interim reporting requirements of Form 10-QSB and
        Item
        310(b) of regulation S-B. Accordingly, the financial information and disclosures
        normally included in financial statements prepared annually in accordance
        with
        Generally Accepted Accounting Principals (GAAP) in the United States have
        been
        condensed or omitted. Readers of this report should, therefore, refer to
        the
        consolidated financial statements and notes included in our Annual Report
        of
        Form 10-KSB for the year ended December 31, 2006, filed with the Securities
        and
        Exchange Commission on April 2, 2007.
 
 In
        the
        opinion of management, all adjustments (consisting of normal and recurring
        adjustments) which are considered necessary to fairly present our financial
        position and our results of operations as of and for these periods have been
        made.
 
 Our
        interim results of operations for the 65-day period ended March 31, 2007
        are not
        necessarily indicative of the results or operations to be expected for a
        full
        year.
 
 A
        summary
        of the Company's significant accounting policies is as follows:
 
 *Accounting
        estimates and assumption* s
 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. The Company’s methods of revenue recognition from
        contracts are based primarily on estimates as are accrued expenses. Actual
        results could differ from those estimates.
 
 *Acquisition.*
 The
        Acquisition was recorded based on Financial Accounting Standards Board ("FASB")
        Statement No. 141, ("FAS 141”) *Business
        Combinations* ,
        using
        the purchase method. Under purchase accounting, assets acquired should be
        stated
        on the financial statements at "fair value" (see definition in Standard of
        Value
        section below). FAS 141 requires that intangible assets be recognized as
        assets
        apart from goodwill if they meet one of two criteria, (1) the contractual-legal
        criterion, or (2) the separability criterion. FAS 141 also requires disclosure
        of the primary reasons for business combination and the allocation of the
        purchase price paid to the assets acquired and the liabilities assumed by
        major
        balance sheet caption.
 
 The
        Company employed an independent valuation firm to assist management in the
        identification of the intangible assets acquired and in estimating the fair
        value of those assets. Estimates of the fair value of the identifiable
        intangible assets acquired in the Acquisition as of January 26, 2007, are
        as
        follows:
 
 **Asset**
              
              **Fair
                  Value**Service
                  contracts acquired
              
              $
              4,500,000Non-compete
                  agreements
              
              
              1,000,000Goodwill
                  (includes $1,458,000 deferred tax effect)
              
              
              5,627,779**Total**
              
              $
              11,127,779
  6
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
 
 *Service
        Contracts Acquired*
 There
        are
        material costs in obtaining a customer list, especially customers with recurring
        revenue streams. As part of the Acquisition, the Company has gained access
        to
        Conmed, Inc.’s customers, thereby avoiding the cost of obtaining them directly.
        The value of the contract list is represented by the future revenue streams
        from
        existing contracts. Therefore, the Income Approach is the most applicable
        fair
        value measurement approach to value this asset. The operating income streams
        of
        the service contracts was calculated based on net present value of estimated
        earnings at an interest rate of 20%. Operating income streams were estimated
        on
        a contract by contract basis and an overall cost factor was used to estimate
        management expenses. Total future contracted operating income totaled
        $6,083,000. After discounting for the time value of money using a 20% rate,
        the
        net present value of future revenues is $4,500,000. Service contracts acquired
        are amortized over the life of each individual contract ranging from
        approximately one to four years.
 
 The
        following table details the projected amortization of service contracts for
        the
        next five years:
 
 **For
                  the Twelve Months Ended December 31,**
              
              **Amortization**2007
              
              $
              1,801,0002008
              
              
              1,459,0002009
              
              
              869,0002010
              
              
              277,0002011
              
              
              94,000$
              4,500,000
 
 Accumulated
        amortization of service contracts as of March 31,
        2007 and  December 31, 2006 was $445,000 and zero,
        respectively.
 
 *Non-Compete
        Agreements*
 Non-compete
        agreements were acquired as part of the stock purchase agreement with Conmed,
        Inc. Key considerations in estimation the value of such agreements include
        consideration of the potential losses resulting from such competition, the
        enforceability of the terms of the agreement, and the likelihood of competition
        in the absence of the agreement. Give the potential loss from competition
        and
        the probability of competition, $1,000,000 was identified to allocate to
        these
        agreements. Non-compete agreements are amortized over the lives of the
        agreements, approximately three to four years.
  The
        following table details the projected amortization of non-compete agreements
        for
        the next four years:
 
 **For
                  the Twelve Months Ended December 31,**
              
              **Amortization**2007
              
              $
              251,0002008
              
              
              268,0002009
              
              
              269,0002010
              
              
              200,0002011
              
              
              12,000$
              1,000,000
 
 Accumulated
        amortization of non-compete agreements as of March 31, 2007 and December
        31,
        2006 was $49,000 and zero, respectively.
 
 *Goodwill:*
 The
        Company records as goodwill the excess of purchase price over the fair value
        of
        the identifiable net assets acquired. SFAS No. 142, *Goodwill
        and Other Intangible Assets* ,
        prescribes a two-step process for impairment testing of goodwill, which is
        performed annually, as well as when an event triggering impairment may have
        occurred. The first step tests for impairment, while the second step, if
        necessary, measures the impairment. Since creation of the goodwill there
        have
        been no indicators of impairment. The
        Company has elected to perform its annual analysis during the fourth quarter
        of
        each fiscal year.
  7
 **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
 *Cash
        and 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.
 
 *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.
 
 *Fair
        value of financial instruments*
 Financial
          instruments include cash, receivables, accounts payable, accrued expenses,
          deferred revenue and long-term debt. Management believes the fair value
          of each
          of these instruments approximates their carrying value in the balance sheet
          as
          of the balance sheet date. The fair value of current assets and current
          liabilities is estimated to approximate carrying value due to the short-term
          nature of these instruments. The fair value of the long-term debt is estimated
          based on anticipated interest rates which management believes would currently
          be
          available to the Company for similar issues of debt, taking into account
          the
          current credit risk of the Company and the other market
          factors.
  *Principles
        of consolidation:*
 The
        consolidated financial statements include the accounts of the Company and
        its
        wholly owned subsidiary, Conmed, Inc. All significant intercompany balances
        and
        transactions have been eliminated in consolidation.
 
 *Revenue
        recognition*
 Conmed’s
        principal source of revenue is contracts to provide medical assistance to
        state
        and local correctional facilities. Deferred revenue represents amounts that
        may
        be billed in advance of delivery under these contracts.
 
