Healthcare Management, Inc. ("CONMED", the "Company", "we" or "us") provides
healthcare services to county detention centers across the United States. As
result of the Supreme Court decision in 1976, all individuals held against
will are required to be provided with community standard healthcare. Under
requirement, all counties are required to provide healthcare services for their
inmates. CONMED specializes in providing such services.
January 26, 2007, the Company formerly known as Pace Health Management Systems,
Inc. ("Pace") traded under the symbol "PCES", was classified as a shell company,
had no ongoing operations, minimal operating expenses and no employees.
January 26, 2007, we acquired Conmed, Inc. ("Conmed, Inc."), a privately-owned
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
additional services including mental health, pharmacy and out-of-facility
healthcare. 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. For the fiscal year ended December 31, 2007,
Conmed, Inc. had net revenues primarily from medical services provided to
correctional institutions of $26,073,040.
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. As of
December 31, 2007, we were in contract with, and currently providing medical
services in twenty-two counties in five states including: Kansas, Maryland,
Oregon, Virginia and Washington.
13, 2007, the Company changed its name to Conmed Healthcare Management,
Correctional Healthcare Services
provide the following array of healthcare services for inmates in county
facilities under contract with the counties served. The contracts are primarily
multiple year, fixed-cost contracts with annual escalations, caps on
out-of-facility healthcare and catastrophic expenses that limit maximum
financial exposure, and contain adjustments on a per diem basis for changes
healthcare services include a broad array of services that support the care
inmates detained in county detention centers. Correctional healthcare services
include, but are not limited, to the following categories:
General healthcare services
Acute care services
Durable medical equipment
Mental health services
Physical and occupational therapy
directly provide these services within the detention facilities or subcontract
for the provision of these services within or outside the facility. We make
every effort to safely provide the medical services within the facilities due
security and cost considerations.
model for predicting healthcare costs based on 23 years of accumulated
experience, external data on healthcare costs, trending, and knowledge of
current and future drivers of cost. This predictive model is the basis for
cost proposals we provide in competitive bids. The model addresses and
aggregates costs related to staffing, on-site costs, out-of-facility costs,
pharmacy, supplies, administrative costs, taxes, and contract fees. We have
found that having predictive reliability of costs assures a higher probability
of sustained profits.
provide staffing of healthcare professionals at each of our contracted
facilities. The staffing patterns are obtained from the Request for Proposals
(RFP) distributed by the counties soliciting bids on services provided and
The level of staffing varies depending on the size of the facility, i.e., larger
facilities typically require a larger staff. The ratio of staff members to
inmates varies depending on the physical structure of the facilities and the
specific desire of the administration of the individual facilities and service
provided. Generally, we contract with existing staff at the facility to the
greatest extent possible when entering into a new contract. The on-site staffing
for any facility may include RNs, LPNs, medics, medication aides, nursing
assistants, physicians, psychiatrists, psychologists, social workers, physician
assistants, nurse practitioners, medical records' clerks, administrative and
provide medications for inmates within our contracted detention facilities.
Medications are currently provided from two national pharmacy contractors,
Diamond Pharmacy and Correct RX, which specialize in the provision of
pharmaceutical services to detention centers. We have accumulated information
regarding pharmacy expenses in our contracted facilities, which is useful in
cost proposal portions of our bids.
provide comprehensive healthcare services from the time an inmate enters the
facility until the time of such inmate's release from the facility. In some
cases, we are responsible for providing healthcare services to an individual
the time of his or her arrest. The vast majority of such services are provided
on site by our clinical staff. Our healthcare services begin at intake with
screening examination and triage. Such services are continued through the
provision of daily sick calls. Most states have implemented a statutory or
requirement for a physical examination and dental examination of each inmate,
be conducted within 14 days of admission to the facility. The initial and
subsequent examinations include psychiatric screening evaluations to detect
suicide potential and major psychiatric illness requiring special
for services provided within the facility are generally regionally-based and
easily predicted. The highest costs relate to on-site x-rays, the majority
which are chest x-rays completed to discount active tuberculosis and x-rays
requiring services outside the facility fall into two broad categories: (i)
emergencies and (ii) circumstances that require services beyond the capability
of the facility. Out-of-facility services are broken down into several
categories, including third party administrators ("TPA
hospital services. Most of our out-of-facility services are provided through
use of a local or regional contracted network using a TPA. In addition,
utilization management and utilization review services are employed.
management and utilization reviews
assure the most cost effective and medically appropriate length stays, we often
utilize the services of a contracted professional utilization management and
utilization review ("UM/UR") organization. When an inmate is hospitalized,
UM/UR maintains daily contact with the provider and the Medical Director for
site to assure appropriate care.
contract with TPAs serving most of the facilities in which we provide healthcare
services. The TPAs provide a network of physicians, hospitals and ancillary
services that are paid based on contracted fee schedules. These fee schedules
typically include discounts that average approximately 17% over the submitted
charges. The TPA is compensated based on a percent of our savings for the
services are provided on-site for most of our contracted facilities. Such
facilities maintain dental suites with equipment for conducting dental x-rays
depending on the RFP requirements.
services that we provide to our clients include the following:
services consultations - On request from the facility administration,
will provide consultations on healthcare issues such as Tuberculosis,
Avian Flu, AIDS, Hepatitis, Methadone, Reentry programs and many
topics pertinent to correctional healthcare patients. These consultations
typically relate to policy issues affecting multiple facilities.
cases, we have provided expert testimony to state legislative bodies
compliance programs - We provide an audit compliance program as part
our core responsibility to all sites. We have experts in all state
national audit processes on staff. These individuals provide guidance
the sites to assure 100% audit compliance.
compliance programs - Regulation 1910.1030 of the U.S. Department
Labor, Occupational Safety & Health Administration ("OSHA"), provides
guidelines and universal precautions that shall be observed to prevent
contact with blood or other potentially infectious materials. Such
regulations are applicable to all occupational exposure to blood
potentially infectious materials. We comply with OSHA and provide
staff members, among other things, appropriate personal protective
equipment such as gloves, gowns, laboratory coats, face shields or
and eye protection, as well as mouthpieces, resuscitation bags, pocket
masks, or other ventilation devices. The purpose of such protective
equipment is to prevent blood or other potentially infectious materials
pass through to or reach our employee's clothes, undergarments, skin,
eyes, mouth, etc. Other procedures we implement in accordance with
include, but are not limited to, ensuring a clean and sanitary worksite,
procedures for discarding contaminated waste, and cleaning and laundering
our staff's clothing and equipment.
management - We promote risk management through a process of daily
monitoring of significant healthcare events, weekly and monthly review
trends and subsequent measured actions. Through attention to detail
provision and documentation of healthcare, adherence to standards
and monitoring of events, we are able to substantially reduce the
poor outcomes and/or litigation.
call services for staff - We provide limited sick call services to
detention center staff for acute problems. This often allows the
continue at work rather than taking a sick day for a doctor's visit.
