1330487--4/7/2008--CHEM_RX

related topics

{regulation, government, change}

{stock, price, share}

{debt, indebtedness, cash}

{provision, law, control}

{system, service, information}

{acquisition, growth, future}

{condition, economic, financial}

{customer, product, revenue}

{cost, operation, labor}

{personnel, key, retain}

{stock, price, operating}

{investment, property, distribution}

{control, financial, internal}

Risks Related to Our Business and Operations Competition from other pharmacy service providers may reduce our profit margins. Our results of operations may suffer upon failure of delivery of products by our main suppliers or upon their bankruptcy, insolvency or other credit failure. We are dependent on our senior management team and our pharmacy professionals. Interruption of our information systems may adversely affect our operating results. The cost of compliance with Section 404 of the Sarbanes-Oxley Act may be substantial and if we fail to establish and maintain an effective system of internal controls, we may not be able to accurately report our financial results. Acquisitions, investments and strategic alliances that we have made or may make in the future may use significant resources, may be unsuccessful and could expose us to unforeseen liabilities. Certain members of our board of directors and senior officers own and control the entity from which we lease our headquarters in Long Beach, New York. Unionization of employees at our facilities could result in increased risk of work stoppages and high labor costs. Voting control by our executive officers, directors and other affiliates may limit your ability to influence the outcome of director elections or other matters requiring stockholder approval. Certain provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws could entrench our management team and delay or prevent an acquisition. These provisions could adversely affect the price of our common stock because purchasers cannot acquire a controlling interest. If the put options are exercised by the option holders, Jerry Silva, Steven Silva and their affiliates and family members may own a majority of our outstanding common stock. Risks Related to the Debt Financing The debt financing we did for the acquisition of B.J.K. resulted in substantial leverage. Our ability to service and refinance the debt may be limited, which could force us to reduce or delay capital expenditures or acquisitions, restructure our indebtedness or seek additional equity capital. Our ability to pay interest and principal on our debt will depend upon our future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, most of which are beyond our control. If we are obligated for any reason to repay our financing before the scheduled installment dates, we could deplete our working capital, if available, or may be required to raise additional funds. Our failure to repay the financing, if required, could result in legal action against us, which could materially harm our business. The loan agreement for the debt financing contains covenants that may significantly restrict our operations, which may negatively affect our ability to operate our business and limit our ability to take advantage of potential business opportunities. Our debt financing is subject to variable interest rates, which could cause our debt service obligations to increase significantly. If the outstanding warrants that we issued in our Initial Public Offering ("IPO") are not exercised in full, we may be forced to refinance the debt financing. Risks Related to the Institutional Pharmacy Industry Consolidation of managed care organizations and other third-party payors may reduce our profit margins. Change in payor mix due to the implementation of Medicare Part D may negatively affect our business. Reduction or discontinuance of rebates from pharmaceutical manufacturers may reduce our profitability. Changes in the federal upper payment limit for Medicaid reimbursement may reduce our profitability. Changes whereby negotiated pharmaceutical industry prices are determined by reference to average wholesale price could reduce reimbursements to us and hurt our profitability. Continuing government and private efforts to contain healthcare costs may reduce our future revenue. Healthcare reform could adversely affect the liquidity of our customers, which would have an adverse effect on their ability to make timely payments to us for our products and services. The changing U.S. healthcare industry and increasing enforcement environment may negatively impact our business. We and our customers are subject to extensive and costly government regulation and the failure to comply with applicable requirements could have a negative impact on our operations and could expose us to substantial sanctions. If we or our customers fail to comply with Medicare and Medicaid regulations, we may be subjected to penalties or loss of eligibility to participate in these programs. Federal and state medical privacy regulations may increase the costs of operations and expose us to civil and criminal sanctions. Risks Relating to Ownership of our Warrants If we are unable to maintain a current prospectus relating to the common stock underlying our warrants, our warrants may have little or no value and the market for our warrants may be limited. We may choose to redeem our outstanding warrants when a prospectus relating to the common stock issuable upon exercise of such warrants is not current and the warrants are not exercisable. Risks Relating To The Market For Our Securities If we are unable to obtain a listing of our securities on Nasdaq or any stock exchange, it may be more difficult for our stockholders to sell their securities. You will experience significant dilution if our outstanding warrants are exercised. If the put options held by certain stockholders are exercised, the value of our common stock may be depressed. The put option agreements may make it more difficult for us to obtain a listing for our common stock on Nasdaq or AMEX. If our stockholders who acquired their shares prior to our initial public offering exercise their registration rights, it may have an adverse effect on the market price of our common stock. Future sales of our common stock may depress the price of our common stock.

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1330487--4/7/2008--CHEM_RX_CORP