 Most
        of
        the Company’s contracts call for a fixed monthly fee. In addition, most
        contracts have incremental charges based on the average daily population (ADP)
        of the correctional facility or a contractual fee adjustment based on the
        ADP.
        Revenues from contracts are recognized ratably for fixed fees, or monthly
        for
        contracts with variable charges based on ADP. The Company has one contract
        that
        partially operates on cost plus basis. The timing of each payment varies
        per
        contract. Credit terms are not more than 30 days from the date of invoice.
 
 Certain
        contracts include “stop/loss” limits, which create a ceiling to our financial
        responsibility for an individual inmate’s care or a maximum amount in the
        aggregate for certain categories of medical expenses, whereby the Company
        is
        protected from catastrophic medical losses. In circumstances where a stop/loss
        is reached, the Company is reimbursed for any costs incurred over the
        predetermined stop/loss amount. Any reimbursement received by the Company
        is
        recorded as revenue. During the 65-day period ended March 31, 2007, the 25-day
        period ended January 25, 2007 and the three-month period ended March 31,
        2006
        the Company received stop/loss reimbursements of approximately $38,443, $14,786
        and $104,577, respectively, which were included in revenue.
 
 *Accounts
        receivables*
 Receivables
        are carried at original invoice amount less payment received and an estimate
        made for doubtful receivables based on a review of all outstanding amounts
        on a
        monthly basis. Receivables are generally considered past due 30 days after
        invoice date. Management determines the allowance for doubtful amounts by
        regularly evaluating individual receivables and considering a creditor’s
        financial condition, credit history and current economic conditions. Receivables
        are written off when deemed uncollectible. Recoveries of receivables previously
        written off are recorded when received. As of March 31, 2007 and 2006, there
        was
        no allowance for doubtful receivables. Bad debt expense was none for the
        65-day
        period ended March 31, 2007, the 25-day period ended January 25, 2007 and
        three
        months ended March 31, 2006.
  8
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
 *Property
        and equipment*
 Property
        and equipment are recorded at cost. Depreciation is provided using the
        straight-line and accelerated methods of depreciation over the estimated
        useful
        lives of three to seven years. It is the policy of the Company to capitalize
        purchases of equipment and fixtures that benefit future periods. Repairs
        and
        maintenance costs are expensed when incurred.
 
 *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.
        The
        Company assumes no projected forfeitures on its stock-based compensation,
        since
        actual historical forfeiture rates on its stock-based incentive awards have
        been
        negligible.
 
 *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).
 
 *Recently
        adopted accounting standards:*
 The
        Company adopted the provisions of Financial Accounting Standards Board (FASB)
        Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes* ,
        effective January 1, 2007 *.* The
        Interpretation provides clarification on accounting for uncertainty in income
        taxes recognized in an enterprise’s financial statements in accordance with FASB
        Statement of Financial Accounting Standard (SFAS) No. 109, *Accounting
        for Income Taxes.* The
        Interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. As a result of the Company’s evaluation of
        the implementation of FIN 48, no significant income tax uncertainties were
        identified. Therefore, the Company recognized no adjustment for unrecognized
        income tax benefits during the three months ended March 31, 2007. Corporate
        tax
        returns for the years 2004 through 2006 remain open to examination by taxing
        authorities.
 
 *New
        Accounting Pronouncements*
 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.
  9
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
  In
        February 2007, the Financial Accounting Standards Board (FASB) issued FASB
        Statement No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        amendment of FASB Statement No. 115,* which
        provides all entities, including not-for-profit organizations, with an option
        to
        report selected financial assets and liabilities at fair value. The objective
        of
        the Statement is to improve financial reporting by providing entities with
        the
        opportunity to mitigate volatility in earnings caused by measuring related
        assets and liabilities differently without having to apply the complex
        provisions of hedge accounting. Certain specified items are eligible for
        the
        irrevocable fair value measurement option as established by Statement No.
        159.
        Statement No. 159 is effective as of the beginning of an entity’s first fiscal
        year beginning after November 15, 2007. Early adoption is permitted as of
        the
        beginning of a fiscal year that begins on or before November 15, 2007 provided
        the entity also elects to apply the provisions of Statement No. 157, *Fair
        Value Measurements* .
        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.
  **NOTE
        3** **.**  **Business
        Combination**
  The
        Acquisition of Conmed, Inc. that occurred on January 26, 2007, was recorded
        using purchase accounting in accordance with FAS No. 141. The cost of Conmed,
        Inc. to the consolidated assets and liabilities of the Company is based on
        their
        fair value as of that date. The fair value of Conmed, Inc.’s intangible assets
        was determined by valuations performed by an independent appraiser. The purchase
        price exceeded the fair value of Conmed, Inc.’s net assets acquired with the
        excess amount recorded as goodwill. The purchase price allocation of has
        not
        been finalized and will be adjusted over the year as final information becomes
        known.
 
 The
        purchase price, including related acquisition costs, totaled approximately
        $10,100,381. This purchase was financed with funds obtained in the Private
        Placement discussed in Note 4
  10
  **Conmed
          Healthcare Management, Inc**
 **Notes
          to Financial Statements**
  The
        following table details the net assets of Conmed, Inc., acquired.
 
 **Conmed,
                  Inc, net assets acquired**CURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              194,938Accounts
                  receivable
              
              
              1,106,866Prepaid
                  expenses
              
              
              195,943**Total
                  current assets**
              
              
              1,497,747PROPERTY
                  AND EQUIPMENT, NET
              
              
              44,163OTHER
                  ASSETSService
                  contracts acquired
              
              
              4,500,000Non-compete
                  agreements acquired
              
              
              1,000,000Deposits
              
              
              2,424**Total
                  other assets**
              
              
              5,502,424**Total
                  assets**
              
              
              7,044,334CURRENT
                  LIABILITIESAccounts
                  payable
              
              
              839,070Accrued
                  expenses
              
              
              180,176Deferred
                  revenue
              
              
              74,518Notes
                  payable, current portion
              
              
              7,362**Total
                  current liabilities**
              
              
              1,101,126NOTES
                  PAYABLE, LONG-TERM
              
              
              12,606DEFERRED
                  TAXES
              
              
              1,458,000**Total
                  liabilities**
              
              
              2,571,732**Conmed,
                  Inc. net assets acquired**
              
              
              4,472,602**Goodwill**
              
              $
              5,627,779
 
 The
        following table details the purchase price of Conmed, Inc.
 **Conmed,
                    Inc. purchase price**Cash
                    purchase price
                