value-added service is appreciated by the facility staff and
services for staff and visitors - We believe it is imperative that
medical staff be well trained and equipped to handle emergencies.
ensure that our medical staff is familiar with the correctional facility
and is equipped to deliver prompt emergency care anywhere in the
Specific equipment is maintained and restocked when necessary, within
facility in the event of an emergency, including an emergency kit
of maintaining basic life support.
and marketing efforts for correctional healthcare services are based on the
analysis - In 2004, we engaged in a national market analysis and
searching for markets with attractive opportunities. We have designated
Florida, Georgia, Kansas, Iowa, New Jersey, North Carolina, Oklahoma,
Oregon, Pennsylvania, South Carolina, Texas, Virginia and Washington
early targets. The following are our prime
of 500 inmates or more that are currently not served by a correctional
of 500 inmates or more that are served by a local hospital or healthcare
of 500 inmates or more where a competitor's services are not meeting
facility's expectations; and
of 500 inmates or more that are served by a competitor that is leaving
county detention center market to focus on
of Mouth – We have a contact network through our existing contracts and
through strategic relationships with national pharmacy contractors.
network has provided early indications of counties considering outsourcing
healthcare services, changing their current contractors or seeking
proposals for other reasons.
procurement services – We have a contract with an on-line government
contracting research service to establish early determinations of
intentions to seek proposals.
meetings – Our staff attends annual regional and national trade meetings.
These meetings serve as an opportunity to meet and greet new potential
clients. Our trade show booth attracts attention with a variety of
marketing tools and techniques. We often sponsor special events and
at these meetings.
calls – We use, to a limited extent, cold calls, typically only in cases
where some collateral indication of a probability of interest
in trade journals.
speaking engagements for special topics on
promotion of our capabilities and
currently utilize our CEO, Chief Medical Officer and Vice President of Strategic
Development, as well as a network of regional consultants to implement our
aware of four major sources of competition:
contracting companies that serve both the county and state prison
we are aware of several national companies that provide healthcare services
county detention centers, it appears this is not their main focus. These
companies, including Prison Health Services, Inc., Correctional Medical
Services, Inc., Correct Care Solutions Inc., Wexford
Naphcare, Inc. and Armor Correctional Health Services are primarily in the
business of providing services to state prisons.
or regional companies focused on county detention centers
are a few companies that provide healthcare services to county detention centers
within confined regions, such as California Forensic Medical Group Inc. in
California, and Primecare Medical, Inc. in Pennsylvania. These companies are
privately held and can be characterized as small to medium size businesses
compared to the major national prison healthcare companies. There are several
small local groups in markets which we are developing at this time.
seen several incidences of local hospital systems providing healthcare services
to the county detention centers. Such incidences arose out of the absence of
other interested providers. The hospital costs for these counties are often
extremely high and counties seeking cost savings may seek the services of a
professional medical service contractor other than the local
cases, our competitor is a local solo physician or group of physicians. Such
contractors typically provide only the on-site sick call services and may have
limited expertise in the provision of full service correctional healthcare.
physicians are often unable to obtain cost effective and appropriate liability
insurance that will cover both their primary work, as well as their correctional
does not currently own and has not registered any trademarks, patents, or any
other intellectual property.
industries in which we operate are subject to extensive federal, state and
regulations and/or orders of judicial authorities, including healthcare,
pharmaceutical and safety regulations and judicial orders, decrees and
judgments. Some of the regulations and orders are unique to the Company's
industries, and the combination of regulations and orders it faces is unique.
Generally, prospective providers of healthcare and pharmaceutical services
correctional facilities must be able to detail their readiness to, and must
comply with, a variety of applicable state and local regulations and state
national standards. Our contracts typically include reporting requirements,
supervision and on-site monitoring by representatives of the contracting
addition, the doctors, nurses, pharmacists and other healthcare professionals
who provide services on our behalf are, in most cases, required to obtain and
maintain professional licenses and are subject to state regulation regarding
professional standards of conduct. Our services are also subject to operational
and financial audits by the governmental agencies with which we have contracts
and by the courts of competent jurisdiction. Additionally, services provided
health benefit plans in certain cases, are subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). We may
not always successfully comply with these regulations and failure to comply
result in material penalties, non-renewal or termination of contracts with
correctional facilities or prohibition from proposing for new business in
Insurance Portability and Accountability Act of 1996.
Administrative Simplification Provisions of the Health Insurance Portability
Accountability Act of 1996 ("HIPAA") require the use of uniform electronic
transmission standards for healthcare claims and payment transactions submitted
or received electronically. These provisions are intended to encourage
electronic commerce in the healthcare industry. We do not electronically file
present, but may do so in the future, subjecting us to all of the regulations
HIPAA. HIPAA also includes regulations on standards to protect the security
privacy of health-related information. The privacy regulations extensively
regulate the use and disclosure of individually identifiable health-related
information, whether communicated electronically, on paper or
Practice of Medicine/Fee Splitting
the states in which we operate have laws that prohibit unlicensed persons or
business entities, including corporations, from employing physicians or laws
that prohibit certain direct or indirect payments or fee-splitting arrangements
between physicians and unlicensed persons or business entities. Possible
sanctions for violations of these restrictions include loss of a physician's
license, civil and criminal penalties and rescission of business arrangements
that may violate these restrictions. These statutes vary from state to state,
are often vague, and seldom have been interpreted by the courts or regulatory
agencies. We review, on an ongoing basis, the applicable laws in each state
which we operate and review our arrangements with our healthcare providers
ensure that these arrangements comply with all applicable laws. We have no
assurance that governmental officials responsible for enforcing these laws
not assert that we, or transactions in which we are involved, are in violation
of such laws, or that such laws ultimately will be interpreted by the courts
a manner consistent with our interpretations.
of Bid Process and Contracting.
with governmental agencies are obtained primarily through a competitive bidding
process, which is governed by applicable state and local statutes and
ordinances. Although practices vary, typically a formal RFP is issued by the
governmental agency, stating the scope of work to be performed, length of
contract, performance bonding requirements, minimum qualifications of bidders,
selection criteria and the format to be followed in the bid or proposal.
Usually, a committee appointed by the governmental agency reviews bids and
an award determination. The committee may award the contract to a particular
bidder or decide not to award the contract. The committees consider a number
factors, including the technical quality of the proposal, the bid price and
reputation of the bidder for providing quality care. The award of a contract
be subject to formal or informal protest by unsuccessful bidders through a
governmental appeals process. If the committee does not award a contract, the
correctional agency may, among various options, continue to provide healthcare
services to its inmates with its own personnel or the existing provider.
RFPs and contracts require the bidder to post a bid bond or performance bond.
Performance bonding requirements may cover one year or up to the length of
contract. Since September 11, 2001, the surety market has sharply
contracted and the cost of surety bonds has substantially increased. In order
avoid the additional costs that performance bonds add to the contracts,
increasingly clients are reducing or eliminating the need for performance bonds.
