NOTE 7 — COMMITMENTS AND CONTINGENCIES

a. Leases:

We lease certain office space and equipment under leases expiring in 2012. The Tampa and Puerto Rico office leases contain annual escalation clauses and provisions for payment of real estate taxes, insurance, and maintenance and repair expenses. Total rental expense for all operating leases was approximately $642,000 and $631,000, respectively, for 2011 and 2010.

Future minimum payments under non-cancelable operating leases with initial or remaining terms of one year or more, consist of the following at December 31, 2011 (amounts in thousands):


2012	$	559
2013		367
2014		100

	$	1,026

b. Economic conditions and related risks, concentrations and uncertainties:

At December 31, 2011, we had a working capital deficiency of approximately $25.2 million, including $ 2.5 million of debt currently in default, and a stockholders' equity deficiency of approximately $16.7 million resulting from a history of operating losses. We expect that with our existing customer contracts, plus the addition of new contracts we are close to obtaining through our marketing efforts, the launch of our new pharmacy management programs, and the expected continuing financial support from our major stockholders and bond holders, that we will be able to improve our cash flows and operating results and sustain current operations over the next year. However, we do not currently maintain a line of credit or other financing arrangement with any financial institution and have not made any arrangements to obtain any additional financing but are looking at various alternative sources of financing if operations cannot support our ongoing plan. Nevertheless, there can be no assurance that we will be able to find such financing in amounts or on terms acceptable to us, if at all, or that we will be able to achieve profitable operations and positive operating cash flows in the near term. Although subject to the general economic conditions, risks and uncertainties discussed in the following paragraph, management believes that our current cash position plus the expected continued support of our major stockholders and bond holders will likely be sufficient to meet our current levels of operations, our ability to achieve our business objectives and continue as a going concern may be dependent upon the success of our plans to obtain sufficient debt or equity financing, and, ultimately, to achieve profitable operations and positive cash flows from operations during 2012.

The United States and other parts of the world have been experiencing a severe and widespread recession accompanied by, among other things, instability in the financial markets and reduced credit availability, and political uncertainty in the U.S. about the effects of prospective government action on healthcare, all of which are likely to continue to have far-reaching effects on economic activity for an indeterminate period. The effects and probable duration of these conditions on our future operations and cash flows, including our ability to obtain continued support from our major stockholders and bond holders cannot be estimated at this time.

We occasionally carry cash on deposit with financial institutions in excess of federally-insured limits, and the risk of losses related to such concentrations may be significant as a result of economic conditions discussed in the foregoing paragraph. The extent of a loss to be sustained as a result of uninsured deposits in the event of a future failure of a financial institution, if any, however, is not subject to estimation at this time.

In addition, our business is concentrated among a few major customer contracts as follows:

(1) We currently provide mental health, substance abuse, and pharmacy prescription drugs management services to approximately 206,000 members of a health plan in Puerto Rico on an at-risk basis pursuant to a contract that began in September 2010. The contract accounted for 67.9%, or $48.4 million and 36.3%, or $12.8 million, of our revenues for the 2011 and 2010, respectively. The contract has an initial two-year term with provision for automatic renewals for additional one year terms unless either party provides 90 days prior written notice of its intention not to renew the agreement. The contract is cancellable by the plan after the first year with prior written notice subject to a calculated termination fee. On March 5, 2012, we entered into an amendment with the health plan to extend the contract term to December 31, 2012 and increase the rate for pharmacy management services by approximately 11% effective January 1, 2012. The loss of this customer, without replacement by new business, would adversely affect our future financial results, and cash flows and jeopardize our ability to continue as a going concern.

(2) Since 2002, we have provided behavioral healthcare services on an at-risk and ASO basis to approximately 215,000 members of a health plan providing Medicaid and Medicare benefits. The contract accounted for 5.4%, or $3.8 million, and 11.1%, or $3.9 million, of our revenues for 2011 and 2010 respectively. See Note 12 "Subsequent Events."

c. Legal matters:

We are involved in several litigation matters described as follows.

(1) We are subject to a pending judgment of damages to a former director of approximately $1.3 million, plus a court award to the same former director of $582,000 as reimbursement of legal fees and payment of interest on the pending judgment. The judgment and award are under appeal, and motions for reconsideration by the Company are pending.

(2) A subsidiary is subject to a suit for trademark infringement, among other things, in connection with its proposal to obtain a managed behavioral healthcare services contract in Puerto Rico. The complaint is seeking monetary damages in the amount of $600,000 and certain injunctive relief. We believe the suit is without merit and intend to vigorously defend ourselves against the allegations asserted.

(3) In addition, we and a former customer are being sued for damages of approximately $1.7 million for allegedly unpaid claims for behavioral health professional services rendered in, 2007 and 2008. We filed a counterclaim for breach of a settlement agreement that we believed resolved many of the claims that are the subject of the complaint, which we therefore, now believe is without merit and are vigorously opposing.

During 2011, we made adjustments resulting in a net reduction to our aggregate provision for these matters by $0.5 million, offset by an equal reduction of general and administrative expense. Management believes that the remaining provision is adequate for the estimated probable minimum losses, including legal defense costs, to be incurred from these matters.

d. Employee retirement benefit plan:

We have a defined contribution plan qualified under Section 401(k) of the Internal Revenue Code, for the benefit of our eligible employees. Matching contributions are at management's discretion and were none in 2011 and $21,599 in 2010.

e. Employment agreement with Chief Executive Officer:

In accordance with the employment agreement between the Company and our CEO, Clark Marcus, we are obligated to pay to Mr. Marcus a total of approximately $8.3 million in base salary over the next five years. In addition, we will pay on his behalf approximately a total of $68,000 in health insurance premiums and $603,000 in life insurance premiums, also over the next five years. This compensation may, at our election, be accrued, in whole or in part, until such time as we receive financing and/or generate sufficient cash flows with which to pay Mr. Marcus his stated compensation, after the payment of our operating expenses.

In the event Mr. Marcus' employment is terminated without cause, or Mr. Marcus voluntarily terminates his employment within one year following a change in control, we will be obligated to pay to Mr. Marcus any accrued but unpaid bonuses and the total compensation which would have been paid to Mr. Marcus through five full years of compensation from the date of termination. Our total commitment to Mr. Marcus is not presently subject to reasonable estimation.

f. Letters of Credit:

In connection with an agreement with a new customer to provide mental health, substance abuse and pharmacy prescription drugs management services in Puerto Rico, we obtained a letter of credit from a bank for $4,000,000 to assure the customer of our compliance with our obligations under the agreement. Under such agreement, the customer may draw on all or part of the letter of credit under certain defined circumstances. Collateral for the letter of credit was provided by a major stockholder of the Company. If the client draws upon the letter of credit, we may become liable to the major stockholder for the amount of collateral accessed by the bank to fulfill its obligations under the letter of credit.

We also obtained a letter of credit in 2011 in the approximate amount of $1.9 million to collateralize two surety bonds that permit our appeal of judgments against us related to the matter described in paragraph c. (1) above.