                $
                8,000,000Equity
                    adjustment at closing
                
                
                (80,299
                )Escrow
                    deposit forfeited
                
                
                250,000Deal
                    expenses
                
                
                322,680Less:
                    Conmed, Inc. cash acquired
                
                
                (194,938
                )**Net,
                    cash purchase price**
                
                
                8,297,443Addback:
                    Conmed, Inc. cash acquired
                
                
                194,938Common
                    stock issued to Conmed, Inc.’s shareholders
                
                
                1,608,000**Total
                    purchase price**
                
                $
                10,100,381
  The
        goodwill amount includes the original escrow deposit of $250,000 which was
        forfeited when the Acquisition did not close by October 31, 2006, an estimated
        $322,680 in third party acquisition costs, and 800,000 shares of common stock
        valued at $1,608,000 at the time of the closing of the Acquisition. An equity
        adjustment of $80,299 at the time of closing resulting from the failure of
        Conmed, Inc. to meet the minimum contractual equity requirement of $400,000
        at
        the time closing. In addition, as of March 31, 2007 the Company had identified
        $338,484 in projected adjustments to the closing financial statements. This
        amount has been recorded as an asset on the balance sheet as a claim against
        the
        escrow account that was established at the time of closing as an offset against
        certain future adjustments to the purchase price as determined at closing
        .
  11
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
  As
        of
        March 31, 2007, the purchase price allocation had not yet been finalized
        due to
        certain other final information which was not yet available. When the final
        amounts are determined in 2007, goodwill and other balances will be adjusted
        accordingly.
  **NOTE
        4** **.**  **Private
        Placement**
  The
        following table details the net cash received from the Private Placement
        after
        the payment of fees and related expenses.
 
 **Acquisition
                  financed by:**Cash
                  received from sale of preferred stock
              
              $
              15,000,000Deal
                  costs and expenses
              
              
              (2,154,451
              )Net
                  proceeds from sales of preferred stock
              
              
              12,845,549Add-back
                  non-cash banker warrant expense
              
              
              154,940Net
                  cash received from sale of securities
              
              $
              13,000,489
  **NOTE
        5** **.**  **Changes
        in Equity**
  The
        following table details the changes in the Company’s shares outstanding from
        December 31, 2006 to March 31, 2007 as a result of the consummation of the
        Acquisition and the Plan of Recapitalization.
 
 **Preferred**
                **Stock**
              
              **Common**
                **Stock**Balance
                  at December 31, 2006
              
              
              2,875,000
              
              
              285,830
                  (1.
              )Conversion
                  of 50% of Series A preferred stock accrued dividends
              
              
              --
              
              
              130,000
                  (1.
              )Issuance
                  of Series B redeemable convertible preferred stock and warrants,
                  net of
                  costs
              
              
              15,000
              
              
              --Issuance
                  of Series C convertible preferred stock, net of costs
              
              
              8,000
              
              
              --Conversion
                  of Series A convertible preferred stock
              
              
              (2,875,000
              )
              
              4,584,196Conversion
                  of Series B convertible preferred stock
              
              
              (15,000
              )
              
              6,000,000Conversion
                  of Series C convertible preferred stock
              
              
              (8,000
              )
              
              800,000Balance
                  at March 31, 2007
              
              
              --
              
              
              11,800,026
 *(1.)
        As adjusted for the 1 for 20 reverse stock split*
  **NOTE
        6.**  **Common
        Stock Warrants and Options**
  *Common
        stock warrants*
 
 Existing
        Warrants @ $0.30 per share
 On
        October 24, 2005, Pace 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, Pace’s sole director and acting chairman, 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 had an exercise price of $10.00, which exceeded the
        market
        price of Pace’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, 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.
  12
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
 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. As a result, the
        Company
        issued to investors warrants to purchase an aggregate of 1,500,000 shares
        of
        common stock, exercisable at $0.30 per share, expiring March 13,
        2012.
 
 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. As a result,
        the Company issued to investors warrants to purchase an aggregate of 500,000
        shares of common stock, exercisable at $2.50 per share, expiring March 13,
        2012.
 
 Placement
        Agent Warrants @ $2.75 per share
 In
        connection with the Private Placement the Company 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 January 26, 2012.
 
 In
        sum,
        the Company has outstanding warrants to purchase an aggregate of 2,550,000
        shares of common stock at an average exercise price of $1.02 at an average
        exercise price of $1.02 per share, and has 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 the Company’s 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: 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.
 
 The
        table
        below reflects option activity for the period indicated:
 
 **Number
                  of Shares**
              
              **Weighted**
                **Average
                  Exercise Price per Share**
              
              **Weighted
                  Average Remaining Contractual Term (Years)**
              
              **Aggregate
                  Intrinsic Value**Outstanding,
                  December 31, 2006
              
              
              --
              
              
              --
              
              
              --
              
              
              --Granted
              
              
              1,600,000
              
              $
              2.25Forfeited
              
              
              (83,333
              )
              
              2.01Exercised
              
              
              --
              
              
              --Outstanding,
                  March 31, 2006
              
              
              1,516,667
              
              $
              2.27
              
              
              9.8
              
              $
              1,743,505Exercisable
                  at March 31, 2007
              
              
              100,000
              
              $
              2.01
              
              
              9.8
              
              $
              117,890Remaining
                  shares available for grant
              
              
              83,333
  13
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
 During
        the 65-day period ended March 31, 2007, the 25-day period ended January 25,
        2007, and the three-month period ended March 31, 2006, the Company recorded
        stock options expense totaling $188,990, zero and zero, respectively.
  As
        of
        March 31 2007, stock-based compensation expense not yet recognized in income
        totaled $1,672,406, which is expected to be recognized over a weighted average
        remaining period of 4.0 years.
 
 For
        purposes of estimating the fair value of each option on the date of grant,
        the
        Company utilized the Black-Scholes option-pricing model. The Black-Scholes
        option valuation model was developed for use in estimating the fair value
        of
        traded options, which have no vesting restrictions and are fully transferable.
        In addition, option valuation models require the input of highly subjective
        assumptions including the expected stock price volatility. Because the Company's
        employee stock options have characteristics significantly different from
        those
        of traded options and because changes in the subjective input assumptions
        can
        materially affect the fair value estimate, in management's opinion, the existing
        models do not necessarily provide a reliable single measure of the fair value
        of
        its employee stock options.
  Equity
        instruments issued to non-employees in exchange for goods, fees and services
        are
        accounted for under the fair value-based method of SFAS No. 123.
  The
        fair
        value of the Company's stock-based awards was estimated assuming no expected
        dividends and the following weighted-average assumptions for the 65-day period
        ended March 31, 2007:
  Expected
                  life (years)
              