Department of Labor, Occupational Safety and Health Administration
addition to state and national standards of compliance with OSHA federal
regulations is mandatory. OSHA Standard 29 CFR 1910 requirements include, but
are not limited to, blood borne and airborne pathogens (tuberculosis), needle
stick prevention, fire safety, hazard communications, respiratory protection,
program, and hazardous waste. The federal OSHA standards have been adopted
state regulatory agencies to conduct routine environmental
Fire Protection Association (NFPA).
Environmental fire safety is promulgated by the NFPA 101: Life Safety Code
derived from the American Standards Institute (ANSI). Enforcement of NFPA
regulation is accomplished by annual inspections conducted by the state.
contracts with governmental agencies often require us to comply with numerous
additional requirements regarding recordkeeping and accounting,
non-discrimination in the hiring of personnel, safety, safeguarding confidential
information, management qualifications, professional licensing requirements,
emergency healthcare needs of corrections employees and other matters. If a
violation of the terms of an applicable contractual or statutory provision
occurs, a contractor may be disbarred or suspended from obtaining future
contracts for specified periods of time in the applicable location. We have
never been disbarred or suspended from seeking procurements in any
all of our operating revenue is derived from contracts with county governmental
entities. Our top five clients, Baltimore County Detention Center, Sedgwick
County Detention Center, Harford County Detention Center, Yakima County
Detention Center and Charles County Detention Center generated approximately
fifty-seven percent (57%) of our total revenues for the twelve months ended
December 31, 2007. Summaries of our largest contracts follow below.
County Detention Center Contract.
entered into a Services Agreement with the Board of County Commissioners of
Baltimore County, Maryland ("BCDC"), on March 29, 2007, for a period of
approximately two (2) years and six (6) months, and BCDC, at its option, may
extend the agreement annually for two (2) additional three-year terms upon
written notice. BCDC pays us a base monthly fee, which may be adjusted for
changes in inmate population levels. Under the agreement, we are subject to
mandatory staffing requirements. The agreement also contains provisions that
allow the BCDC to assess penalties if certain staffing criteria are not
maintained and certain liquidated damages in the event certain performance
standards are not met. We also provide, at our own expense, a performance bond
for one hundred percent (100%) of the annual amount of the awarded contract,
well as a payment bond for approximately twenty-five percent (25%) of the annual
amount of the awarded contract. BCDC may terminate the agreement upon ninety
(90) days written notice without cause and may immediately terminate the
agreement for a material breach of the agreement subject to certain cure
County Detention Center Contract.
entered into a Services Agreement with the Board of County Commissioners of
Sedgwick County, Kansas ("Sedgwick County"), on January 31, 2005, for a period
of two (2) years. On June 1, 2007, the agreement was amended to extend the
term through December 31, 2009, and Sedgwick County may, at its option, extend
the agreement annually for two (2) additional one-year terms upon written
notice. In addition, the amendment waives the previous requirement for a
performance bond, increases the medical staffing, raises the base monthly fee,
and provides for a cost of living increase in 2009. Sedgwick County pays us
base monthly fee, which may be adjusted for changes in inmate population levels.
Sedgwick County may terminate the agreement upon thirty (30) days written notice
without cause. Either party may immediately terminate the agreement for a
material breach of the agreement subject to certain cure provisions.
County Detention Center Contract.
entered into a Health Services Agreement with the Sheriff of Harford County
May 31, 2007, to provide medical services to the inmates at the Harford County
Detention Center ("HCDC"), for an initial term of one (1) year, with the HCDC
having the exclusive option to renew such agreement for five (5) additional
(1) year terms. The HCDC pays us a base monthly fee, which may be adjusted
changes in inmate population levels. Under the agreement, we are subject to
mandatory staffing requirements. HCDC may terminate the agreement with or
without cause without prior written notice.
County Detention Center Contract.
entered into a Health Services Agreement with the Board of County Commissioners
for Yakima County, Washington on August 12, 2006, to provide medical services
the inmates at the Yakima County Department of Correction's facilities ("Yakima
County"), for an initial term of one (1) year, with Yakima County having the
exclusive option to renew such agreement for four (4) additional one (1) year
terms. The agreement was amended on April 3, 2007 and September 4, 2007, to
provide pharmacy services and medical services for the Yakima County DOC Justice
Center. Yakima County pays us an annual compensation, which is paid in equal
monthly installments. Either party may terminate the agreement upon one hundred
twenty (120) days written notice without cause. Yakima County may immediately
terminate the agreement for a material breach of the agreement subject to
certain cure provisions.
County Detention Center Contract.
July 1, 2004, we entered into a medical services agreement with the Sheriff's
Office of Charles County, Maryland to provide both on-site and off-site
healthcare services to the inmates of the Charles County Detention Facility
("CCDF"). The two (2) year agreement commenced on July 1, 2004, and the
agreement provides the CCDF with three (3) successive one (1) year options
extend the term of the agreement. The CCDF pays us an annual compensation,
is paid equal monthly installments. Such monthly installments are adjusted
changes in inmate population levels. Conmed may terminate the agreement upon
thirty (30) days written notice in the event the CCDF fails to make timely
payment due to Conmed.
December 31, 2007, we had approximately 360 full-time and 28 part-time employees
and 79 per diem employees, and 32 position contractors. We provide all full-time
employees with a comprehensive benefits package including medical insurance,
education stipend, dental insurance, 401(k) and paid vacation. We believe that
our relations with our employees are good. None of our employees belong to
investment in our securities is extremely risky. You should carefully consider
the following risks, in addition to the other information presented in
Annual Report on
deciding to buy or exercise our securities. If any of the following risks
actually materialize, our business and prospects could be seriously harmed,
price and value of our securities could decline and you could lose all or part
of your investment.
Related to Our Business
ABILITY TO CONTINUE OR EXPAND OUR BUSINESS AND SECURE NEW CONTRACTS TO PROVIDE
HEALTHCARE AND MEDICAL SERVICES TO CORRECTIONAL AND DETENTION FACILITIES DEPENDS
ON MANY FACTORS OUTSIDE OUR CONTROL.
growth is generally dependent upon our ability to obtain new contracts to
provide healthcare and medical services to inmates in county correctional and
detention facilities. This possible growth depends on a number of factors we
cannot control, including crime rates and sentencing patterns in various
jurisdictions and acceptance of privatization. The demand for our services
be adversely affected by the relaxation of enforcement efforts, leniency in
conviction and sentencing practices or through the decriminalization of certain
activities currently proscribed by our criminal laws. For instance, any changes
with respect to drugs and controlled substances or illegal immigration could
affect the number of persons arrested, convicted and sentenced, thereby
potentially reducing demand for correctional facilities to house them, and
reduce the number of inmates receiving medical services. Legislation has been
proposed in numerous jurisdictions that could lower minimum sentences for some
non-violent crimes and make more inmates eligible for early release based on
good behavior. Also, sentencing alternatives under consideration could put
offenders on probation with electronic monitoring who would otherwise be
incarcerated. Similarly, reductions in crime rates could lead to reductions
arrests, convictions and sentences requiring incarceration at correctional
PROVIDE CONTRACTED BUSINESS SERVICES. IN ANY CONTRACT BUSINESS, IT IS POSSIBLE
CONTRACT WILL BE TERMINATED, DEFAULTED UPON OR NOT RENEWED.
three county contracts, Baltimore County Detention Center, Sedgwick County
Detention Center and Hartford County Detention Center, generated approximately
fifty percent (50%) of our total revenues for the year ended December 31, 2007.
These same clients generated approximately thirty-eight percent (38%) of our
gross profit. If a contracted detention facility, particularly one of our
primary detention facilities, terminates its contract, which generally may
effective upon ninety (90) day written notice, our business and financial
performance may be seriously harmed.
OF OUR CONTRACTS ARE FOR SHORT-TERMS, AND MAY NOT BE
detention center medical services contracts are typically short-term, ranging
from one to three years, with renewal or extension options in favor of the
contracting governmental agency. Including extension options, we have several
smaller contracts subject to renewal in 2008, which accounted for approximately
7% of revenue and 8% of the gross profit, respectively, for the year ended
December 31, 2007. We cannot assure you that these or any other contracts will
be renewed or that extension options will be exercised. Additionally, the
contracting governmental agency typically may terminate a facility contract
without cause by giving us adequate written notice. We customarily incur
significant development and start-up costs in establishing our services within
the new facilities, and the termination or non-renewal of a contract would
require an immediate write-off of any unamortized costs associated with the
contract, including unamortized costs for service contracts acquired and
goodwill, and could have a material adverse effect upon our financial condition,
results of operations and liquidity.
CONTRACTS ARE SUBJECT TO GOVERNMENTAL FUNDING.
detention center medical services contracts are subject to either annual or
bi-annual governmental appropriations. Failure by a governmental agency to
receive such appropriations could result in termination of the contract by
agency or a reduction of the fee payable to us. In addition, even if funds
appropriated, delays in payments may occur which could have a material adverse
effect on our financial condition, results of operations and
INABILITY TO OBTAIN REQUIRED PERFORMANCE AND/OR PAYMENT BONDS MAY LIMIT OUR
ABILITY TO MAINTAIN EXISTING CONTRACTS AND ACQUIRE ADDITIONAL CONTRACTS.
to expand our business and obtain new facilities' contracts, as well as maintain
certain existing contracts, we will need to obtain bonds in certain counties
which we provide our services. In order to obtain such bonds, or renew existing
bonds, we are required to fulfill certain financial requirements and standards.
To the extent we are unable to fulfill the necessary financial requirements
standards, we may not be able to acquire new facilities' contracts and could
lose our existing contracts, all of which could negatively impact our business
operations and financial condition.
ARE UNCERTAIN AS TO OCCUPANCY LEVELS AT CERTAIN FACILITIES WE SERVICE.
portion of our revenues are generated under detention center medical services
contracts that specify an offset for populations under a specified number.
such a per diem rate structure, a decrease in occupancy levels could cause
decrease in the facilities' needs for medical services, and therefore, could
cause a decrease in revenue and profitability, and may have some adverse effect
on our overall financial condition, results of operations and
AT FACILITIES WE SERVICE WOULD IMPACT US NEGATIVELY.
escape, riot, epidemic, catastrophic or other disturbance that seriously impacts
the health of a large number of inmates at one of our facilities could have
material adverse effect on our financial condition, results of operations and
liquidity. As a result of a disturbance, inmates may suffer multiple injuries
for which the cost of care may have a temporary, but significant effect on
profitability. Approximately 81% of our healthcare services' revenues for the
year ended December 31, 2007 are operated under caps which provide limits on
cost of exposure; however, multiple events with significant costs may exceed
remaining 19% of our correctional healthcare services' revenues from continuing
operations contain no limits on our exposure for treatment costs related to
catastrophic illnesses or injuries to inmates. Although we attempt to compensate
for the increased financial risk when pricing contracts that do not contain
catastrophic limits for facilities that have not had any catastrophic illnesses
or injuries to inmates that exceeded its insurance coverage in the past, we
cannot assure you that we will not experience a catastrophic illness or injury
of a patient that exceeds its coverage in the future. The occurrence of severe
individual cases outside of those catastrophic limits could render contracts
unprofitable and could have a material adverse effect on our financial condition
and results of operations.
MAY EXPERIENCE MALPRACTICE LITIGATION AND OTHER LIABILITY SUITS.
medical services to correctional and detention facilities exposes us to
potential third-party claims or litigation by inmates or other persons for
adverse outcomes (medical malpractice), as well as suits related to infringement
of their 8
amendment rights (deliberate indifference and civil rights). It is likely
that as we grow, we will be exposed to additional healthcare liability issues.
We currently maintain medical professional liability insurance to cover
potential malpractice losses, in the amounts of $1,000,000 per incident and
$5,000,000 in the aggregate, as well as $1,000,000 general liability coverage.
Such insurance is expensive, subject to various coverage exclusions and
deductibles and may not be obtainable in the future on terms acceptable to
or at all. A successful claim against us in excess of our insurance coverage
could materially harm our business.
MAY INCUR SIGNIFICANT START-UP AND OPERATING COSTS ON NEW CONTRACTS BEFORE
RECEIVING RELATED REVENUES, WHICH MAY IMPACT OUR CASH FLOWS AND NOT BE
are awarded a contract to provide medical services to a facility, we may incur
significant start-up and operating expenses, including the cost of purchasing
equipment and staffing the facility, before we receive any payments under the
contract. These expenditures could result in a significant reduction in our
reserves and may make it more difficult for us to meet other cash obligations.
In addition, a contract may be terminated prior to its scheduled expiration
as a result, we may not recover these expenditures or realize any return on
UTILIZE THIRD PARTY ADMINISTRATORS (TPA) AND PROVIDER NETWORKS TO OBTAIN
OUT-OF-FACILITY CARE IN VARIOUS MARKETS. SHOULD THOSE NETWORKS BECOME
INACCESSIBLE, OUR COSTS FOR PROVIDING THOSE SERVICES WOULD RISE 13 TO 15%.
current profit margin is, in part, due to our ability to reduce out-of-facility
costs that are defined by contracted networks. Our net costs are typically
approximately 13% less than the stated charges for these services. It is
important to note that healthcare providers for the general public utilize
same programs. It is unlikely the environment will change, causing the return
payments based on healthcare provider's charges without discounts. The trend
over the past ten years has been one of deeper discounting against these
charges. If the trend reversed or slowed, it would negatively impact our
operating margins and could have a material adverse effect on us.
IN STATE AND FEDERAL REGULATIONS COULD RESTRICT OUR ABILITY TO CONDUCT OUR
subject to extensive regulation by both the federal government and the states
which we conduct our business. There are numerous healthcare and other laws
regulations that we are required to comply with in the conduct of our business.