              
              6.0Expected
                  volatility
              
              
              57.15
              %Risk-free
                  interest rate
              
              
              5.0
              %Expected
                  dividend yield
              
              
              0.0
              %Weighted
                  average fair value of options granted during the period
              
              $
              1.22
  NOTE
        7.Property
        and Equipment
  A
        summary
        of property and equipment is as follows:
 
 **SUCCESSOR
                  March 31,**
                **2007**
              
              **PREDECESSOR
                  December 31, 2006**Furniture
              
              $
              15,648
              
              $
              13,900Equipment
              
              
              21,475
              
              
              21,475Computers
              
              
              45,358
              
              
              42,152Vehicles
              
              
              36,087
              
              
              36,087**Tota**l
              
              
              118,568
              
              
              113,614Accumulated
                  depreciation and amortization
              
              
              (74,694
              )
              
              (67,753
              )**Property
                  and equipment, net**
              
              $
              43,874
              
              $
              45,861
  NOTE
        8.Notes
        Payable
  The
        Company has a note payable for $18,771 and $20,562 at March 31, 2007 and
        December, 31, 2006, respectively. The note requires monthly payments of $695
        including interest at 5.8%. The note is collateralized by a vehicle.
  14
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
  **NOTE
        9.Earnings
        Per Share**
  The
        following table sets forth the computation of basic and diluted (loss)
        per-share:
 **Numerator**
                
                **Denominator**
                
                **Per-Share
                    Amount Net (loss)****65
                    Days ended March 31, 2007**Net
                    (loss)
                
                $
                309,341
                
                
                3,439,757
                
                $
                (0.09
                )
 
 Earnings
        (loss) per share and weighted shares outstanding were not calculated for
        the
        25-day period ended January 25, 2007 and the three-month period ended March
        31,
        2006 since these periods reflect activity of the PREDECESSOR and
        are
        not applicable to this presentation
 
 Common
        stock warrants and options outstanding totaling 4,150,000 shares are not
        included in diluted earnings per common share as they would have an antidilutive
        effect upon earnings per common share.
  NOTE
        10.401(k)
        Plan
  The
        Company has a 401(k) plan for the benefit of substantially all the employees.
        The contributions to the plan include employee voluntary salary reductions,
        which can be no greater than the maximum deduction allowable for federal
        income
        tax reporting purposes. The Company offers a safe harbor matching contribution
        of each participant’s contribution up to 5% of eligible compensation. The
        Company also can provide a profit sharing contribution at its discretion.
        Expenses related to this plan totaled approximately $28,498, $6,128 and $19,021
        for the sixty-five day period ended March 31, 2007, the twenty-five day period
        ended January 25, 2007 and the three month period ended March 31, 2006,
        respectively.
  NOTE
        11Operating
        Leases
  The
        Company has a lease for office space expiring November 29, 2009. The office
        lease includes annual escalation clauses and an allocation of operating expenses
        related to the leased property. Office rent expense totaled approximately
        $7,481, $2,287 and $9,768, for the sixty-five day period ended March 31,
        2007,
        the twenty-five day period ended January 25, 2007 and the three month period
        ended March 31, 2006, respectively.
 
 The
        Company has a vehicle lease that requires monthly payments of $614 and expires
        in April 2008 and entered into a second vehicle lease in March 2007 that
        expires
        March 2009. Lease expense was approximately $2,615, $615 and $13,901 for
        the
        sixty-five day period ended March 31, 2007, the twenty-five day period ended
        January 25, 2007 and the three month period ended March 31, 2006,
        respectively.
 
 The
        approximate future minimum lease obligations as of March 31, 2007 are as
        follows:
 
 **Twelve
                  months ending March 31, 2008**2008
              
              $
              81,2692009
              
              
              32,6592010
              
              
              2,780**Total**
              
              $
              116,708
  15
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
  NOTE
        12Major
        Customers and Commitments
  During
        the 65-day period ended March 31, 2007, the 25-day period ended January 2007
        and
        the three months ended March 31, 2006, the Company had approximate sales
        with
        major customers and related approximate receivables as follows
 
 **SUCCESSOR**
                **For
                  the Period January 26, 2007 to March 31, 2007**
              
              **PREDECESSOR**
                **For
                  the Period January 1, 2007 to January 25, 2007**
              
              **PREDECESSOR**
                **For
                  the Three Months Ended March 31, 2006****Revenue**
              
              **Accounts
                  Receivable**
              
              **Revenue**
              
              **Accounts
                  Receivable**
              
              **Revenue**
              
              **Accounts
                  Receivable**Company
                  A
              
              $
              1,018,098
              
              $
              1,734
              
              $
              374,100
              
              $
              25,812
              
              $
              --
              
              $
              --Company
                  B
              
              
              628,530
              
              
              282,382
              
              
              239,775
              
              
              --
              
              
              865,016
              
              
              292,560Company
                  C
              
              
              364,311
              
              
              169,245
              
              
              134,700
              
              
              172,927
              
              
              437,317
              
              
              147,560Company
                  D
              
              
              279,015
              
              
              127,188
              
              
              102,550
              
              
              127,188
              
              
              --
              
              
              --Company
                  E
              
              $
              274,998
              
              $
              --
              
              $
              101,100
              
              $
              --
              
              $
              360,593
              
              $
              --
 
 In
        connection with its normal contract activities, the Company is required to
        acquire performance and payment bonds for certain service contracts. The
        surety
        issuing the bonds has recourse against certain of the Company’s assets in the
        event the surety is required to honor the bonds. The lengths of the Company’s
        bond contracts vary. Most contracts are one year or less, but periodically
        contracts are obtained which exceed one year. At March 31, 2007, the Company
        had
        $11,333,371 in outstanding bonds.
  NOTE
        13Income
        Tax Matters
  Approximate
        deferred taxes consist of the following components
 
 **As
                  of March 31, 2007****Deferred
                  tax asset**Net
                  operating loss carryforwards
              
              $
              6,544,000Research
                  and development credit carryforwards
              
              
              391,000Warrants
              
              
              4,0006,939,000**Deferred
                  tax liabilities**Intangible
                  assets
              
              
              1,566,000**Net
                  deferred assets**
              
              
              5,373,000Less:
                  valuation allowance
              
              
              6,038,000(665,000
              )
 
 The
        Company recorded a valuation allowance of $6,038,000 and $6,957,000, against
        deferred tax assets at March 31, 2007 and December 31, 2006, 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.
  16
  **Conmed
            Healthcare Management, Inc**
 **Notes
            to Financial Statements**
 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
                  Three Months**
                **Ended
                  March**
                **31,
                  2007**Computed
                  federal income tax (benefit)
              
              $
              (171,000
              )Other,
                  primarily computed state income tax (benefit)
              
              
              (25,000
              )permanent
                  difference related to stock options
              
              
              73,000Change
                  in valuation allowance
              
              $
              (123,000
              )
 
 At
        March
        31, 2007, the Company has approximately $16,779,000 of net operating loss
        carryforwards to offset future federal taxable income.
 