These laws may be materially changed in the future or new or additional laws
regulations may be adopted with which we will be required to comply. The cost
compliance with current and future applicable laws, rules and regulations may
state and federal laws and regulations that affect our business and operations
include, but are not necessarily limited to:
fraud and abuse laws and regulations, which prohibit illegal referral
Retirement Income Security Act of 1974 and related regulations, which
regulate many healthcare plans;
laws and regulations;
and confidentiality laws and regulations;
liberties protection laws and regulations;
and national correctional healthcare auditing bodies;
licensure laws, such as nursing and physician licensing
pricing legislation; and
and Medicaid reimbursement
believe we are operating our business in substantial compliance with all
existing legal requirements material to the operation of our business. There
are, however, significant uncertainties regarding the application of many of
these legal requirements to our business, and there cannot be any assurance
a regulatory agency charged with enforcement of any of these laws or regulations
will not interpret them differently or, if there is an enforcement action,
our interpretation would prevail. In addition, there are numerous proposed
healthcare laws and regulations at the federal and state levels, many of which
could materially affect our ability to conduct business or adversely affect
results of operations.
ARE SUBJECT TO HIPAA, THE FAILURE WITH WHICH TO COMPLY COULD ADVERSELY AFFECT
21, 1996, Congress passed the Health Insurance Portability and Accountability
Act of 1996 ("HIPAA"). This legislation required the Secretary of the Department
of Health and Human Services to adopt national standards for electronic health
transactions and the data elements used in such transactions. The Secretary
adopted safeguards to ensure the integrity and confidentiality of such health
information. Violation of the standards is punishable by fines and, in the
of wrongful disclosure of individually identifiable health information,
imprisonment. Failure to do so could have an adverse effect on our
AGENCIES MAY INVESTIGATE AND AUDIT OUR CONTRACTS AND, IF ANY IMPROPRIETIES
FOUND, WE MAY BE REQUIRED TO REFUND REVENUES WE HAVE RECEIVED, REQUIRED TO
FOREGO ANTICIPATED REVENUES, AND SUBJECT TO PENALTIES AND
government agencies have the authority to audit and investigate our contracts.
As part of that process, government agencies may review our performance of
contract, our pricing practices, our cost structure and our compliance with
applicable laws, regulations and standards. For contracts that actually or
effectively provide for reimbursement of expenses, if an agency determines
have improperly allocated costs to a specific contract, we may not be reimbursed
for those costs, and we could be required to refund the amount of any such
that have been reimbursed. If a government audit asserts improper or illegal
activities by us, we may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts, forfeitures of
profits, suspension of payments, fines and suspension or disqualification from
doing business with certain government entities.
ARE LARGE COMPETITORS IN THE HEALTHCARE INDUSTRY THAT COULD CHOOSE TO COMPETE
AGAINST US, REDUCING OUR PROFIT MARGINS OR CAUSING US TO LOSE CUSTOMERS.
national correctional healthcare contract companies, local and regional
contracting companies, hospitals and integrated health systems are our potential
competitors. These companies include well-established companies which may have
greater financial, marketing and technological resources than we do, such as
PHS, CMS and Wexford Health. Increased price competition could result in the
loss of customers or otherwise reduce our profit margins and have a material
adverse effect on us.
ARE BARRIERS TO ENTRY INTO THE CORRECTIONAL HEALTHCARE SERVICES MARKET WHICH
COULD BE OVERCOME RESULTING IN GREATER COMPETITION.
barriers to entrance to compete for contracts are typically 5 years experience
providing the same services and demonstrated financial stability. It would
possible for an investor to purchase an existing experienced company, add
capital and quickly become competitive on a national scale.
ARE DEPENDENT ON GOVERNMENT APPROPRIATIONS.
flow is subject to the receipt of sufficient funding of, and timely payment
contracting governmental entities. If the appropriate governmental agency does
not receive sufficient appropriations to cover its contractual obligations,
may terminate our contract or delay or reduce payment to us. Any delays in
payment, or the termination of a contract, could have an adverse effect on
cash flow and financial condition. In addition, as a result of, among other
things, recent economic developments, federal, state and local governments
encountered, and may encounter, unusual budgetary constraints. As a result,
number of state and local governments are under pressure to control additional
spending or reduce current levels of spending. Accordingly, we may be requested
in the future to reduce our existing per diem contract rates or forego
prospective increases to those rates. In addition, it may become more difficult
to renew our existing contracts on favorable terms or otherwise.
INABILITY TO REACT EFFECTIVELY TO CHANGES IN THE HEALTHCARE INDUSTRY COULD
ADVERSELY AFFECT OUR OPERATING RESULTS.
years, the healthcare industry has undergone significant change driven by
various efforts to reduce costs, including potential national healthcare reform,
trends toward managed care, cuts in Medicare reimbursements, and horizontal
vertical consolidation within the healthcare industry. Proposed changes to
U.S. healthcare system may increase governmental involvement in healthcare
ancillary health services, and otherwise change the way payers, networks and
providers conduct business. Healthcare organizations may react to these
proposals and the uncertainty surrounding them by reducing or delaying purchases
of cost control mechanisms and related services that we provide. Other
legislative or market-driven changes in the healthcare system that we cannot
anticipate could also materially adversely affect our business. Our inability
react effectively to these and other changes in the healthcare industry could
adversely affect our operating results and business. We cannot predict whether
any healthcare reform efforts will be enacted and what effect any such reforms
may have on us or our customers.
CONTINUED SERVICES AND LEADERSHIP OF OUR SENIOR MANAGEMENT IS CRITICAL TO OUR
TO MAINTAIN GROWTH AND ANY LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR
future of our business depends, to a significant degree, on the skills and
executives, in particular, Dr. Richard Turner,
Executive Officer and
Haft, MD, MMM, CPE,
Executive Vice President and Chief Medical Officer. If we lose the services
executives, and especially if any of
executives join a competitor or forms a competing company,
and financial performance could be seriously harmed.
executed employment agreements with Dr. Haft and Dr. Turner, effective as of
closing of the Acquisition, which include, except for Dr. Turner's employment
agreement, noncompetition clauses that expire three (3) years after termination
of employment, or during the period that such employee is an owner of any of
issued and outstanding stock. If, for any reason, we lose any of our executive
officers' skills, knowledge of the industry, contacts and expertise, it could
result in a setback to our operating plan.
A PUBLIC COMPANY, WE INCUR SUBSTANTIAL ADDITIONAL COSTS AND MAY BE UNABLE TO
the consummation of the Plan of Recapitalization, we were a privately-held
company. As a result of becoming a publicly-traded company, we incurred
significant additional costs. These costs include, among other things, the
payment of a salary to our Chief Executive Officer, Dr. Richard Turner and
additional legal and accounting costs incurred as a result of becoming a public
company, and the additional compliance, reporting, corporate governance
requirements and investor relations activities which this entails. Furthermore,
the financial, administrative and managerial structures necessary to operate
a public company, or the development of such structures require a significant
amount of management's time and other resources including financial resources,
which may hinder our ability to operate profitably.