 No
        amounts have been presented for 2006 as the Predecessor was an S-corporation
        and
        as such not subject to corporate level income taxes.
  NOTE
        14.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
        15.RELATED
        PARTY TRANSACTIONS
 
 During
        2007 and 2006, the Company accrued $4,167 on a monthly basis, plus direct
        expenses, to Equity Dynamics, Inc., an entity wholly owned by John Pappajohn,
        Chairman of the Company, for administrative services that include; accounting,
        investor relations, SEC reporting and other consulting services. In addition
        to
        these administrative expenses the Company also reimbursed Equity Dynamics,
        Inc.
        for expenses related to the negotiation and consummation of the Acquisition
        and
        Plan of Recapitalization. Such accruals related to Equity Dynamics, Inc.
        for the
        65-day period ended March 31, 2007, the 25-day period ended January 25, 2007
        and
        the three-month period ended March 31, 2006 totaled $8,353 and $6,264 and
        $14,368, respectively. Accounts payable to Equity Dynamics, Inc. as of March
        31,
        2007 and December 31, 2006 were zero and $5,796, 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 had 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, 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. (These figures
        are adjusted to reflect the 1 for 20 reverse stock split effective as of
        March
        14, 2007).
  17
  ITEM
        2.MANAGEMENT’S
        DISCUSSION AND ANALYSIS
 OR
        PLAN
        OF OPERATION
  *Information
        included in this section contains forward-looking statements regarding the
        business, operations and financial condition of both the Company and Conmed,
        Inc. within the meaning of Section 27A of the Securities Act of 1933, as
        amended
        and Section 21E of the Securities Exchange Act of 1934, as amended (the
        "Exchange Act"). This information may involve known and unknown risks,
        uncertainties and other factors which may cause the Company’s actual results,
        performance or achievements to be materially different from our future results,
        performance or achievements expressed or implied by any forward-looking
        statements. Forward-looking statements, which involve assumptions and describe
        the Company’s future plans, strategies and expectations, are generally
        identifiable by use of the words "may," "will," "should," "expect,"
        "anticipate," "estimate," "believe," "intend" or "project" or the negative
        of
        these words or other variations on these words or comparable terminology.
        These
        forward-looking statements are based on assumptions that may be incorrect,
        and
        there can be no assurance that these projections included in these
        forward-looking statements will come to pass. The Company’s actual results could
        differ materially from those expressed or implied by the forward-looking
        statements as a result of various factors. The Company cautions you not to
        place
        undue reliance on these forward-looking statements. Such forward-looking
        statements relate only to events as of the date on which the statements are
        made. The Company undertakes no obligation to update any forward-looking
        statements, whether as a result of new information, future events or otherwise,
        even if experience or future changes make it clear that any projected results
        or
        events expressed or implied therein will not be realized. You are advised,
        however, to consult any further disclosures the Company makes in future public
        statements and press releases.*
 
 **General**
  Prior
        to
        January 26, 2007, the Company was classified as a public shell and had no
        ongoing operations, minimal operating expenses, no employees and operated
        under
        the name Pace Healthcare Management Systems, Inc. (“Pace”).
 
 On
        January 26, 2007 the Company acquired Conmed, Inc. (“Conmed Inc.”) a provider of
        correctional healthcare services since 1984. Conmed Inc. 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 Inc. developed, it accepted more contracts for additional
        services including pharmacy and out-of-facility healthcare expenses. In 2000,
        Conmed, Inc. served more than 50% of the county detention healthcare services
        market in Maryland. In 2003, Conmed, Inc. elected to seek contracts outside
        of
        Maryland and by 2006 it had secured contracts in Kansas, Virginia and
        Washington. Currently, Conmed, Inc. is in contract with and services 18
        detention centers and facilities at the county level in the United States.
        As a
        result of the Acquisition, Conmed, Inc. is a wholly-owned subsidiary of the
        Company and the business of Conmed, Inc. is now our primary
        business.
  **Critical
        Accounting Policies**
  The
        accompanying unaudited consolidated financial statements contained herein
        have
        been prepared pursuant to the rules and regulations of the Securities and
        Exchange Commission for interim reporting requirements of Form 10-QSB and
        Item
        310(b) of regulation S-B. Accordingly, the financial information and disclosures
        normally included in financial statements prepared annually in accordance
        with
        Generally Accepted Accounting Principals (GAAP) in the United States have
        been
        condensed or omitted. Readers of this report should, therefore, refer to
        the
        consolidated financial statements and notes included in our Annual Report
        of
        Form 10-KSB for the year ended December 31, 2006, filed with the Securities
        and
        Exchange Commission on April 2, 2007.
 
 In
        the
        opinion of management, all adjustments (consisting of normal and recurring
        adjustments) which are considered necessary to fairly present our financial
        position and our results of operations as of and for these periods have been
        made.
 
 Our
        interim results of operations for the 65-day period ended March 31, 2007
        are not
        necessarily indicative of the results or operations to be expected for a
        full
        year.
 
 A
        summary
        of the Company's significant accounting policies is as follows:
  18
  *Accounting
        estimates and assumption* s
 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. The Company’s methods of revenue recognition from
        contracts are based primarily on estimates as are accrued expenses. Actual
        results could differ from those estimates.
 
 *Acquisition.*
 The
        Acquisition was recorded based on Financial Accounting Standards Board ("FASB")
        Statement No. 141, ("FAS 141”) *Business
        Combinations* ,
        using
        the purchase method. Under purchase accounting, assets acquired should be
        stated
        on the financial statements at "fair value" (see definition in Standard of
        Value
        section below). FAS 141 requires that intangible assets be recognized as
        assets
        apart from goodwill if they meet one of two criteria, (1) the contractual-legal
        criterion, or (2) the separability criterion. FAS 141 also requires disclosure
        of the primary reasons for business combination and the allocation of the
        purchase price paid to the assets acquired and the liabilities assumed by
        major
        balance sheet caption.
  *Service
        Contracts Acquired*
 There
        are
        material costs in obtaining a customer list, especially customers with recurring
        revenue streams. As part of the Acquisition, the Company has gained access
        to
        Conmed, Inc.’s customers, thereby avoiding the cost of obtaining them directly.
        The value of the contract list is represented by the future revenue streams
        from
        existing contracts. Therefore, the Income Approach is the most applicable
        fair
        value measurement approach to value this asset. The operating income streams
        of
        the service contracts was calculated based on net present value of estimated
        earnings at an interest rate of 20%. Operating income streams were estimated
        on
        a contract by contract basis and an overall cost factor was used to estimate
        management expenses. Total future contracted operating income totaled
        $6,083,000. After discounting for the time value of money using a 20% rate,
        the
        net present value of future revenues is $4,500,000. Service contracts acquired
        are amortized over the life of each individual contract ranging from
        approximately one to four years.
   19
  *Non-Compete
        Agreements*
 Non-compete
        agreements were acquired as part of the stock purchase agreement with Conmed,
        Inc. Key considerations in estimation the value of such agreements include
        consideration of the potential losses resulting from such competition, the
        enforceability of the terms of the agreement, and the likelihood of competition
        in the absence of the agreement. Give the potential loss from competition
        and
        the probability of competition, $1,000,000 was identified to allocate to
        these
        agreements. Non-compete agreements are amortized over the lives of the
        agreements, approximately three to four years.
 
 Amortization
        of non-compete agreements for the 65-day period ended March 31, 2007, the
        25-day
        period ended January 25, 2007 and the three-month period ended March 31,
        2007
        was $49,000, zero and zero, respectively.
 
 *Goodwill:*
 The
        Company records as goodwill the excess of purchase price over the fair value
        of
        the identifiable net assets acquired. SFAS No. 142, *Goodwill
        and Other Intangible Assets* ,
        prescribes a two-step process for impairment testing of goodwill, which is
        performed annually, as well as when an event triggering impairment may have
        occurred. The first step tests for impairment, while the second step, if
        necessary, measures the impairment. Since creation of the goodwill there
        have
        been no indicators of impairment. The
        Company has elected to perform its annual analysis during the fourth quarter
        of
        each fiscal year.
 
 *Revenue
        recognition*
 Conmed’s
        principal source of revenue is contracts to provide medical assistance to
        state
        and local correctional facilities. Deferred revenue represents amounts that
        may
        be billed in advance of delivery under these contracts.
 
 Most
        of
        the Company’s contracts call for a fixed monthly fee. In addition, most
        contracts have incremental charges based on the average daily population
        (ADP)
        of the correctional facility or a contractual fee adjustment based on the
        ADP.
        Revenues from contracts are recognized ratably for fixed fees, or monthly
        for
        contracts with variable charges based on ADP. The Company has one contract
        that
        partially operates on cost plus basis. The timing of each payment varies
        per
        contract. Credit terms are not more than 30 days from the date of invoice.
 
 Certain
        contracts include “stop/loss” limits, which create a ceiling to our financial
        responsibility for an individual inmate’s care or a maximum amount in the
        aggregate for certain categories of medical expenses, whereby the Company
        is
        protected from catastrophic medical losses. In circumstances where a stop/loss
        is reached, the Company is reimbursed for any costs incurred over the
        predetermined stop/loss amount. Any reimbursement received by the Company
        is
        recorded as revenue. During the 65-day period ended March 31, 2007, the 25-day
        period ended January 25, 2007 and the three-month period ended March 31,
        2006
        the Company received stop/loss reimbursements of approximately $38,443, $14,786
        and $104,577, respectively, which were included in revenue.
 
 *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.
        The
        Company assumes no projected forfeitures on its stock-based compensation,
        since
        actual historical forfeiture rates on its stock-based incentive awards have
        been
        negligible.
  20
  *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.
 
 **Recently
        adopted accounting standards:**
  The
        Company adopted the provisions of Financial Accounting Standards Board (FASB)
        Interpretation No. 48, *Accounting
        for Uncertainty in Income Taxes* ,
        effective January 1, 2007 *.* The
        Interpretation provides clarification on accounting for uncertainty in income
        taxes recognized in an enterprise’s financial statements in accordance with FASB
        Statement of Financial Accounting Standard (SFAS) No. 109, *Accounting
        for Income Taxes.* The
        Interpretation prescribes a recognition threshold and measurement attribute
        for
        the financial statement recognition and measurement of a tax position taken
        or
        expected to be taken in a tax return. As a result of the Company’s evaluation of
        the implementation of FIN 48, no significant income tax uncertainties were
        identified. Therefore, the Company recognized no adjustment for unrecognized
        income tax benefits during the three months ended March 31, 2007. Corporate
        tax
        returns for the years 2004 through 2006 remain open to examination by taxing
        authorities.
 
 **New
        Accounting Pronouncements**
  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.
 
 In
        February 2007, the Financial Accounting Standards Board (FASB) issued FASB
        Statement No. 159, *The
        Fair Value Option for Financial Assets and Financial Liabilities - Including
        an
        amendment of FASB Statement No. 115,* which
        provides all entities, including not-for-profit organizations, with an option
        to
        report selected financial assets and liabilities at fair value. The objective
        of
        the Statement is to improve financial reporting by providing entities with
        the
        opportunity to mitigate volatility in earnings caused by measuring related
        assets and liabilities differently without having to apply the complex
        provisions of hedge accounting. Certain specified items are eligible for
        the
        irrevocable fair value measurement option as established by Statement No.
        159.
        Statement No. 159 is effective as of the beginning of an entity’s first fiscal
        year beginning after November 15, 2007. Early adoption is permitted as of
        the
        beginning of a fiscal year that begins on or before November 15, 2007 provided
        the entity also elects to apply the provisions of Statement No. 157, *Fair
        Value Measurements* .
        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.
 