REVENUE MARGINS MAY DECREASE DUE TO FIXED REVENUE BASE.
existing contracts are primarily structured as fixed fee contracts. The costs
inmate healthcare may fluctuate from what we anticipated due to several
variables, including increases in inmate population and increased inmate
illness. Such additional costs may not be easily passed through under those
contracts containing a fixed fee structure, and therefore, we may not always
have sufficient revenue to cover such increased costs. As a result, our revenue
margins may fall. If our revenue margins decrease more than 1 or 2 percentage
points, our ability to perform under its contracts may be limited, which could
negatively impact our business operations and financial
MAY BE UNSUCCESSFUL IN THE HIRING AND RETENTION OF SKILLED PERSONNEL.
future growth of our business depends on successful hiring and retention of
skilled personnel, and we may be unable to hire and retain the skilled personnel
we need to succeed. Qualified personnel are in great demand throughout the
healthcare industry, thus it is difficult to predict the availability of
qualified personnel or the compensation levels required to hire and retain
We face stiff competition for staffing, which may increase our labor costs
reduce profitability. We compete with other healthcare and service providers
recruiting qualified management and staff personnel for the day-to-day
operations of our business, including nurses and other healthcare professionals.
In some markets, the scarcity of nurses and other medical support personnel
become a significant operating issue to healthcare businesses. This scarcity
require us to enhance wages and benefits to recruit and retain qualified nurses
and other healthcare professionals. Because a significant percentage of our
existing contracts are structured as fixed fee contracts, we have a limited
ability to pass along increased labor costs to existing customers. The failure
to attract and retain sufficient skilled personnel at economically reasonable
compensation levels may limit our ability to perform under our contracts, which
could lead to the loss of existing contracts or our ability to gain new
contracts, and may impair our ability to operate and expand our business, as
well as harm our financial performance.
MAY EXPERIENCE UNBUDGETED INCREASES IN COSTS RELATED TO THE PROVISION OF
we predict the costs of healthcare based on prior experience and projected
increases. The projections for future increases are based on historical trends
and expected increases related to the development of new healthcare initiatives,
treatments and disease states. For example, recent increases in the use of
cost psychiatric medications have triggered increases in the projected costs
those medications in the bid process. However, mid-cycle increases, such as
those associated with the need to use a more expensive antibiotic for a drug
resistant infection, or the development of a standard treatment for Hepatitis
for example, would produce significant cost overruns in pharmacy budgeted
ARE SUBJECT TO NECESSARY INSURANCE COSTS.
compensation, employee health, and medical professional and general liability
insurance represent significant costs to us. Because we significantly
self-insure for workers' compensation, employee health, medical professional
general liability risks, our insurance expense is dependent on claims
experience, our ability to control our claims experience, and in the case of
workers' compensation and employee health, rising healthcare costs in general.
Further, additional terrorist attacks, such as those on September 11, 2001,
concerns over corporate governance and corporate accounting scandals, could
it more difficult and costly to obtain liability and other types of insurance.
Unanticipated additional insurance costs could adversely impact our results
operations and cash flows, and the failure to obtain or maintain any necessary
insurance coverage could have a material adverse effect on us.
FACE RISKS ASSOCIATED WITH ACQUISITIONS.
to grow through internal expansion and through selective acquisitions. We cannot
assure you that we will be able to identify, acquire or profitably manage
acquired operations or that operations acquired will be profitable or achieve
levels of profitability that justify the related investment. Acquisitions
involve a number of special risks, including possible adverse short-term effects
on our operating results, diversion of management's attention from existing
business, dependence on retaining, hiring and training key personnel, risks
associated with unanticipated problems or legal liabilities, and amortization
acquired intangible assets, any of which could have a material adverse effect
our financial condition, results of operations and liquidity.
LIABILITY OF OUR OFFICERS AND DIRECTORS IS LIMITED.
13, 2007, we reincorporated as a Delaware corporation and we provide our
officers and directors indemnification to the fullest extent allowed under
Delaware General Corporation Law. We also carry directors and officer's
liability insurance. In addition, we plan to enter into an indemnification
agreement with our officers and directors in 2008 which will provide for
expanded indemnification rights for such individuals. As a result of the
foregoing, stockholders may be unable to recover damages against our officers
and directors for actions taken by them which constitute negligence, gross
negligence or a violation of their fiduciary duties and may otherwise discourage
or deter our stockholders from suing our officers or directors even though
actions, if successful, might otherwise benefit us and our
HAVE LIMITED EXPERIENCE ATTEMPTING TO COMPLY WITH PUBLIC COMPANY OBLIGATIONS,
INCLUDING SECTION 404 OF THE SARBANES-OXLEY ACT OF 2002.
directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC has adopted
rules requiring public companies to include a report of management on the
company's internal controls over financial reporting in their annual reports
Form 10-K. In addition, the registered certified public accounting firm auditing
a public company's financial statements must attest to and report on
management's assessment of the effectiveness of the company's internal controls
over financial reporting. The requirement for a report of management, as
currently in effect, will first apply to our annual report on Form 10-K for
fiscal year ending December 31, 2007. The requirement for our auditor to attest
on management assessment will apply for the fiscal year ending December 31,
2009. If we are unable to conclude that we have effective internal controls
financial reporting, or if our independent auditors are unable to provide us
with an unqualified report as to the effectiveness of our internal controls
financial reporting as required by Section 404 of the Sarbanes-Oxley Act of
2002, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our
STOCKHOLDERS CAN EXERT CONTROL OVER US AND MAY NOT MAKE DECISIONS THAT FURTHER
THE BEST INTERESTS OF ALL STOCKHOLDERS.
officers, directors and principal stockholders (greater than 5% stockholders)
together own a majority of our issued and outstanding common stock.
Consequently, these stockholders, if they act individually or together, may
exert a significant degree of influence over our management and affairs and
matters requiring stockholder approval, including the election of directors
approval of significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change of control of us and might affect
market price of our common stock, even when a change of control may be in the
best interest of all stockholders. Furthermore, the interests of this
concentration of ownership may not always coincide with our interests or the
interests of other stockholders, and accordingly, they could cause us to enter
into transactions or agreements which we would not otherwise
ORGANIZATIONAL DOCUMENTS AND DELAWARE LAW MAKE IT HARDER FOR US TO BE ACQUIRED
WITHOUT THE CONSENT AND COOPERATION OF OUR BOARD OF DIRECTORS AND
of our organizational documents and Delaware law may deter or prevent a takeover
attempt, including a takeover attempt in which the potential purchaser offers
pay a per share price greater than the current market price of our common stock.
Under the terms of our certificate of incorporation, our Board of Directors
the authority, without further action by the stockholders, to issue shares
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions of such shares. The ability to issue shares of
preferred stock could tend to discourage takeover or acquisition proposals
supported by our current Board of Directors. In addition, we are subject to
Section 203 of the Delaware General Corporation Law, which restricts business
combinations with some stockholders once the stockholder acquires 15% or more
our common stock.
Related to Our Securities
IN OUR COMMON STOCK HAS BEEN LIMITED, SO INVESTORS MAY NOT BE ABLE TO SELL
MANY OF THEIR SHARES AS THEY WANT AT PREVAILING PRICES.
our common stock are traded on the OTC Bulletin Board. Approximately 4,864
shares were traded on an average daily trading basis for the twelve (12) months
ended December 31, 2007. If limited trading in our common stock continues,
may be difficult for investors once and if the securities are registered, to
sell the securities acquired by them. Also, the sale of a large block of our
common stock could depress the market price of our common stock to a greater
degree than a company that typically has a higher volume of trading of its
MARKET PRICE OF OUR COMMON STOCK MAY BE HIGHLY VOLATILE, WHICH MAY LEAD TO
LAWSUITS AGAINST US.
common stock is currently traded on the OTC Bulletin Board under the symbol
"CMHM". The quotation of our common stock on the OTC Bulletin Board does not
assure that a meaningful, consistent and liquid trading market currently exists,
and in recent years such market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many companies
like ours. Our common stock is thus subject to this volatility. Sales of
substantial amounts of our common stock, or the perception that such sales
occur, could adversely affect prevailing market prices of our common
trading price of our common stock could also be subject to wide fluctuations
response to quarter-to-quarter variations in our operating results,
announcements of new contracts, cancellations of existing contracts or new
acquisitions by us or our competitors, changes in financial estimates by
securities analysts or other events or factors. When the market price of a
company's stock drops significantly, stockholders often institute securities
class action lawsuits against that company. A lawsuit against us could cause
to incur substantial costs and could divert the time and attention of our
management and other resources.
ACTIVE AND VISIBLE TRADING MARKET FOR OUR COMMON STOCK MAY NOT DEVELOP.
predict whether an active market for our common stock will develop in the
future. In the absence of an active trading market:
may have difficulty buying and selling or obtaining market
visibility for our common stock may be limited; and
lack of visibility for our common stock may have a depressive effect
the market price for our common stock.
Bulletin Board is an unorganized, inter-dealer, over-the-counter market that
provides significantly less liquidity than NASDAQ, and quotes for stocks
included on the OTC Bulletin Board are not listed in the financial sections
newspapers, as are those for the NASDAQ Stock Market. The trading price of
common stock is expected to be subject to significant fluctuations in response
to variations in quarterly operating results, changes in analysts' earnings
estimates, announcements of innovations by us or our competitors, general
conditions in the industry in which we operate and other factors. These
fluctuations, as well as general economic and market conditions, may have a
material or adverse effect on the market price of our common stock.
COMMON STOCK IS SUBJECT TO, AND OUR ADDITIONAL FINANCING REQUIREMENTS COULD
RESULT IN, DILUTION TO EXISTING STOCKHOLDERS.
common stock is subject to dilution from shares reserved for issuance.
Additional financings which we may require have and may in the future be
obtained through one or more transactions which have diluted or will dilute
(either economically or in percentage terms) the ownership interests of our
stockholders. Further, we may not be able to secure such additional financing
terms acceptable to us, if at all. We have the authority to issue additional
shares of common stock and preferred stock, as well as additional classes or
series of ownership interests or debt obligations which may be convertible
any one or more classes or series of ownership interests. The issuance of
additional warrants or options, and the exercise of such warrants or options,
may also cause further dilution of the ownership interests of our
STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR COMMON
Commission has adopted regulations which generally define a "penny stock" to
any equity security that has a market price of less than $5.00 per share or
exercise price of less than $5.00 per share, subject to certain exceptions.
result, our common stock, which qualifies as "penny stock", is subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
rules require the delivery, prior to the transaction, of a risk disclosure
document mandated by the Commission relating to the penny stock market. The
broker-dealer must also disclose the commission payable to both the
broker-dealer and the registered representative, current quotations for the
securities and, if the broker-dealer is the sole market maker, the broker-dealer
must disclose this fact and the broker-dealer's presumed control over the
market. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell our securities and may affect
ability of investors to sell our securities in the secondary market and the
price at which such purchasers can sell any such securities.
should be aware that, according to the Commission, the market for penny stocks
has suffered in recent years from patterns of fraud and abuse. Such patterns
of the market for the security by one or a few broker-dealers that
often related to the promoter or issuer;
of prices through prearranged matching of purchases and sales and
and misleading press releases;
room" practices involving high pressure sales tactics and unrealistic
price projections by inexperienced sales persons;
and undisclosed bid-ask differentials and markups by selling
wholesale dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
inevitable collapse of those prices with consequent investor
of penny stocks may have certain legal remedies available to them in the event
the obligations of the broker-dealer from whom the penny stock was purchased
violates or fails to comply with the above obligations or in the event that
other state or federal securities laws are violated in connection with the
purchase and sale of such securities. Such rights include the right to rescind
the purchase of such securities and recover the purchase price paid for them.
Application of these penny stock regulations to our common stock could adversely
affect the market liquidity of the shares, which in turn may affect the ability
of holders of our common stock to resell the stock.
AUTHORIZED SHARES OF OUR COMMON STOCK AVAILABLE FOR ISSUANCE MAY ADVERSELY
AFFECT THE MARKET.
authorized to issue 40,000,000 shares of common stock and 5,000,000 shares
preferred stock. As of December 31, 2007, there are 11,943,141 shares of common
stock and no shares of preferred stock issued and outstanding. However, the
total number of shares of common stock issued and outstanding does not include
shares reserved for issuance upon the exercise of outstanding options or
warrants or shares reserved for issuance under our 2007 Stock Option Plan (the
"Stock Option Plan"). In addition, under most circumstances, our Board of
Directors has the right, without stockholder approval, to issue authorized
unissued and nonreserved shares of our common stock. If all of these shares
issued, it would dilute the existing stockholders and may depress the price
our common stock.
December 31, 2007, we had outstanding warrants to purchase 1,380,
shares of common stock, exercisable at $0.30 per share, and expiring
from the grant date, and warrants to purchase 500,000 shares of common stock,
exercisable at $2.50 per share, expiring 5 years from the grant date, all of
which were issued to investors in the
Further, we issued warrants to purchase 300,000 shares of common stock to the
placement agent in the
exercise price equal to $2.75 per share expiring 5 years from the grant date
warrants to purchase 225,000 shares of common stock exercisable at $0.30 per
share as converted, expiring October 24, 2010 and were issued by Pace in 2005.
In addition, the Board of Directors and our stockholders have approved the
Option Plan which reserves up to 1,600,000 shares of our common stock for
issuance under its terms, all of which have been authorized for issuance at
exercise prices of $2.01 and $3.30 per share, which the Board deemed to be
fair value at the time such options were awarded
of Directors has the authority, without stockholder approval, to create and
issue additional stock options, warrants and one or more series of preferred
stock and to determine the voting, dividend and other rights of the holders
such preferred stock. Depending on the rights, preferences and privileges
granted when the preferred stock is issued, it may have the effect of delaying,
deferring or preventing a change in control without further action by the
stockholders, may discourage bids for our common stock at a premium over the
market price of the common stock and may adversely affect the market price
and voting and other rights of the holders of our common stock. As indicated
above, no shares of preferred stock are currently outstanding.
extent shares of our common stock or preferred stock are issued, or options
warrants are exercised, investors in our securities will experience further
dilution and the presence of such derivative securities may make it more
difficult to obtain any future financing. In addition, in the event any future
financing should be in the form of, or be convertible into or exchangeable
equity securities, upon the issuance of such equity securities, investors may
experience additional dilution.