 **Results
        of Operations**
 
 The
        following discussion of financial results below is derived from proforma
        unaudited financial statements prepared on the bases that the Acquisition
        was
        completed on December 31, 2006 and 2005, respectively. Proforma adjustments
        for
        the three months ended March 31, 2007 reflect the results for both the 65-day
        period ended March 31, 2007 and the 25-day period ended January 25, 2007
        and
        include consolidation of the Company and Conmed, Inc. in both periods for
        the
        full three-month periods. In addition the pro forma statements include
        adjustments to reflect the amortization of intangible assets in both
        periods.
  21
  **Three
                  months Ended March 31, 2007**
              
              **Three
                  Months Ended March 31, 2006****Amount**
              
              **%
                  of**
                **Revenue**
              
              **Amount**
              
              **%
                  of**
                **Revenue**Service
                  contract revenue
              
              $
              5,550,939
              
              
              100.0
              %
              $
              3,537,174
              
              
              100.0
              %OPERATING
                  EXPENSES:Salaries,
                  wages and employee benefits
              
              
              3,422,629
              
              
              61.7
              %
              
              2,121,403
              
              
              60.0
              %Medical
                  expenses
              
              
              1,573,744
              
              
              28.4
              %
              
              1,119,032
              
              
              31.6
              %Other
                  operating expenses
              
              
              507,941
              
              
              9.2
              %
              
              365,240
              
              
              10.3
              %Depreciation
                  and amortization
              
              
              676,941
              
              
              12.2
              %
              
              685,628
              
              
              19.4
              %Total
                  operating expenses
              
              
              6,181,255
              
              
              111.4
              %
              
              4,291,303
              
              
              121.3
              %Operating
                  loss
              
              
              (630,316
              )
              
              (11.4
              )%
              
              (754,129
              )
              
              (21.3
              )%Interest
                  (income) expense
              
              
              (59,765
              )
              
              (1.1
              %)
              
              (15,031
              )
              
              (0.5
              )%Loss
                  before income taxes
              
              
              (570,551
              )
              
              (10.3
              )%
              
              (739,098
              )
              
              (20.9
              %)
 
 *Three-Months
        Ended March 31, 2007 compared to March 31, 2006*
 Net
        revenue, as defined earlier, from medical services provided to correctional
        institutions for the three months ended March 31, 2007 and 2006, was $5,550,939
        and $3,537,174, respectively, which represents an increase of $2,013,765
        or
        56.9%. The net loss before income taxes was $570,551 or 10.3% of revenue
        and
        $739,098 or 20.9% of revenue for the three months ended March 31, 2007 and
        2006,
        respectively. The reduction in the net loss is primarily attributable to
        improvement in service contract revenue.
  *Revenues*
 The
        improvement in revenue for the three months ended March 31, 2007 compared
        to the
        same period for the prior year resulted from the addition of a new contract
        with
        Yakima County, Washington and a new transition contract with Baltimore County,
        Maryland, in September of 2006, which together accounted for $1,773,762 or
        88.1%
        of the increase in revenue for the period. Additional revenue improvement
        totaling approximately $142,204 or 7.1% of the increase resulted from expansion
        of the services provided to a number of our existing contracts initiated
        in
        prior years, primarily in Loudoun County, Maryland. Price increases related
        to
        existing service requirements totaled approximately $97,623 or 2.8% of the
        increase.
  *Salaries
        and employee benefits*
 Salaries
        and employee benefits were $3,422,629 or 61.7% of revenue for the three-month
        period ended March 31, 2007, compared to $2,121,403 or 60.0% of revenue for
        the
        three months ended March 31, 2006. The increase in spending for salaries
        and
        employee benefits of $1,301,226 or 61.3% is primarily due to the addition
        of new
        employees to support the increase in service contracts. In addition stock
        based
        compensation for the three month period ended March 31, 2007 and 2006 was
        $188,990 and zero, respectively, reflecting stock options awards issued in
        2007.
  *Medical
        expenses*
 Medical
        expenses for the three months ended March 31, 2007 and 2006 were $1,573,744
        or
        28.4% of revenue and $1,119,032 or 31.6% of revenue, respectively, which
        represented an increase of $454,712 or 40.6%. The increase in spending for
        medical expenses in absolute dollars is primarily due to the increase in
        revenue
        and the increased number of inmates covered by our services under the new
        service contracts. The reduction in spending as a percentage of revenue results
        primarily from reduced expenditures for hospitalization and related out of
        facility costs at the correctional institution in Sedgwick County, Kansas.
        In
        the first quarter of 2006, The Company absorbed unusually high medical expenses
        at this facility due to a number of costly procedures performed on a number
        of
        inmates. However, recent legislation in Kansas enacted in July 2006 limits
        the
        cost for these procedures to Medicaid rates, which has had a positive impact
        on
        the Company’s medical cost at this detention center. This has partially offset
        increased spending for off-site services resulting from the addition of two
        new
        sites plus higher spending on pharmacy, X-rays and medical supplies.
  22
  *Other
        operating expenses*
 Other
        operating expenses were $507,941 or 9.2% of revenue for the three months
        ended
        March 31, 2007, compared to $365,240 or 10.3% of revenue for the three-month
        period March 31, 2006. The increase in spending is primarily related to the
        increase in the number of inmates served as a result of the new service
        contracts and reflects increased spending for employment advertising,
        malpractice insurance, travel, professional services and supplies.
  *Depreciation
        and amortization*
 Depreciation
        and amortization primarily reflects the amortization of intangibles assets
        related to the Acquisition. Amortization of service contracts acquired was
        $602,000 and amortization of non-compete agreements was $62,000 and is reflected
        as an expense for both periods on a proforma basis. Depreciation expense
        declined $8,687 due to reduced capital equipment.
 
 *Interest
        expense*
 Interest
        expense declined $4,694 due to a reduction in outstanding automobile loans
        and
        the absence of borrowing on the line of credit in quarter ended March 31,
        2007.
 
 *Interest
        income*
 Interest
        income was $60,036 for the first quarter ended March 31, 2007 compared to
        $19,996 for the same period in 2006 reflecting an increase in cash on hand
        as a
        result of the Private Placement in January.
  *Income
        tax benefit*
 The
        income tax benefit for the three month period ended March 31, 2007 and 2006
        was
        $123,000 and zero respectively. Conmed, Inc was an S-corporation and as such
        not
        subject to corporate level income taxes.
  **LIQUIDITY
        AND CAPITAL RESOURCES**
  Financing
        is generally provided by funds generated from our operating activities. Current
        working capital balances and funds used to acquire Conmed, Inc. were provided
        by
        the Private Placement.
 
 *Cash
        flow for the sixty-five day period from January 26, 2007 to March 31,
        2007.*
 Cash
        as
        of March 31, 2006 and January 25, 2006 was $6,918,673 and $692,305,
        respectively.
 
 Cash
        flows from operations totaled $670,887 reflecting $517,233 in adjustments
        to
        reconcile net income to net cash plus $532,995 in changes in working capital
        components partially offset by the net loss of $379,341.
 
 Investing
        activities used $7,562,462. The Acquisition used $7,557,508 and purchases
        of
        computer equipment used $4,954.
 
 Financing
        activities provided cash of $13,147,943. Net cash proceeds from the Private
        Placement were $13,149,140 partially offset by payments on an automobile
        loan of
        $1,197.
 
 *Liquidity*
 Conmed,
        Inc. maintained a $1,000,000 line of credit which expired in December 2006.
        Interest was paid monthly at the prime rate as listed in the Wall Street
        Journal
        plus 5% per annum and there were no borrowings respectively on the line of
        credit at March 31, 2007 and December 21, 2006.
  *Auto
        Loan*
 As
        of
        March 31, 2007, we had a note outstanding for $18,771.
  23
  *Off
        Balance Sheet Arrangements*
 The
        Company is required to provide performance and payment guarantee bonds to
        county
        governments under certain contracts. As of March 31, 2007, the Company has
        three
        performance bonds totaling $9,933,371 and one payment bond for $1,400,000,
        totaling $11,333,371. The surety issuing the bonds has recourse against the
        Company’s assets in the event the surety is required to honor the bonds.
 
 *Contractual
        Obligations*
 The
        following table presents the Company’s expected cash requirements for
        contractual obligations outstanding as of March 31, 2007:
  **Total**
              
              **Due
                  as of 3/31/08**
              
              **Due
                  as of**
                **3/31/09**
                **and**
                **3/31/10**
              
              **Due
                  as of**
                **3/31/11**
                **and**
                **3/31/12**
              
              **Due**
                **Thereafter**Automobile
                  Loan
              
              $
              18,767
              
              $
              11,324
              
              $
              6,209
              
              $
              -
              
              $
              -Automobile
                  Leases
              
              
              32,224
              
              
              16,096
              
              
              7,404
              
              
              -
              
              
              -Office
                  Space Leased
              
              
              84,940
              
              
              53,850
              
              
              21,826
              
              
              -
              
              
              -Total
                  Contractual Cash Obligations
              
              $
              135,931
              
              $
              81,270
              
              $
              35,439
              
              $
              -
              
              $
              -
  *Effects
        of Inflation*
 The
        Company believes that inflation and changing prices over the past three years
        have not had a significant impact on its revenue or results of
        operations.
  **ITEM
        3.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 chief executive and chief financial officer have each
        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, they have
        concluded that, as of the Evaluation Date, the Company’s disclosure controls and
        procedures are effective in bringing to their attention on timely basis material
        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.
 
 24
 
 **PART
        II.  OTHER INFORMATION**
 
 **ITEM
        1.LEGAL
        PROCEEDINGS**
  The
        Company is currently party to the following legal proceedings.
 
 (i)  Linda
        Courtillet, et al. v. Stephen Goldberg, MD, et al. - Linda
        Courtillet is bringing a wrongful death action against the Company, among
        others, on behalf of her son, Logan Courtillet, an inmate at Charles County
        Detention Facility who committed suicide on the premises on March 1, 2005.
        A
        complaint seeking money damages is to be filed in the Circuit Court for Charles
        County, MD in the near future. Currently, our insurer, National Fire and
        Marine,
        is providing a defense in this action.
  (ii)  Board
        of Nursing - In
        early 2005, the MD Board of Nursing (“ **BON** ”)
        commenced an investigation (which is currently ongoing as of today) regarding
        whether certain of our employees licensed by the BON, or at least subject
        to the
        jurisdiction of BON, performed work at certain detention facilities in contract
        with the Company whereby such employees were not properly licensed. BON has
        acknowledged that it does not have jurisdiction over our actions; however,
        the
        BON has threatened to take disciplinary action against 10 - 20 of our current
        or
        former employees. We have fully cooperated with the BON and have implemented
        a
        number of changes intended to address BON’s stated concerns. To the best of our
        knowledge, the BON has conducted all necessary employee interviews, and we
        are
        currently awaiting BON’s next steps or actions relating to these
        employees.
  (iii)  Theresa
        Lynn Rhoderick, PR for the Estate of Michael Rutherford, Sr., et al. v. Conmed,
        Inc. ,
        Case
        No. 06-2379 - This matter was brought in the Circuit Court for Frederick
        County.
        Michael Rutherford, a known asthmatic inmate with a significant medical history,
        died of congestive heart failure with an underlying condition of mitral stenosis
        at John Hopkins Hospital on September 25, 2005. A wrongful death and survival
        action has been filed against the company on behalf of Mr. Rutherford. Our
        insurer is providing a defense of this action. Mr. Francis X. Leary has been
        engaged by our insurer to serve as our defense counsel in this matter as
        well.
  (iv)  Derek
        L. Simms v. Steven R. Williams, et al. Civil
        Action No. WMN-06-2867 - this claim was brought in the United States District
        Court for the District of Maryland. Derek Simms filed a complaint alleging
        that
        he suffered injuries which were caused by the negligent medical care provided
        by
        the company while he was incarcerated in Dorchester County Detention Center.
        Mr.
        Simms alleged that he did not receive adequate analgesic medication from
        us, as
        he was treated for an infectious disease. Our insurer has retained Mr. Leary
        to
        serve as our defense counsel in this matter. On December 21, 2006, Mr. Leary
        filed a Motion to Dismiss, or in the alternative, Motion for Summary Judgment.
        The Motion was based on the failure of Mr. Simms to state a caused of action
        upon which relief may be granted, and the failure to state a claim for violation
        of his 8th and 14th Amendment rights.
  **ITEM2.UNREGISTERED
        SALES OF EQUITY SECURITIES**
  For
        a
        description of a private placement in which unregistered securities were
        sold to
        accredited investors, please see Note 1 of the Financial Statements on page
        4 of
        the
        Quarterly Report on Form 10-QSB. A description of this transaction contained
        in
        the Current Report on 8-K filed on February 1, 2007 is hereby incorporated
        by
        reference.
  **ITEM3.DEFAULT
        UPON SENIOR SECURITIES**
  None
  **ITEM4.SUBMISSION
        OF MATTERS TO A VOTE OF SECURITY HOLDERS**
  At
        a
        special shareholders meeting held on March 13, 2007 the Company’s shareholders
        approved a plan of recapitalization (the “Plan”), which became effective as of
        the close of business on March 14, 2007, elected directors and approved the
        2007
        Stock Option Plan. A description of the special shareholders meeting, as
        well as
        its results, is hereby incorporated by reference from the Current Report
        on Form
        8-K filed by the Company on March 19, 2007.
  25
  **ITEM
        5.OTHER
        INFORMATION**
  None
  **ITEM
        6.EXHIBITS**
 
 31
              Certifications
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  200232
              Certifications
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002
 
 26
  **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.** ****
 
 May
        15,
        2007
 By
        /s/
        Richard W. Turner
 Richard
        W. Turner
 President
        and Chief Executive Officer
 
 
 May
        15,
        2007
 By
        /s/
        Thomas W. Fry
 Thomas
        W.
        Fry
 Chief
        Financial Officer and Secretary
 
 27