ELIGIBLE FOR FUTURE SALE MAY ADVERSELY AFFECT THE MARKET.
addition, from time to time, certain of our stockholders may be eligible to
all or some of their shares of common stock by means of ordinary brokerage
transactions in the open market pursuant to Rule 144, promulgated under the
Securities Act of 1933, as amended, subject to certain limitations.
Approximately 3,147,207 shares held for more than 6 months by non-affiliates
be available for public sale without regard to volume limitations and by means
of ordinary brokerage transactions in the open market pursuant to Rule
general, pursuant to Rule 144, after satisfying a six-month holding period:
affiliated stockholder (or stockholders whose shares are aggregated) may, under
certain circumstances, sell within any three-month period a number of securities
which does not exceed the greater of 1% of the then outstanding shares of common
stock or the average weekly trading volume of the class during the four calendar
weeks prior to such sale and (ii) non-affiliated stockholders may sell without
such limitations, provided we are current in our public reporting obligations.
Rule 144 also permits the sale of securities by non-affiliates that have
satisfied a one-year holding period without any limitation or restriction.
substantial sale of our common stock pursuant to Rule 144 or pursuant to any
resale prospectus may have a material adverse effect on the market price of
DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR COMMON STOCK IN THE FORESEEABLE
currently intend to retain all future earnings, if any, to finance our current
and proposed business activities and do not anticipate paying any cash dividends
on our common stock in the foreseeable future. We may also incur indebtedness
the future that may prohibit or effectively restrict the payment of cash
dividends on our common stock. If we determine that we will pay dividends to
holders of our common stock, there is no assurance or guarantee that such
dividends will be paid on a timely basis.
December 31, 2007, we had leases for the following office facilities.
Maryland. In December 2007, we entered into a five-year (5) office lease
agreement for approximately 6,668 square feet of office space to house our
executive and administrative offices at an annual rent of $131,693 beginning
February 2008 and increasing to $148,222 in the final year of the lease, which
expires on February 28, 2013, subject to a five-year renewal option.
Maryland. In November, 2004, we entered into an office lease agreement for
approximately 2,424 square feet of office space at an annual rental of $29,088
for 2004, increasing to $32,738 in the final year of the lease, which expires
November 30, 2009, subject to a 5-year renewal option.
currently involved in the following legal proceedings:
Courtillet, et al. v. Stephen Goldberg, MD, et al.
Courtillet has brought a wrongful death action against us, 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 was filed in the Circuit Court for Charles County, MD.
case is in the middle of discovery and is scheduled for trial on July 14, 2008.
Currently, our previous insurer, National Fire and Marine, is providing a
defense in this action.
early 2005, the State of Maryland Board of Nursing ("BON") commenced an
investigation (is currently ongoing) 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 us whereby such employees
were not properly licensed. BON has acknowledged that it does not have
jurisdiction over our actions; however, BON has threatened to take disciplinary
action against ten (10) to twenty (20) of our current or former employees.
management has fully cooperated with BON and has implemented a number of changes
intended to address BON's stated concerns. To the best of our knowledge, BON
conducted all necessary employee interviews, and we are currently awaiting
next steps or actions relating to these employees.
Lynn Rhoderick, PR for the Estate of Michael Rutherford, Sr., et al. v. CONMED,
No. 06-2379 - This matter was brought in the Circuit Court for Frederick County,
Maryland. 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 us on behalf of Mr. Rutherford.
Our previous insurer, National Fire and Marine, is providing a defense of this
action. The case recently settled for $115,000.00, within our policy's limits.
L. Simms v. Steven R. Williams, et al.
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
he suffered injuries which were caused by negligent medical care provided by
while he was incarcerated in Dorchester County Detention Center. Mr. Simms
alleged that he did not receive adequate analgesic medication from us, as he
treated for an infectious disease. Our previous insurer, National Fire and
Marine is providing a defense in this action and retained Mr. Francis X. 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, a Motion for Summary Judgment.
The Motion was based on the failure of Mr. Simms to state a cause of action
which relief may be granted, and the failure to state a claim for violation
his 8th and 14th Amendment rights. The Court of Appeals for the Fourth Circuit
affirmed the dismissal of the 8
Amendment claim but reversed, in part, and reinstated, the 14
Amendment claim. The court granted Simms' request for appointment of Pro Bono
counsel on November 27, 2007. Pro Bono counsel Lawrence Quinn was appointed
December 11, 2007. The case will proceed to discovery and another possible
motion for summary judgment to dismiss the 14
L. Simms v. Steven R. Williams, et al.
Action No. WMN-07-2208. This claim was also brought in the United States
District Court for the District of Maryland. Derek Simms filed a complaint
asserting another 8th Amendment claim for deliberate indifference to his alleged
serious medical needs. This claim seems to be duplicative of the claim that
dismissed in the related case set forth above. The crux of the claim is that
Simms maintains his Anal Crohn's disease was not properly treated. We reported
this case to AIG on December 18, 2007 and AIG is currently investigating Simms'
claims. According to a letter dated February 15, 2008, AIG is providing a
defense in this action and retained Angela W. Russell from the law firm of
Wilson Elser Moskowitz Edelman & Dicker, LLP to serve as our defense counsel
in this matter. AIG has provided coverage subject to a full Reservation of
Rights while it is investigating Simms' claims. The matter is proceeding to
discovery. As of February 8, 2008, counsel for Mr. Simms has dismissed Dr.
Nurse Whitman and Warden Williams as defendants. Mr. Simms' deposition is now
scheduled for February 22, 2008.
Elizabeth Gildersleeve v. Carroll County et al
No. 06-C-07-048188. This claim was filed in the Circuit Court for Carroll
alleged claims for personal injury. The law firm of Cromwell & Unglesbee
represented the plaintiff but filed a motion to strike its appearance, dated
October 12, 2007. The plaintiff had ten days to notify the Circuit Court of
intention to proceed with a new attorney or without an attorney. According
Order of the Circuit Court dated December 5, 2007, the case was
Theodore Lee Sr. v. Cecil County Sheriff et al.
No. 07-C-07-000388. This case was filed in the Circuit Court for Carroll County,
Maryland on December 10, 2007. Lee filed a complaint alleging that he suffered
injuries which were caused by the denial of medical care. He also alleges that
he suffered physical and mental abuse by Cecil County Sheriff's Deputies. We
reported this case to AIG on January 16, 2008 and AIG is currently investigating
Lee's claims. We anticipate that AIG will provide a defense to us in this